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Please note that the Official Languages Act requires that government publications be available in both official languages.

In order to meet some of the requirements under this Act, the Commission's transcripts will therefore be bilingual as to their covers, the listing of CRTC members and staff attending the hearings, and the table of contents.

However, the aforementioned publication is the recorded verbatim transcript and, as such, is transcribed in either of the official languages, depending on the language spoken by the participant at the hearing.

 

 

 

 

 

 

 

              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 29, 2007                      Le 29 octobre 2007

 


 

 

 

 

Transcripts

 

In order to meet the requirements of the Official Languages

Act, transcripts of proceedings before the Commission will be

bilingual as to their covers, the listing of the CRTC members

and staff attending the public hearings, and the Table of

Contents.

 

However, the aforementioned publication is the recorded

verbatim transcript and, as such, is taped and transcribed in

either of the official languages, depending on the language

spoken by the participant at the public hearing.

 

 

 

 

Transcription

 

Afin de rencontrer les exigences de la Loi sur les langues

officielles, les procès‑verbaux pour le Conseil seront

bilingues en ce qui a trait à la page couverture, la liste des

membres et du personnel du CRTC participant à l'audience

publique ainsi que la table des matières.

 

Toutefois, la publication susmentionnée est un compte rendu

textuel des délibérations et, en tant que tel, est enregistrée

et transcrite dans l'une ou l'autre des deux langues

officielles, compte tenu de la langue utilisée par le

participant à l'audience publique.


               Canadian Radio‑television and

               Telecommunications Commission

 

            Conseil de la radiodiffusion et des

               télécommunications canadiennes

 

 

                 Transcript / Transcription

 

 

 

Review of regulatory framework for wholesale

services and definition of essential service /

Examen du cadre de réglementation concernant les services

de gros et la définition de service essentiel

 

 

 

 

BEFORE / DEVANT:

 

Konrad von Finckenstein           Chairperson / Président

Barbara Cram                      Commissioner / Conseillère

Andrée Noël                       Commissioner / Conseillère

Elizabeth Duncan                  Commissioner / Conseillère

Helen del Val                     Commissioner / Conseillère

 

 

 

 

ALSO PRESENT / AUSSI PRÉSENTS:

 

Marielle Giroux-Girard            Secretary / Secrétaire

Robert Martin                     Staff Team Leader /

Chef d'équipe du personnel

Peter McCallum                    Legal Counsel /

Amy Hanley                        Conseillers juridiques

 

 

 

 

HELD AT:                          TENUE À:

 

Conference Centre                 Centre de conférences

Outaouais Room                    Salle Outaouais

140 Promenade du Portage          140, Promenade du Portage

Gatineau, Quebec                  Gatineau (Québec)

 

October 29, 2007                  Le 29 octobre 2007

 


- iv -

 

           TABLE DES MATIÈRES / TABLE OF CONTENTS

 

 

                                                 PAGE / PARA

 

RESUMED:  BRENT MOONEY                           2380 /14397

RESUMED:  JOHN MACDONALD

RESUMED:  TERESA GRIFFIN-MUIR

RESUMED:  KELVIN SHEPPARD

RESUMED:  RON ROUT

RESUMED:  PAUL BRISBY

RESUMED:  LEE SELWYN

 

Cross-examination by TELUS                       2381 /14404

 

 

AFFIRMED:  DR. DEBRA ARON                        2466 /14962

AFFIRMED:  DR. DENNIS WEISMAN

AFFIRMED:  PROF. GLEN ROBINSON

AFFIRMED:  DR. ROBERT CRANDALL

 

Examination-in-chief by TELUS                    2466 /14966

Cross-examination by The Competition Bureau      2470 /15006

Cross-examination by MTS Allstream               2496 /15220

Cross-examination by Primus                      2567 /15717

Cross-examination by PIAC                        2593 /15914

Cross-examination by MTS Allstream               2614 /16049

Cross-examination by Cybersurf                   2648 /16272

Cross-examination by Xittel                      2684 /16484

 

 

 SEQ CHAPTER \h \r 1AFFIRMED:  DR. KEVIN HICKEY                      2697 /16556

AFFIRMED:  TED CHISLETT

AFFIRMED:  JOE BOUTROS

RESUMED:  DR. LEE SELWYN

 

Examination-in-chief by Primus                   2697 /16560

Cross-examination by The Companies               2698 /16577

 

 


- v -

 

              EXHIBITS / PIÈCES JUSTIFICATIVES

 

 

No.                                              PAGE / PARA

 

TELUS-5       Ofcom - Valuing copper access -   2382 /14418

              Final Statement - Date of

              publication: 18 August 2005

 

MTS-15        List re: (Facilities-Based)       2459 /14913

              Parties' pre-hearing evidence on

              the Impact of the CDN Decision

              on Facilities Construction

              Construction or Capital

              Expenditure Programs

 

CRTC-6A       CRTC Undertaking register of      2459 /14913

              CRTC version updated 29-10-2007

 

BUREAU‑6      Article by Robert W. Crandall     2496 /15210

              entitled: Competition and Chaos,

              U.S. Telecommunications since

              the 1996 Telecom

 

BUREAU‑7      Topics in Economic Analysis &     2496 /15210

              Policy, Volume 4, Issue 1, 2004,

              Article 14 re: Do Unbundling

              Policies Discourage CLEC

              Facilities-Based Investment

 

MTS‑16        Alternate Scenario 1 re:          2518 /15396

              Significant Price Increase -

              Modest Demand Increase due to

              reduced ILEC incentives to

              innovate & Alternate Scenario 2

              re: Price Decrease - Demand

              Increase due to increased

              competition and innovation

 

CYBERSURF-7   Excerpt from the Communications   2638 /16204

              Act of 1934

 

 


                 Gatineau, Quebec / Gatineau (Québec)

‑‑‑ Upon resuming on Monday, October 29, 2007

    at 0805 / L'audience reprendre le lundi

    29 octobre 2007 à 0805

1LISTNUM 1 \l 1 \s 43964396            THE CHAIRPERSON:  Madam Secretary, who do we have this morning?

1LISTNUM 1 \l 14397            THE SECRETARY:  We have this morning the TELUS Panel cross‑examining MTS.

RESUMED:  BRENT MOONEY

RESUMED:  JOHN MACDONALD

RESUMED:  TERESA GRIFFIN‑MUIR

RESUMED:  KELVIN SHEPPARD

RESUMED:  RON ROUT

RESUMED:  PAUL BRISBY

RESUMED:  LEE SELWYN

1LISTNUM 1 \l 14398            THE CHAIRPERSON:  Go ahead.

1LISTNUM 1 \l 14399            MR. LOWE:  Thank you, sir.

1LISTNUM 1 \l 14400            John Lowe on for TELUS.  With me is Dr. Levine.

1LISTNUM 1 \l 14401            Mr. Chairman, I have no questions for Dr. Selwyn today.  I would like to reserve the right to talk to him on the Primus Panel.

1LISTNUM 1 \l 14402            THE CHAIRPERSON:  Okay.


1LISTNUM 1 \l 14403            MR. LOWE:  We will move along a little quicker than I originally thought when I provided my time estimates.

EXAMINATION / INTERROGATOIRE

1LISTNUM 1 \l 14404            MR. LOWE:  Mr. Brisby, you assisted MTS Allstream in its telecom policy review submission, didn't you?

1LISTNUM 1 \l 14405            MR. BRISBY:  That's correct, yes.

1LISTNUM 1 \l 14406            MR. LOWE:  And that was on August 15, 2005, subject to check?

1LISTNUM 1 \l 14407            MR. BRISBY:  That sounds correct, yes.

1LISTNUM 1 \l 14408            MR. LOWE:  And that was right around the time of the Ofcom strategic review, wasn't it?

1LISTNUM 1 \l 14409            MR. BRISBY:  The Ofcom review was ongoing at that time, yes.

1LISTNUM 1 \l 14410            MR. LOWE:  Sorry, was what?

1LISTNUM 1 \l 14411            MR. BRISBY:  The Ofcom review was ongoing at that time, yes.

1LISTNUM 1 \l 14412            MR. LOWE:  Thank you.

1LISTNUM 1 \l 14413            Perhaps we could turn to Tab 11 of the book of documents, which you should have.  This is a document from  Ofcom, entitled "Valuing Copper Access".  It is dated August 18, 2005.

1LISTNUM 1 \l 14414            Do you have that?

1LISTNUM 1 \l 14415            MR. BRISBY:  I have that, yes.


1LISTNUM 1 \l 14416            MR. LOWE:  I would like to turn to paragraph 1.3 of the Summary.

1LISTNUM 1 \l 14417            THE SECRETARY:  Please record this document as Exhibit No. 5 for TELUS.

1LISTNUM 1 \l 14418            MR. LOWE:  Thank you.

EXHIBIT TELUS‑5:  Ofcom ‑ Valuing copper access ‑ Final Statement ‑ Date of publication: 18 August 2005

1LISTNUM 1 \l 14419            MR. LOWE:  In the last part of paragraph 1.3 it says:


"Ofcom does not believe the cable companies will significantly increase their coverage in the near future.  This means that for a large number of U.K. homes and businesses, BT is the only provider of local access to them and that this is unlikely to change in the near future.  This lack of effective competition means that it is important to ensure that the price that other companies, and ultimately consumers, pay for using BT's network is not too high."

1LISTNUM 1 \l 14420            Was the cable coverage in the U.K. at the time this was written about 45 per cent?

1LISTNUM 1 \l 14421            MR. BRISBY:  At this time digital broadband enabled cable was approximately 45 per cent and non‑digital solely TV enabled cable would have covered an extra 5 per cent.

1LISTNUM 1 \l 14422            So yes, 45 to 50 per cent sounds about right.

1LISTNUM 1 \l 14423            MR. LOWE:  Thank you.

1LISTNUM 1 \l 14424            Then turning to Tab 14, sir ‑‑ and this is an Ofcom 2007 report.  Do you have it?

1LISTNUM 1 \l 14425            MR. BRISBY:  I have that.

1LISTNUM 1 \l 14426            MR. LOWE:  We have extracted page 51 from this report.  In the second paragraph under the heading "Digital Cable" it says ‑‑ and this is the second sentence:

"The cable platform has less extensive coverage than either satellite or terrestrial television; 45 per cent versus 98 per cent and 73 per cent."

1LISTNUM 1 \l 14427            Do you see that?

1LISTNUM 1 \l 14428            MR. BRISBY:  Yes.


1LISTNUM 1 \l 14429            MR. LOWE:  So we are still looking at about 45 per cent coverage in the U.K.?

1LISTNUM 1 \l 14430            MR. BRISBY:  Yes, the data are pretty much unchanged.  So Ofcom's view that further network build was unlikely has in fact transpired at this time, yes.

1LISTNUM 1 \l 14431            MR. LOWE:  Thank you.

1LISTNUM 1 \l 14432            Then further in the paragraph it says:

"It was the first to pioneer dual play services which bundled fixed line telephony and television subscription services."

1LISTNUM 1 \l 14433            Do you see that?

1LISTNUM 1 \l 14434            MR. BRISBY:  Yes, I see that.

1LISTNUM 1 \l 14435            MR. LOWE:  Is it the case that some U.K. cable companies that pass homes only provide telephony service and don't also provide broadcasting service?

1LISTNUM 1 \l 14436            MR. BRISBY:  Some customers will choose only to buy telephony services from the cable company.  Some will choose to buy a bundle and indeed some will choose just to buy cable TV.

1LISTNUM 1 \l 14437            MR. LOWE:  What are the rough percentages of people who would just buy telephony?


1LISTNUM 1 \l 14438            MR. BRISBY:  I don't have those data, I'm afraid.

1LISTNUM 1 \l 14439            MR. LOWE:  Picking up on your observation ‑‑ and I think you said it's trite that what works in one market might not work in another ‑‑ perhaps we could turn to Tab 10.

1LISTNUM 1 \l 14440            This is a press release entitled "EU Considers Telecom Super Regulator".  I would like to turn you to the second page, if I could.

1LISTNUM 1 \l 14441            MR. BRISBY:  I see the document.  I'm not exactly sure what the source of the document is.

1LISTNUM 1 \l 14442            Is it a press release or a press article?

1LISTNUM 1 \l 14443            MR. LOWE:  It's a press article.

1LISTNUM 1 \l 14444            MR. BRISBY:  Okay.  And I wasn't sure what it was a press article from.

1LISTNUM 1 \l 14445            MR. LOWE:  The publication?

1LISTNUM 1 \l 14446            MR. BRISBY:  Yes.  I saw the exhibit and I read it, but I couldn't exactly see where it was sourced from.

1LISTNUM 1 \l 14447            I'm happy to answer questions about it.  I was just interested.


1LISTNUM 1 \l 14448            MR. LOWE:  No, that's fair enough.  I just don't have that information handy, but we can probably get that and put it on the record as part of the exhibit list, if it's helpful.

1LISTNUM 1 \l 14449            On page 2 what I was interested in was this quote from the European Commissioner of Telecommunications, Viviane Reding.  This is the fourth‑last paragraph and she is reported to say:

"Functional separation will be out of the question in companies where effective competition for infrastructure already exists."

1LISTNUM 1 \l 14450            Do you see that?

1LISTNUM 1 \l 14451            MR. BRISBY:  I do see that, yes.

1LISTNUM 1 \l 14452            MR. LOWE:  "But where effective

infrastructural competition has little prospect of taking root over the medium to long term, national regulators could, in close agreements with the Commission, make use of this new remedial measure."

1LISTNUM 1 \l 14453            Do you see that?

1LISTNUM 1 \l 14454            MR. BRISBY:  I see that as well.  I think it is an interesting quotation, isn't it.

1LISTNUM 1 \l 14455            MR. LOWE:  Does that sound like something that the European Commissioner might say?


1LISTNUM 1 \l 14456            MR. BRISBY:  I don't know.  I'm seeing her on Wednesday.  I'll ask her.

‑‑‑ Laughter / Rires

1LISTNUM 1 \l 14457            MR. BRISBY:  I think the interesting piece here is what this phrase "effective competition for infrastructure" means.

1LISTNUM 1 \l 14458            In the countries that have looked at functional separation, it has obviously been looked at in the U.K. and it has been implemented in the U.K.  The U.K. by European standards has fairly high levels of cable penetration, levels of homes passed by digitally enabled cable; other countries in Europe not so much.

1LISTNUM 1 \l 14459            A country like The Netherlands, for example, is unusual.  It has more cable coverage than the U.K.

1LISTNUM 1 \l 14460            In The Netherlands they looked very hard at functional separation ‑‑ well, they looked at functional separation and ultimately decided not to go for it.

1LISTNUM 1 \l 14461            They have done it in New Zealand as well, which is a country without much cable coverage.

1LISTNUM 1 \l 14462            But the U.K. is kind of in the middle and, of course, it is important to note that functional separation and the Offcom measures applied equally in areas with cable coverage and in areas without.


1LISTNUM 1 \l 14463            MR. LOWE:  Well, maybe we could flip to Tab 13, which is a press release of the European Commission, and it is entitled "Two‑speed broadband:  Europe underlines regulatory problems to be addressed through reform."

1LISTNUM 1 \l 14464            Do you see that?

1LISTNUM 1 \l 14465            MR. BRISBY:  I see that, yes.

1LISTNUM 1 \l 14466            MR. LOWE:  And it starts out in the bolded headnote, second sentence:

"Lack of competition and regulatory weaknesses are cited as the main obstacles to broadband growth." (As read)

1LISTNUM 1 \l 14467            And then it goes down, I think, to your point in the third last paragraph, last sentence:

"In the best performing countries, Denmark (37.2 percent) and the Netherlands (31 percent), roughly one‑third or more of the population has broadband with a substantial proportion using an infrastructure other than the incumbents." (As read)


1LISTNUM 1 \l 14468            And that is your point, that the Netherlands has more cable coverage than the U.K. and they have that head‑to‑head infrastructure competition?

1LISTNUM 1 \l 14469            MR. BRISBY:  Well, that is not my point exactly.  The Netherlands, of course, has benefited from regulation of local loop unbundling as well.  In fact, they have benefited from ‑‑ so they have therefore benefited from multi‑platform competition.

1LISTNUM 1 \l 14470            I think everyone thinks that lots and lots of competing access networks is a great idea.  It is a question of how realistic it is to expect people to build them.

1LISTNUM 1 \l 14471            So the Netherlands, for example, which has pretty high population density, I think certainly substantially higher than Canada, probably quite a lot higher than the U.K., does have quite high cable coverage but it has benefited also from competition through local loop unbundling as well.

1LISTNUM 1 \l 14472            MR. LOWE:  Well, in the U.K., has BT made any movements towards bringing fiber to the home yet?


1LISTNUM 1 \l 14473            MR. BRISBY:  Yes, they have built out in Ebbsfleet and Kent, which will deliver fiber to the premises to something like ‑‑ I am talking off the top of my head but I think it is something like 20,000 premises there.

1LISTNUM 1 \l 14474            MR. LOWE:  And those are new areas, not existing areas?

1LISTNUM 1 \l 14475            MR. BRISBY:  That is a new development, yes.

1LISTNUM 1 \l 14476            MR. LOWE:  Yes.

1LISTNUM 1 \l 14477            And then perhaps you could turn to Tab 12, which is Dr. Crandall's evidence.

‑‑‑ Pause

1LISTNUM 1 \l 14478            MR. BRISBY:  This is the TELUS supplementary material; is that right?

1LISTNUM 1 \l 14479            MR. LOWE:  That is right and it is page 13 I was interested in.

1LISTNUM 1 \l 14480            MR. BRISBY:  Just bear with me while I rearrange my papers slightly.

1LISTNUM 1 \l 14481            Page ‑‑ which one, sorry?

1LISTNUM 1 \l 14482            MR. LOWE:  Thirteen.

1LISTNUM 1 \l 14483            MR. BRISBY:  Yes, I have that.

1LISTNUM 1 \l 14484            MR. LOWE:  And paragraph 28:

"Rather than increase its spending on its network significantly, BT has recently announced a $2.5 billion pound buyback of its stock over the next two years." (As read)


1LISTNUM 1 \l 14485            Do you see that?

1LISTNUM 1 \l 14486            MR. BRISBY:  Yes, I see that.

1LISTNUM 1 \l 14487            MR. LOWE:  And is that stock buyback program of BT still going on?

1LISTNUM 1 \l 14488            MR. BRISBY:  I don't know about the stock buyback program, I am afraid.

1LISTNUM 1 \l 14489            MR. LOWE:  All right.  Well then, in your evidence on page 12, and this is your original evidence, and it is the second sentence, and I am just trying to clarify something.  It says:

"We understand that in Canadian price‑setting exercises an allowance is made for a 'profit' at 15 percent." (As read)

1LISTNUM 1 \l 14490            I was wondering where you gained that understanding, that under the Canadian price‑setting exercise there is a profit at 15 percent.

1LISTNUM 1 \l 14491            MR. BRISBY:  Well, I certainly don't claim to be an expert on Canadian regulation directly.  I gained that knowledge through my discussions with MTS Allstream.

1LISTNUM 1 \l 14492            MR. LOWE:  Oh! So the company would have provided you with that information?

1LISTNUM 1 \l 14493            MR. BRISBY:  That is right.

1LISTNUM 1 \l 14494            MR. LOWE:  Thank you.


1LISTNUM 1 \l 14495            Well, with that, perhaps I could turn to the company witnesses.  Thank you, Mr. Brisby.

1LISTNUM 1 \l 14496            MR. BRISBY:  Thank you.

1LISTNUM 1 \l 14497            MR. LOWE:  Good morning, panel.  We will start with some meet‑and‑greet questions.

1LISTNUM 1 \l 14498            I provided with you under Tab 15 some equity research on MTS.

1LISTNUM 1 \l 14499            Do you have that?

1LISTNUM 1 \l 14500            MR. MOONEY:  Yes.

1LISTNUM 1 \l 14501            MR. LOWE:  Just to kind of get a sense of who you are, MTS has a market cap of about $3.2 billion; is that right?

1LISTNUM 1 \l 14502            MR. MOONEY:  Yes.

1LISTNUM 1 \l 14503            MR. LOWE:  And then the enterprise business is about a quarter of that amount?

1LISTNUM 1 \l 14504            MR. MOONEY:  In terms of value, that could be right.  I am not sure.

1LISTNUM 1 \l 14505            MR. LOWE:  Okay.  Well, if we turn to page 22 of the document, Exhibit 17 ‑‑ this isn't a CRTC exhibit, it is just entitled Exhibit 17 in the document ‑‑ it has the consumer less wireless value at $1.7 billion, enterprise at $850 million and wireless at $1.239 billion.

1LISTNUM 1 \l 14506            Do you see that?


1LISTNUM 1 \l 14507            MR. MOONEY:  Yes, but just to be clear, this is an analyst document, it is not a document that is put out by our company.  It is based on whoever the author of the report's views are relative to our financial performance and what we do and what their prospects or their view of the prospects of the company going forward.

1LISTNUM 1 \l 14508            So I am not in a position to say that I agree or disagree with what this individual's views are on our valuation.

1LISTNUM 1 \l 14509            MR. LOWE:  No, and I am not trying to get it down to the penny but just rough and ready about a quarter of the asset value of MTS Allstream is the enterprise business; is that reasonable?

1LISTNUM 1 \l 14510            MR. MOONEY:  Well, I just said I am not sure I am prepared to say that.  That is what this report is saying.  I am prepared to say that that is what is on that page 22.

1LISTNUM 1 \l 14511            But in terms of the value, we look at it ‑‑ perhaps we look at it differently, that is all I am saying.

1LISTNUM 1 \l 14512            MR. LOWE:  Perhaps we could turn to page 2 of the document then and this is under the heading "Investment Thesis."


1LISTNUM 1 \l 14513            The heading is "FCF..." ‑‑ that is free cash flow, I take it ‑‑ "...generation and a hefty dividend."

1LISTNUM 1 \l 14514            Do you see that?

1LISTNUM 1 \l 14515            MR. MOONEY:  Sorry, just ‑‑ yes, on page ‑‑ sorry, which page?

1LISTNUM 1 \l 14516            MR. LOWE:  Page 2.

1LISTNUM 1 \l 14517            MR. MOONEY:  Page 2, yes.

1LISTNUM 1 \l 14518            MR. LOWE:  Right at the top of the page.

1LISTNUM 1 \l 14519            MR. MOONEY:  Yes.

1LISTNUM 1 \l 14520            MR. LOWE:  And is that still essentially the investment story in MTS or are you saying this is just the view of the analyst?

1LISTNUM 1 \l 14521            MR. MOONEY:  Yes.  I don't use the word "hefty" whenever I talk about our company under any sense.  That is this person's view of our dividend.

1LISTNUM 1 \l 14522            I would like to think that our dividend is reasonable and I would suggest if you want a good definition of our dividend you should talk to our shareholders.

1LISTNUM 1 \l 14523            MR. LOWE:  Thank you.

1LISTNUM 1 \l 14524            MR. MOONEY:  They would probably tell you it is very reasonable as well.

1LISTNUM 1 \l 14525            MR. LOWE:  Thanks.

1LISTNUM 1 \l 14526            And then maybe we could turn to page 12 and that has a bit of an analysis of Allstream.


1LISTNUM 1 \l 14527            Under the heading "Allstream was acquired in 2004 for $1.6 billion," do you see that?

1LISTNUM 1 \l 14528            MR. MOONEY:  Yes.

1LISTNUM 1 \l 14529            MR. LOWE:  And then it says that:

"MTS amalgamated three operating divisions, MTS Communications, MTS Media and Allstream Corp., to form a new company under the name MTS Allstream Inc." (As read)

1LISTNUM 1 \l 14530            And then below that:

"The Enterprise Solution Division operates under the Allstream brands nationally and is a leader in business and wholesale markets." (As read)

1LISTNUM 1 \l 14531            Do you see that?

1LISTNUM 1 \l 14532            MR. MOONEY:  Yes, I see that.

1LISTNUM 1 \l 14533            MR. LOWE:  I would like to just focus in on the Enterprise Solutions Division for a moment.

1LISTNUM 1 \l 14534            I take it that is ‑‑ the space the Enterprise Solutions Business is in is wholesale and enterprise?

1LISTNUM 1 \l 14535            MR. MOONEY:  Yes, wholesale, enterprise mid‑market.


1LISTNUM 1 \l 14536            MR. LOWE:  Okay.  And then it says in the paragraph above:

"Allstream continues to transition from legacy business issues." (As read)

1LISTNUM 1 \l 14537            It says:

"The company currently has a roughly 8‑10 percent market share across Canada but with a larger concentration of this in Toronto, roughly a 20 percent share." (As read)

1LISTNUM 1 \l 14538            Do you see that?

1LISTNUM 1 \l 14539            MR. MOONEY:  Yes, I see that.

1LISTNUM 1 \l 14540            MR. LOWE:  Does that sound about right or...?

1LISTNUM 1 \l 14541            MR. MOONEY:  Yes, that sounds about right.

1LISTNUM 1 \l 14542            MR. LOWE:  And the analysis probably would have gained that understanding through discussions with the company?

1LISTNUM 1 \l 14543            MR. MOONEY:  Yes or on our quarterly investor call, something like that, sure.

1LISTNUM 1 \l 14544            MR. LOWE:  Okay.


1LISTNUM 1 \l 14545            And then under this heading, the second last paragraph on the page:

"The strategy going forward..." (As read)

1LISTNUM 1 \l 14546            And again, this is the enterprise business, I take it.

"...is for a more market‑focused strategy that highlights Allstream's high capacity network..." (As read

1LISTNUM 1 \l 14547            And that is this 24,000‑kilometre network, I take it.

"...and also its superior customer focus." (As read)

1LISTNUM 1 \l 14548            Do you see that?

1LISTNUM 1 \l 14549            MR. MOONEY:  Yes.

1LISTNUM 1 \l 14550            MR. LOWE:  And so the value proposition that you have is your network and your customer focus, right?


1LISTNUM 1 \l 14551            MR. MacDONALD:  It is much more than that.  I mean, certainly we would say it is a mix that includes the fact that we have we believe a very competitive service offering.  For example, we believe that we have got the best MPLS service offering in Canada which, in large measure, is due to the fact that we have been able to use CDN and other alternative access arrangements that actually support access to that network.

1LISTNUM 1 \l 14552            Along with that, we think we are more of a human scale company relative to the competition.  So we think that we can move a little bit more quickly in terms of responding to the various needs in the marketplace.  And at the end of the day, we like to use our people as probably the best measure in terms of differentiation.  And we measure and we ask our customers about that, and they think that we do have people that actually listen to what their problems are and develop solutions for those problems.

1LISTNUM 1 \l 14553            MR. LOWE:  Thank you.  And then turning the page to page 13, and the third last paragraph from the bottom it says:


"On December 13, 2006 MTS announced the completion of a strategic review and related business plans. As part of this review, MTS announced a key priority going forward will be to increase cash distributions to shareholders. More specifically, MTS plans to distribute 70 to 80 per cent of its annual distributable cash flow." (As Read)

1LISTNUM 1 \l 14554            Do you see that?

1LISTNUM 1 \l 14555            MR. MOONEY:  Yes.

1LISTNUM 1 \l 14556            MR. LOWE:  Now, this is clearly the analyst's view, but is that still the company's strategic plan?

1LISTNUM 1 \l 14557            MR. MOONEY:  As far as I know, it is, yes.

1LISTNUM 1 \l 14558            MR. LOWE:  Thank you.  And turning to page 14, this is the second paragraph from the bottom:

"Tax yields through to 2014 has a value in DCF."

And it says:

"With the acquisition of Allstream in June 2004 MTS has eliminated cash taxes on earnings as a result of utilizing tax losses from Allstream." (As Read)

1LISTNUM 1 \l 14559            And I take it that tax yield will be effective until 2014, is the current thinking in any event?  Is that right?


1LISTNUM 1 \l 14560            MR. MOONEY:  Well, I don't know if there is anything that has changed since recently on that.  But to my knowledge, yes, it was somewhere in the 2013, 2014 timeframe.

1LISTNUM 1 \l 14561            MR. LOWE:  Okay.  And ‑‑

1LISTNUM 1 \l 14562            MR. MOONEY:  I am sorry, what was that?

1LISTNUM 1 \l 14563            MR. LOWE:  No, that is fine, I was just waiting for you.

1LISTNUM 1 \l 14564            And all other things being equal, if you are not taxable you are less sensitive to the incentives in the income tax system to invest, isn't that right?

1LISTNUM 1 \l 14565            MR. MOONEY:  I wouldn't say that at all.  In fact, we are very aware of what is available under the Income Tax Act and we take advantage of it.  Specifically, if you are talking about R&D tax credits, we invest in a lot of things that are eligible for those tax credits, irrespective of our cash tax position.

1LISTNUM 1 \l 14566            MR. MacDONALD:  The other thing too, is when you look at the return to shareholders, either via dividends or share buybacks.  The share buybacks are actually funded through discreet transactions such as the sale of our directory business, et cetera.


1LISTNUM 1 \l 14567            It has no impact on our capital expenditures relative to ‑‑ so, for example, running the enterprise operating division, if anything, my Cap‑ex over the past few years has gone up.  So there is nothing to do with saying that what we are doing is returning this money to the shareholders and starving for capital.  I don't see that at all.  As a matter of fact, we continue to invest in our core network in terms of new services.

1LISTNUM 1 \l 14568            And once again to reiterate, a large part of that investment is actually fuelled by virtue of the fact that we have cost effective access to our customers.  And as far as dividend policy, the dividend policy is dictated, to a large measure, by exactly what our shareholders expect relative to the risk profile of our company compared to alternative investment opportunities that they might have.


1LISTNUM 1 \l 14569            But to suggest that we are not spending money on network is not the reality.  And to suggest that we would take the money that was going to dividends or share buybacks and invest in network that was uneconomic, I mean, that does just doesn't hunt.  I mean, to take money that is being generated by the business and investing it in uneconomic approaches is not going to work.  I mean, we have tried that, we have invested $4 billion in our history in trying to do that and trying to replicate the incumbent networks and that doesn't happen.

1LISTNUM 1 \l 14570            MR. LOWE:  All right.  Well, you see the tax‑free status until 2014 as an advantage then, it gives you more cash flow and you have more spending money, is that what you are saying?

1LISTNUM 1 \l 14571            MR. MacDONALD:  I wasn't commenting directly in terms of the tax status of the company.  It is part of the overall investment profile of the company in terms of whether we are paying taxes or not.  In terms of whether it constrains, we think it constrains our ability to invest in capital, absolutely not the case.

1LISTNUM 1 \l 14572            As a matter of fact, one of the things as we continue to invest in capital, we do generate the capital cost allowance and capital cost allowances, you know, we can actually use in terms of deferring taxes in the future as well, like everybody else does, like our competitors.

1LISTNUM 1 \l 14573            MR. LOWE:  Oh sure, sure.  And the depreciation, the CCA that you get from investing you can use it, but you can't use it until after 2014, right, so you ‑‑

1LISTNUM 1 \l 14574            MR. MacDONALD:  Yes, but you can use it though.


1LISTNUM 1 \l 14575            MR. LOWE:  You can use it eventually.  So it is not as sharp as an incentive?

1LISTNUM 1 \l 14576            MR. MacDONALD:  It is not as sharp.  But it doesn't, in terms of our decision to deploy capital and investing in network, I can't recall any decision that we have taken in terms of putting together a profile in terms of capital investment that would take that directly into account.

1LISTNUM 1 \l 14577            MR. LOWE:  So the tax tail doesn't wag the business in other words?

1LISTNUM 1 \l 14578            MR. MOONEY:  No, not at all, because basically the metric that everybody looks at in the telecommunications industry is the EBITDA metric, which is your operating cash flow before tax.  And it is out of that operating cash flow that you find your capital program.  So tax doesn't even come into the calculation.

1LISTNUM 1 \l 14579            MR. LOWE:  All right.  And so these ‑‑


1LISTNUM 1 \l 14580            MR. MOONEY:  Which is really one of the inconsistencies or one of the issues when you read a report like this.  You know, as Mr. MacDonald pointed out previously, the buyback program that is referred to in here was the result of a business review that was conducted by ‑‑ MTS started a couple of years ago that lead to the disposal of some non‑core assets that the company no longer needed and the decision was made to return that money to shareholders.

1LISTNUM 1 \l 14581            To my knowledge, it has been done at Bell and it has been done at TELUS in the past as well.  So I don't understand why it plays into this discussion at all.

1LISTNUM 1 \l 14582            MR. LOWE:  Well, on page 21 of the document, in the second‑last paragraph or even the middle of the paragraph, it says:

"Second, we value the Allstream EBITDA.."

as you say, that is the major metric for telecom investors,

"..at five times, which is a slight premium to valuations in the enterprise telco space which appear to be closer to 4.5 times currently.  However, we believe that MTS has some room on executing its strategy with Allstream to argue that a conservative multiple on 2008 EBITDA might not adequately reflect value." (As Read)

1LISTNUM 1 \l 14583            Do you see that?


1LISTNUM 1 \l 14584            MR. MacDONALD:  One of the issues, of course, when I read this is, and this is this analyst's opinion, as Mr. Mooney has said, I don't know who else they are referring to to end up with a comparable, because there is very few of us actually in this space.

1LISTNUM 1 \l 14585            You know, when I look at the number of folks outside from Bell and TELUS that actually could justify this kind of multiple I don't know who it would be.

1LISTNUM 1 \l 14586            MR. LOWE:  Well, first, does that multiple sound about right for this kind of business?

1LISTNUM 1 \l 14587            MR. MOONEY:  I would say that this multiple is this person's opinion.  I don't really want to comment on whether I agree with it or not, I don't know.  It is his opinion, I would have to understand how this person came up with that multiple.

1LISTNUM 1 \l 14588            MR. LOWE:  And then could you comment on whether it is a premium to others in the space or do you just say that you just don't know, you don't know what the comparables are ‑‑

1LISTNUM 1 \l 14589            MR. MOONEY:  You know, I don't know the basis that this individual who wrote this report came up with this multiple.  You know, perhaps if I sat and talked to the person then I could understand where they are coming from, but right now I don't.


1LISTNUM 1 \l 14590            MR. LOWE:  All right, that is fair enough.

1LISTNUM 1 \l 14591            MR. MacDONALD:  And it is somewhat speculative, because if you could find a pure play I suppose of the enterprise space you might have something that you could benchmark against.  But once again, there is not many of us left in the enterprise space.

1LISTNUM 1 \l 14592            MR. SHEPPARD:  I think I would suggest as well this is one analyst.  There is probably a dozen analysts and they all have their own views and a range, I am not sure what the range on the enterprise valuation is, but you would have to look at the full range and then probably some are high and some are low and you would have to form your own conclusion as an investor.


1LISTNUM 1 \l 14593            MR. LOWE:  All right.  Now, turning to tab 16, and this is moving onto the discussion of that Newfoundland cable facility that has been raised a couple of times in the proceeding.  And tab 16 is Decision 2005‑16, it is a CRTC decision issued back in March of 2005 before the TPR report came out, before the policy direction was issued.  And one of the main issues in that case was whether Aliant's submarine fibre optics line from Halifax to St. John's was an essential facility under the 97‑8 test.

1LISTNUM 1 \l 14594            And if you look at paragraph 29 of the decision it says:

"Call‑Net argued that Aliant Telecom's IX digital transport facility between Halifax and St. John's met all the conditions of an essential facility.." (As Read)

and then it goes on and it cites the three requirements.  Do you see that?

1LISTNUM 1 \l 14595            MR. MacDONALD:  Yes, we do.

1LISTNUM 1 \l 14596            MR. LOWE:  And that test set out by Call‑Net is essentially the test established by Commission in Decision 97‑8?

1LISTNUM 1 \l 14597            MS GRIFFIN‑MUIR:  Yes, that is correct.

1LISTNUM 1 \l 14598            MR. LOWE:  In paragraph 23 of the decision:

 "MTS Allstream supported Call‑Net's position that competitors would be unable to economically duplicate the facility in question, given the significant costs of construction and limited demand." (As Read)

1LISTNUM 1 \l 14599            Do you see that?

1LISTNUM 1 \l 14600            MR. MacDONALD:  Yes.


1LISTNUM 1 \l 14601            MR. LOWE:  And then paragraphs 48 and 49, the CRTC denied the application, they looked at other submarine builds and took the view that a new IX line would be economically feasible and they said that it is not an essential facility.  Do you see that?

1LISTNUM 1 \l 14602            MR. MacDONALD:  Yes, we do.  And, by the way, I still hold to the comments that we made in terms of it being not economic.

1LISTNUM 1 \l 14603            The circumstance under which the facility was built was unusual, insofar as you ended up with a situation where three companies actually came together along with a government subsidy that was quite significant to basically justify the expenditure.

1LISTNUM 1 \l 14604            MR. LOWE:  All right.  Well, let's flash forward then to 2007, today.

1LISTNUM 1 \l 14605            And I take it that a consortium of carriers and the Government of Newfoundland are going to pay some, what is it, $53‑million to build the line?

1LISTNUM 1 \l 14606            MR. MacDONALD:  The actual total ‑‑ the total build I believe is on the ‑‑ just through public documents.  Ron, maybe I can hand it over to you.


1LISTNUM 1 \l 14607            MR. ROUT:  Yeah.  The entire build, both the submarine cable and the terrestrial portions we understand is $82‑million of which 52‑, 53‑million was for the submarine portion alone.

1LISTNUM 1 \l 14608            MR. LOWE:  And then the Government of Newfoundland is buying an indefeasible right of use for 15‑million; is that the way the deal works on the submarine part of it?

1LISTNUM 1 \l 14609            MR. MacDONALD:  The government contributed to the tune of about $15‑million to that construction and in return for that, one of the benefits they get is I believe an IRU.

1LISTNUM 1 \l 14610            MR. ROUT:  Yes, that's right.

1LISTNUM 1 \l 14611            MR. LOWE:  All right.  And then do you have that press release, it's Tab 17, the Government of Newfoundland press release?

1LISTNUM 1 \l 14612            MR. MacDONALD:  Yes, we have it.

1LISTNUM 1 \l 14613            MR. LOWE:  And let me ask you first, is this an economic project for MTS Allstream?

1LISTNUM 1 \l 14614            MR. MacDONALD:  Relative to the prices we were paying to Aliant for leasing that facility, absolutely.

1LISTNUM 1 \l 14615            And, by the way, it gives you some indication of some of the difficulties that we're faced with in terms of looking at, you know, a more cost effective reach to 'The Rock', as we call it.


1LISTNUM 1 \l 14616            And I only wish, if you look at generalizing this kind of approach to the rest of the marketplace, that we would end up with a situation that in servicing the needs of our customers we coincidentally would have two other partners as well as government money to assist in the deployment of network.

1LISTNUM 1 \l 14617            MR. LOWE:  Well, let's talk about the government money for a moment.  And in the press release, this is a news release of the Government of Newfoundland dated August 27th, 2007, the third last paragraph:

"Based on an external independent assessment by EWA, it is conservatively estimated that the Province will recover its investment within five years through cost savings on current and future telecommunications contracts."  (As read)

1LISTNUM 1 \l 14618            Do you see that?

1LISTNUM 1 \l 14619            MR. MacDONALD:  Yeah.

1LISTNUM 1 \l 14620            MR. LOWE:  And so I don't think the Government of Newfoundland would agree with you that this was a subsidy?


1LISTNUM 1 \l 14621            MR. MacDONALD:  The government had a complex mix in terms of looking at their participation in this.  One of the issues that they had was a survivability issue, like a diversity in terms of there was some incidents that had occurred, unfortunately, in terms of the existing networks that was driving this.

1LISTNUM 1 \l 14622            There was also a concern that, you know, perhaps the prices were too high relative to the cost of accessing Newfoundland and perhaps that was constraining economic development.

1LISTNUM 1 \l 14623            They were getting a fair bit of pressure in terms of various services and about how they were priced in Newfoundland versus other areas.

1LISTNUM 1 \l 14624            And from our standpoint, we looked at simply the costs that we were paying to Aliant versus the opportunity to participate.

1LISTNUM 1 \l 14625            Now, if we were doing this individually, or Persona was doing it individually ‑‑ now East Link ‑‑ or Rogers was doing it individually, this would not have happened.

1LISTNUM 1 \l 14626            But it just so happened that we had the unique alignment to the stars that allowed us to actually participate, all four parties, in terms of getting it constructed.


1LISTNUM 1 \l 14627            And the interesting thing is that it seems that since it was constructed, in our just some recent negotiations with Aliant that the price points magically seem to have dropped on what the cost to get to Newfoundland actually has been.

1LISTNUM 1 \l 14628            Ron, maybe you could talk to that.

1LISTNUM 1 \l 14629            MR. ROUT:  Yeah, that's right.

1LISTNUM 1 \l 14630            You know, post ‑‑ even before the build is complete we've seen action that would suggest at least 20 per cent drop in the price for that route.

1LISTNUM 1 \l 14631            The other thing that's really important to us, I mean, the Newfoundland build for us was sort of, from our perspective, a bold and significant investment.

1LISTNUM 1 \l 14632            But I want to highlight another factor which is the importance for us going forward with this build for the people of Newfoundland and those, and the cities that we can now get much closer to is, again, the requirement for us to be able to get Ethernet and other accesses at the right cost point, because even with this investment we still need to be able to get access to Ethernet in order to provide service to these customers.

1LISTNUM 1 \l 14633            MR. LOWE:  Okay.  Well, just back to the Government of Newfoundland's perspective, Mr. MacDonald.


1LISTNUM 1 \l 14634            And I accept that there were these other considerations that they had about economic development, but still they looked at what the pay back was and they said, "Look, we're going to get a five‑year pay back over this, it's economic", didn't they?

1LISTNUM 1 \l 14635            MR. MacDONALD:  They expect that the existence of a competing build, and as I mentioned earlier is actually turning out to be the case, will result in lower prices on that particular route.

1LISTNUM 1 \l 14636            MR. LOWE:  All right.

1LISTNUM 1 \l 14637            MR. MacDONALD:  Now, but at the end of the day, when you look at the total volume of traffic that is actually originating and terminating in Newfoundland, is that this basically was an uneconomic build.  I mean I was involved, I worked at Aliant at the time when the link went in.  I mean, there was no additional requirement for capacity to the Island.

1LISTNUM 1 \l 14638            So, of the 50‑million bucks on the submarine cable in particular and the $80‑million in total, as to whether that represented a good economic deployment of investment resources, I'm not so sure that would have been the case.


1LISTNUM 1 \l 14639            The government on the other hand has a different set of requirements.  They anticipate that there is going to be lower pricing in terms of accessing Newfoundland and that will have all sorts of positive economic development benefits from their standpoint, perhaps more in terms of survivability, an alternative route to the Island.

1LISTNUM 1 \l 14640            All of those went into their decision, but I can't speak directly in terms of what their expectations are, I can only assume based on their particular quote.

1LISTNUM 1 \l 14641            MR. LOWE:  All right.  And, but what happened was a bunch of carriers got together and on the circumstances of the Aliant prices that were being charged, it was an economic investment with the Government of Newfoundland?

1LISTNUM 1 \l 14642            MR. MacDONALD:  Only in the context of looking at what we were paying.

1LISTNUM 1 \l 14643            MR. LOWE:  Yes, yes, yes.  Agreed.

1LISTNUM 1 \l 14644            And then, of course, now that there are two lines there, it's easier for other folks to get over to 'The Rock' too; isn't it?

1LISTNUM 1 \l 14645            MR. MacDONALD:  When you say easier, I'm not sure what you mean.

1LISTNUM 1 \l 14646            MR. LOWE:  Less expensive perhaps.


1LISTNUM 1 \l 14647            MR. MacDONALD:  Well, at the end of the day this is typically what happens, is that you end up with ‑‑ basically you price to the market.  So, a lot depends on upon how this ‑‑ it's still early days, actually the service I don't believe, Ron, is actually in operation quite yet.

1LISTNUM 1 \l 14648            MR. LOWE:  All right.  Now, I don't know if I really want to get mired down in this particular question, I'm just going to put it to you that if the CRTC had applied your test for an essential facility back in 2005, they probably would have declared the Aliant line to be an essential facility; right?

1LISTNUM 1 \l 14649            MR. MacDONALD:  Yeah, I think it was an essential facility and it is an essential facility.  It's not going to when the second route goes in place, but that's an uneconomic deployment of resources.

1LISTNUM 1 \l 14650            I don't know what it's bringing, aside from the fact that we now have a competitive route there that can result in lower prices in terms of developing a different array of network services, et cetera.

1LISTNUM 1 \l 14651            And this is our point, is that when we're looking at innovation in the telecom market space, I don't think this is moving the ball forward.

1LISTNUM 1 \l 14652            MR. LOWE:  Well, let's just go through the big picture, the steps here.


1LISTNUM 1 \l 14653            Step one, the CRTC is asked to declare the Aliant line an essential facility on the grounds that it's uneconomic to duplicate.  Step two, the CRTC denies the application.  Step three, the market comes forward with a build; right?

1LISTNUM 1 \l 14654            MR. MacDONALD:  That is ‑‑ well, I'm not sure that it all follows that particular way, but at the end of the day this is an uneconomic build and you have the convergence of four parties, including public money, to subsidize the deployment of an uneconomic facility that's driven by high prices.

1LISTNUM 1 \l 14655            MR. LOWE:  All right.  Well, you say it's an uneconomic facility, but it's economic for all the investors; isn't it?

1LISTNUM 1 \l 14656            MR. MacDONALD:  Only relative to the extremely high prices, exorbitant prices that were being charged by the incumbent.

1LISTNUM 1 \l 14657            MR. LOWE:  All right.  Well, I'm going to ‑‑

1LISTNUM 1 \l 14658            MR. MacDONALD:  That I used to work for, by the way, but...

1LISTNUM 1 \l 14659            MR. LOWE:  I'm going to end up doing it.  Did you price it?

‑‑‑ Laughter / Rires


1LISTNUM 1 \l 14660            MR. LOWE:  The CRTC holds true to the essential facilities test, the market finds a solution, plans get built, there's more opportunities for other folks to get in on the wholesale market.

1LISTNUM 1 \l 14661            Isn't the future friendly, Mr. MacDonald?

1LISTNUM 1 \l 14662            MR. MacDONALD:  But I wish ‑‑ I kind of wish you could generalize this.  I mean, if it turned out that for, you know, all of the various ‑‑ our access requirements across the country that there happened to be, you know, in going to, you know, whether it's retail outlets or bank branches, whether we happen to have, you know, multiple investors and government money that was supporting the deployment of last mile access into those facilities, I don't think I'd be sitting here.

1LISTNUM 1 \l 14663            MR. LOWE:  All right.  So, there's only so far we can take the parable of Newfoundland you say.  That's fair enough.

1LISTNUM 1 \l 14664            THE CHAIRPERSON:  If I understand you correctly, the Government of Newfoundland investment was incremental.  Without that 50‑million the line would not have been built?

1LISTNUM 1 \l 14665            MR. MacDONALD:  Well, the line was primed by Persona.

1LISTNUM 1 \l 14666            THE CHAIRPERSON:  Yes.

1LISTNUM 1 \l 14667            MR. MacDONALD:  And Rogers and ourselves were participants in this.


1LISTNUM 1 \l 14668            But, you know, thinking back to some of the deliberations ‑‑

1LISTNUM 1 \l 14669            THE CHAIRPERSON:  No, but as a former government lawyer, you know, normally government doesn't put in money unless it determines to its own satisfaction that this will not go forward without the government contribution.

1LISTNUM 1 \l 14670            MR. MacDONALD:  And I think that's a fair assessment.

1LISTNUM 1 \l 14671            THE CHAIRPERSON:  On its own it's not economic, and that is what you are saying here, that is what happened here.

1LISTNUM 1 \l 14672            MR. MacDONALD:  Yes, I think that's a fair assessment.

1LISTNUM 1 \l 14673            THE CHAIRPERSON:  Thank you.

1LISTNUM 1 \l 14674            MR. LOWE:  Well, on that point, did you ask TELUS if they wanted to invest in the line?

1LISTNUM 1 \l 14675            MR. MacDONALD:  It wasn't up to us to do the asking because Persona actually owns the facility, and so...

1LISTNUM 1 \l 14676            MR. LOWE:  Because they're the operator?

1LISTNUM 1 \l 14677            MR. MacDONALD:  Pardon me?

1LISTNUM 1 \l 14678            MR. LOWE:  They're the operator?

1LISTNUM 1 \l 14679            MR. MacDONALD:  That's correct.


1LISTNUM 1 \l 14680            MR. LOWE:  And do you know if TELUS was asked?

1LISTNUM 1 \l 14681            MR. MacDONALD:  I honestly don't know.  I know that TELUS was in that cross‑section obviously, but I'm not sure whether TELUS specifically was asked.

1LISTNUM 1 \l 14682            MR. LOWE:  All right.  Now, I'd like to turn now ‑‑

1LISTNUM 1 \l 14683            MS GRIFFIN‑MUIR:  But just in respect of that, the SFT referred to in this decision, that generates some million annually, TELUS actually got a different SFT because we did actually ask TELUS if they wanted to sublease on this SFT and Aliant offered them something better.

1LISTNUM 1 \l 14684            So, I think that had a lot to do with whether TELUS participated or not.

1LISTNUM 1 \l 14685            MR. LOWE:  And, so, are you saying you saw this SFT that TELUS got and you got miffed and you didn't invite them at the table ‑‑

1LISTNUM 1 \l 14686            MS GRIFFIN‑MUIR:  No, no, no, no.

1LISTNUM 1 \l 14687            MR. LOWE:  ‑‑ and they were on the other side of the candy store looking in, is that ‑‑


1LISTNUM 1 \l 14688            MS GRIFFIN‑MUIR:  No, actually what I'm saying is that when we ‑‑ because we are the company that was actually leasing the facilities under the SFT ‑‑ what we had decided to make it economic for us to lease was to sublease, which we did to Call‑Net, subsequently Rogers, but in the instance where we were actually negotiating with TELUS, Aliant approached them to make sure they did not sublease from us but leased from Aliant instead, so offered them something better.

1LISTNUM 1 \l 14689            MR. LOWE:  This is before the line was built?

1LISTNUM 1 \l 14690            MS GRIFFIN‑MUIR:  Absolutely, because it became less economic for us to continue if Aliant wasn't going to allow us to sublease as well.

1LISTNUM 1 \l 14691            MR. LOWE:  Well, it's a different story now, and if TELUS comes and wants to get on your new line, you are not going to say no, are you?  You are not going to hold it against TELUS, are you?

1LISTNUM 1 \l 14692            MR. MacDONALD:  Oh, no, no, absolutely.  I mean, one of the issues we have got is that TELUS buys precious little from us and we buy a huge amount from them.  If they were only willing to buy something from us, we would be more than willing to sell it.

1LISTNUM 1 \l 14693            MR. LOWE:  Well, you got something now.


1LISTNUM 1 \l 14694            So I would like to turn now to the direction, and it's Tabs 18, 19 and 20 of the binder, and also if you have handy your opening statement.  And I don't know if we will get into it, but a copy of the direction might come in handy, as well, and there is one in PIAC Exhibit No. 2.

‑‑‑ Pause

1LISTNUM 1 \l 14695            MR. LOWE:  Now, MTS Allstream was a major participant in the Telecom Policy Review process, right?

1LISTNUM 1 \l 14696            MS GRIFFIN‑MUIR:  Well, we were a participant, but it's nice to think we were major.

1LISTNUM 1 \l 14697            MR. LOWE:  Well, you filed a comprehensive submission and reply and you had expert evidence from Towerhouse Consulting and you had, I think, a Washington D.C. Lawyer to provide views on U.S. regulation.

1LISTNUM 1 \l 14698            Does that sound about right?

1LISTNUM 1 \l 14699            MS GRIFFIN‑MUIR:  Yes, that's correct.

1LISTNUM 1 \l 14700            MR. LOWE:  Thanks.  And that was May 15th, 2007 those submissions were filed...or I'm sorry, 2005 those submissions were filed.

1LISTNUM 1 \l 14701            MS GRIFFIN‑MUIR:  Right, okay.  Yes.


1LISTNUM 1 \l 14702            MR. LOWE:  Now, turning to Tab 19...and this is page 81 of your August 15th, 2005 submission to the Telecom Policy Review Panel, do you have that?

1LISTNUM 1 \l 14703            MS GRIFFIN‑MUIR:  Yes.

1LISTNUM 1 \l 14704            MR. LOWE:  You set out three objectives, and the second objective (b) was:

"To create and maintain conditions under which market forces can govern the provision of telecommunication services by fostering all forms of competition."  (As read)

1LISTNUM 1 \l 14705            Do you see that?

1LISTNUM 1 \l 14706            MS GRIFFIN‑MUIR:  Yes.

1LISTNUM 1 \l 14707            MR. LOWE:  And then at the bottom of the page, you say:

"In addition, the government should use its powers of direction to require the CRTC to adopt a policy that proactively and boldly implements these objectives without fear for what form competition will take as a result."  (As read)

1LISTNUM 1 \l 14708            Do you see that?


1LISTNUM 1 \l 14709            MS GRIFFIN‑MUIR:  Yes.  I think that's in reference to the fact that "form" meaning not only facilities‑based or end‑to‑end facilities based, not to try predetermine the nature that choice has brought to customers and innovation has brought to the market.

1LISTNUM 1 \l 14710            MR. LOWE:  And so you wanted the direction to say, "To create and maintain conditions under which market forces can govern by fostering all forms of competition", that's what you wanted to see in the direction?

1LISTNUM 1 \l 14711            MS GRIFFIN‑MUIR:  Well, that's what we proposed, yes.

1LISTNUM 1 \l 14712            MR. LOWE:  All right.  And it's fair to say that's not what came out of the Telecom Policy Review recommendations?

1LISTNUM 1 \l 14713            MS GRIFFIN‑MUIR:  Well, I'm not sure that's not what came out.  That's a little bit of a generalization.  There's a lot that came out.  Some of it we agreed with and some of it we didn't.


1LISTNUM 1 \l 14714            Certainly, the government wants to encourage competition and innovation, and certainly that's what the policy direction also says.  I guess the government also came out in the policy direction that was derived from the Telecom Panel Review they want a reliance on market forces, and I guess it's, in our opinion, a question of those market forces being competitive.

1LISTNUM 1 \l 14715            So it goes to the interpretation of what is meant by "market forces", and, in our view, that's competitive market forces.  So I wouldn't say in its totality that the panel report didn't ‑‑ the government didn't adopt recommendations that don't agree with what we are saying here.

1LISTNUM 1 \l 14716            MR. LOWE:  All right.  We can talk about this tomorrow, but it's just this "create and maintain conditions" part, I didn't see that in the TPR's proposed direction and I don't see that in the direction that was actually issued.

1LISTNUM 1 \l 14717            MS GRIFFIN‑MUIR:  The precise wording, no, but obviously the direction that was issued is meant to offer choice to consumers and promote competition.

1LISTNUM 1 \l 14718            In fact, if you read the wording in the analysis and if you read some of the press releases of the industry minister at the time, I mean that's precisely what he wanted to encourage:  innovation, investment and choice for customers.

1LISTNUM 1 \l 14719            MR. LOWE:  Well, maybe we could turn to Tab 20, which is an excerpt from the Telecom Policy Review final report.

‑‑‑ Pause


1LISTNUM 1 \l 14720            MR. LOWE:  On the first page, second‑last paragraph, there's discussion of the two objectives, "foster increased reliance on market force" and "to enhance the competitiveness and efficiency of Canadian telecommunications"; and then the last paragraph on the page, they talk about "conflicting interpretations are frequently presented in submissions to the CRTC"; and then I want to flip over to the next page, and it says:

"The two objectives have been used to justify both a laissez‑faire approach to economic regulation and an interventionist approach to support the increased regulation of essential facilities."  (As read)

1LISTNUM 1 \l 14721            Do you see that?

1LISTNUM 1 \l 14722            MS GRIFFIN‑MUIR:  Actually, no, I don't.  Can you tell me exactly where you are on the page?

1LISTNUM 1 \l 14723            MR. LOWE:  It's page 10‑7, at the top.  Tab ‑‑

1LISTNUM 1 \l 14724            MS GRIFFIN‑MUIR:  In item (f)?


1LISTNUM 1 \l 14725            MR. LOWE:  Item (f) is the next page.  It's the page before.

1LISTNUM 1 \l 14726            MS GRIFFIN‑MUIR:  Oh, okay.

1LISTNUM 1 \l 14727            MR. LOWE:  It's not the text of the direction, this is just the discussion as they introduced the direction.

1LISTNUM 1 \l 14728            Do you see it?

1LISTNUM 1 \l 14729            MS GRIFFIN‑MUIR:  Yes.

1LISTNUM 1 \l 14730            MR. LOWE:  And so the panel is saying, Well, look, there's these objectives in the act and people have used them to justify a laissez‑faire approach to economic regulation and an interventionist approach, which supports the increased regulation of essential facilities and the deregulation of them.

1LISTNUM 1 \l 14731            And then in the next paragraph it says:


"As discussed in Chapters 2 and 3, the panel is recommending a separation of the policy objectives from the consideration of the means that can be used to achieve them.  A greater reliance on market forces is the means to achieving these policy objectives and reliance on regulation only when market forces are unlikely to achieve the telecommunications policy objective within a reasonable timeframe."  (As read)

And then it says:

"The panel is also recommending a decreased reliance on mandated wholesale rates for essential facilities and a decreased use of ex ante regulation of retail telecommunications' market prices and service conditions."  (As read)

1LISTNUM 1 \l 14732            Do you see that?

1LISTNUM 1 \l 14733            MS GRIFFIN‑MUIR:  Yes, I see that, but I think between this and the final policy direction certain amendments were made.


1LISTNUM 1 \l 14734            First, at the behest of many competitors who intervened in the consultation process that led to the ultimate policy direction, the wording of the policy direction was changed for that particular part of it that dealt precisely with this proceeding to include other considerations, in particular to look at exactly what prompts innovation and investment and to make a determination on that basis.

1LISTNUM 1 \l 14735            So between the issuance of the panel's report and the actual ultimate policy direction, there was a lot of discussion and consultation that came about and, then, ultimately, ended up in a different recommendation.

1LISTNUM 1 \l 14736            MR. LOWE:  Okay, okay.  Well, that kind of takes me where I was trying to get to.

1LISTNUM 1 \l 14737            The TPR Report, and I'm going to put it to you ‑‑ and I'm just talking about the TPR report, we will get to the direction later ‑‑ but the TPR report looks at the two paths you could take, an interventionist approach with increased mandated unbundling or a more laissez‑faire free‑market approach, and they unequivocally took the right path, the way I'm sitting, in any event, and said, We are going to rely on market forces to the maximum extent feasible and we are going to see a phase‑out of mandated facilities.

1LISTNUM 1 \l 14738            I hear what you are saying about that's not how you read the direction, but at least that's what the TPR report found.


1LISTNUM 1 \l 14739            MR. MacDONALD:  Yes, the TPR said other things in other areas that I'm not sure everybody agrees with either, in terms of wireless competition, et cetera, but to pick and choose specifically as an input to the formulation of government policy, the TPR says what the TPR says.

1LISTNUM 1 \l 14740            What's really relevant, though, is what the ultimate policy direction that came out through the Order‑in‑Council, in terms of going forward, which is the result of other inputs to the process, as well.  Respecting, of course, that we had an esteemed panel that actually came up with these recommendations, it is just one input.

1LISTNUM 1 \l 14741            MR. LOWE:  All right.  And then turning to your opening statement, then...and I suspect through this line of cross we will disagree on the weight that should be given the TPR recommendations in interpreting the direction, but, in any event, in your opening statement, in the fourth line, you say:

"The government's goal is to create a competitive telecommunications market in Canada."  (As read)

1LISTNUM 1 \l 14742            Do you see that?

1LISTNUM 1 \l 14743            MS GRIFFIN‑MUIR:  Yes.


1LISTNUM 1 \l 14744            MR. LOWE:  And this "creationism" business, this seems to harken back to the objective that you had in the Telecom Policy Review submission, isn't it?  I mean, aren't you talking about the same thing?

1LISTNUM 1 \l 14745            MS GRIFFIN‑MUIR:  Yes, and also the policy direction speaks of creating ‑‑ or increasing incentives for innovation and investment and increasing reliance on market forces, where "market forces" can only be interpreted as competitive market forces.  So that, obviously, the overriding goal has to be to have competition.

1LISTNUM 1 \l 14746            MR. LOWE:  Yes, okay.  Then on your opening statement still, the next paragraph, the second sentence ‑‑ this is after the words "almost 15 years ago" ‑‑ it says:

"The government's recent policy direction affirms the desire to rely as much as possible on market forces to regulate a..."

1LISTNUM 1 \l 14747            And then I didn't know "a what"?  Is it regulate an ILEC, a cable company?

1LISTNUM 1 \l 14748            MS GRIFFIN‑MUIR:  Actually, that's a typo but thanks for pointing that out.

1LISTNUM 1 \l 14749            It should just say "in the least interventionist manner".

1LISTNUM 1 \l 14750            MR. LOWE:  Okay.


1LISTNUM 1 \l 14751            MS GRIFFIN‑MUIR:  And then when it is taking into account the consideration of what is the least interventionist manner, it has to take into consideration the principles of technological and competitive neutrality, the potential for incumbents to exercise market power in the wholesale and retail markets for the services in the absence of mandated access to wholesale services and the impediments faced by new and existing carriers seeking to develop competing network facilities.

1LISTNUM 1 \l 14752            MR. LOWE:  Okay.  Getting back to the sentence:

"The government's recent policy direction affirms the desire to rely as much as possible on market forces to regulate..."

1LISTNUM 1 \l 14753            I mean, really, isn't the direction saying that we want to rely on market forces to the maximum extent feasible?  It is not relying on market forces to regulate, is it?


1LISTNUM 1 \l 14754            MS GRIFFIN‑MUIR:  Well, I think actually they say the same thing.  You are talking about regulating market power to the maximum extent feasible.  So to the extent that we can rely on market forces, and in particular in the downstream or retail market, because there are competing alternatives for customers, then it would regulate the market power of the incumbent service providers.

1LISTNUM 1 \l 14755            MR. LOWE:  So you interpret the direction to say rely on market forces to the maximum extent feasible to regulate, in order to achieve competition.

1LISTNUM 1 \l 14756            Is that right?

1LISTNUM 1 \l 14757            MS GRIFFIN‑MUIR:  Yes ‑‑ well, to regulate market forces as opposed to having the Commission regulate in the downstream.

1LISTNUM 1 \l 14758            So what we are suggesting is that if you have a robust essential facilities or wholesale regime coming out of this proceeding, that regime will be able to discipline market forces to the extent possible, such that in the downstream or retail market customers will have choice.  There will be the proper incentives for continuing investment from competitors.

1LISTNUM 1 \l 14759            THE CHAIRPERSON:  You mentioned before that there was typo in the sentence.

1LISTNUM 1 \l 14760            I actually thought the sentence was supposed to read "to rely as much as possible on market forces and" ‑‑ the word "and" is missing ‑‑ "and to regulate in a least interventionist manner".

1LISTNUM 1 \l 14761            Isn't that what you meant to say?

1LISTNUM 1 \l 14762            MS GRIFFIN‑MUIR:  Yes.


1LISTNUM 1 \l 14763            THE CHAIRPERSON:  As counsel pointed out, market forces don't regulate.  The sentence doesn't make sense then.

1LISTNUM 1 \l 14764            Therefore, I assumed there was an "and" missing between those two words.

1LISTNUM 1 \l 14765            MS GRIFFIN‑MUIR:  Yes, you could read it that way.

1LISTNUM 1 \l 14766            MR. LOWE:  Let's go back to the Telecommunications Policy Review Panel Final Report, Tab 20, page 3‑36.

1LISTNUM 1 \l 14767            This is this Recommendation 3‑19 made by the panel.

1LISTNUM 1 \l 14768            It says:


"The regulatory framework should continue to require owners of essential wholesale facilities to make them available to competitors at regulated wholesale rates.  Regulatory requirements to provide non essential wholesale services or facilities should be phased out in order to provide increased incentives for innovation, investment and more widespread construction of competing network facilities."

1LISTNUM 1 \l 14769            Do you see that?

1LISTNUM 1 \l 14770            MS GRIFFIN‑MUIR:  Yes.

1LISTNUM 1 \l 14771            MR. LOWE:  In the context here, the TPR panel is talking about essential facilities as defined in Decision 97‑8.

1LISTNUM 1 \l 14772            Is that how you read that part?

1LISTNUM 1 \l 14773            MS GRIFFIN‑MUIR:  Just beneath there, yes.

1LISTNUM 1 \l 14774            MR. LOWE:  I would like to get your views on the top paragraph on page 3‑36.  This is where they introduce this recommendation to phase out non essential facilities, phase out the mandated access to non essential facilities.

1LISTNUM 1 \l 14775            It says:


"The panel recognizes that a broader scope of mandated wholesale access may reduce barriers to entry in the market for services or applications.  This may result in more innovation at the service and applications layer by allowing for more market participants and by creating pressure for the timely introduction of new technologies."

1LISTNUM 1 \l 14776            And then it goes on:

"However, these benefits may be outweighed by the dramatic reduction in competition at the physical and network layers.  Further, in the long run, innovation at the service or application layers may depend on capabilities and innovations at the physical or network layers and continuation of significant market power at these levels may impede innovation at higher layers as well.  A broad scope of mandated wholesale access may thus undermine long run opportunities and incentives for innovation at all levels."

1LISTNUM 1 \l 14777            Do you see that?

1LISTNUM 1 \l 14778            MR. MacDONALD:  I see it but I disagree with it.


1LISTNUM 1 \l 14779            One of the issues that we are faced with is it's kind of a theoretical discussion.  I think I understand the argument that is being used here, but the practical reality of the situation is to suggest that in many cases, particularly for not just the existing definition of essential services but for next generation essential services that are required to deploy services into the Enterprise space, that competing networks are going to be built or alternative sources of supply will exist is ludicrous.

1LISTNUM 1 \l 14780            The situation ‑‑ and I will use the example of last week where we had a financial institution with a thousand branches, and just the cost to deploy ‑‑

1LISTNUM 1 \l 14781            MR. LOWE:  Was that CIBC, by the way?

1LISTNUM 1 \l 14782            MR. MacDONALD:  Don't I wish.  Don't I wish.

1LISTNUM 1 \l 14783            No.  It's a much more enlightened financial institution that selected us as the service provider.

1LISTNUM 1 \l 14784            When we looked at the cost to actually deploy to all of those 1,050 branches, it was $2.3 billion in a 236‑year payback interval at the market based rates.


1LISTNUM 1 \l 14785            And do you know what I'm really concerned about?  The next time that contract comes up for renewal, where the customer is going to be looking for higher and higher speed services, is that we are not going to be able to participate in that particular piece of business.

1LISTNUM 1 \l 14786            Now this academic argument that we are going to magically be able to justify the deployment of uneconomic facilities across the country, it ain't going to happen.

1LISTNUM 1 \l 14787            We tried that: at least $4 billion worth of assets in terms of trying to replicate the local access network that our company has spent, having gone through a CCAA and restructuring and managed to survive that and come out of it quite strong.

1LISTNUM 1 \l 14788            But what really fuels investment ‑‑ and the TPR report is talking about at the application and service level.  Ultimately, that is going to be the real source of innovation for Enterprise customers.  But it is a necessary condition that we have cost effective access to all of the various serving points within that network.

1LISTNUM 1 \l 14789            MR. LOWE:  Well, I see you had a productive weekend.


1LISTNUM 1 \l 14790            Back to your opening statement, on page 2 you set out the facts.  As I read through these facts, there is the 97‑8 experience, there is the dot.com bubble.  All of these facts were before the Telecommunications Policy Review, weren't they?

1LISTNUM 1 \l 14791            Essentially, this is all history, isn't it?

1LISTNUM 1 \l 14792            And the Telecom Policy Review is saying no, we have to look forward.  We have to take the long run view forward for Canada.

1LISTNUM 1 \l 14793            MS GRIFFIN‑MUIR:  Again, I think you keep missing the actual purpose of this proceeding.

1LISTNUM 1 \l 14794            I mean, there was the Policy Review Panel and that was followed by a preliminary proposed Order in Council that had certain suggestions with respect to essential facilities, which was subsequently revised and finalized to take into consideration a wider array of factors, such as the dominance of the incumbents in the wholesale and retail markets, as well as other factors that would affect competitors in terms of how and when they can make investment.

1LISTNUM 1 \l 14795            So I'm not entirely sure what facts actually the TPRP considered at the time.  It's not apparent from any of the panel report.

1LISTNUM 1 \l 14796            But even if they did take them into consideration, subsequently the government issued a policy direction that outlined precisely what we should be looking at in terms of this proceeding.


1LISTNUM 1 \l 14797            The fact is in making a decision as to what essential facilities or wholesale regime should prevail, it's a little naive to ignore what has gone on before and what we have learned from our experience of the last 15 years in trying to get competition into the market, particularly the business market.

1LISTNUM 1 \l 14798            MR. LOWE:  So what you are saying is:  Look, the TPR had this history before them and they made a determination that you disagree with.  And you are saying but that's okay because it's the direction that we should look at.  The TPR is an exercise that we kind of went through and we all made submissions, and the panel went and talked to other regulators and made some recommendations.  But that's all in the past and now you just look at the direction in isolation.

1LISTNUM 1 \l 14799            Is that right?

1LISTNUM 1 \l 14800            MR. MacDONALD:  It was an input to a process.  There were other inputs to that particular process.

1LISTNUM 1 \l 14801            What is germane to this particular discussion is the final policy direction from the government, however.

1LISTNUM 1 \l 14802            MR. LOWE:  You asked for a policy direction based on your recommendations in the TPR report, didn't you?


1LISTNUM 1 \l 14803            We have established that already.  Right?

1LISTNUM 1 \l 14804            MS GRIFFIN‑MUIR:  I can't recall if we asked for a policy direction.  We asked that they recommend a revision, I guess, to the objectives.

1LISTNUM 1 \l 14805            MR. LOWE:  Well, if you did ask for a policy direction in line with your directives, if you did say that in your submission, you meant to live with it, didn't you?

1LISTNUM 1 \l 14806            MS GRIFFIN‑MUIR:  Well, we, I guess, have no alternative but to live even with this policy direction.

1LISTNUM 1 \l 14807            So again, I mean the policy direction has come down and the proceeding is under way, and as Mr. MacDonald was saying, there is one input ‑‑ I mean if you are suggesting we didn't get everything we wanted or the government didn't do everything we wanted or say everything we wanted, that is entirely true.  They also didn't say everything other parties wanted either, including TELUS.


1LISTNUM 1 \l 14808            MR. LOWE:  No, I think that is probably true, nobody got everything they wanted and it is one of these processes where the review panel looks at everything and comes out with something that they think is the best move for Canada going forward and then that is implemented into a policy direction and then in turn, the Commission is called upon to implement that policy set by the Government of Canada and, in fact, I think you say at page 4 of your opening statement that the CRTC should be implementing an essential facilities regime which you say should be robust.

1LISTNUM 1 \l 14809            So my question to you is:  Is the CRTC's role to implement government policy as set out in the Policy Direction and in the context of the Telecom Policy Review or rather are we on to a free ranging review here to see what is the right path for Canada?

1LISTNUM 1 \l 14810            MR. MacDONALD:  I don't know why you keep on going back to the TPR as an input to the process, a valuable input that I think ultimately led to the Policy Direction but the Policy Direction is what the Policy Direction is, regardless of the TPR.

1LISTNUM 1 \l 14811            MR. LOWE:  Don't you think that it is wrong to ignore the Policy Direction when you are trying to interpret ‑‑ or wrong to ignore the Telecom Policy Review Report recommendations when you are trying to interpret the direction?

1LISTNUM 1 \l 14812            And I am just asking.  If you say it is totally irrelevant and we put it aside ‑‑


1LISTNUM 1 \l 14813            MR. MacDONALD:  I didn't say it was totally irrelevant, I said it was an input amongst other inputs to it that ultimately led to the Policy Direction.  That is what is relevant, is the Policy Direction.

1LISTNUM 1 \l 14814            MR. LOWE:  And inputs can be ignored, can't they?

1LISTNUM 1 \l 14815            MR. MacDONALD:  I am not suggesting it should be ignored, I am saying it is an input, it is what it is.

1LISTNUM 1 \l 14816            MR. LOWE:  All right.  An input that should be given significant weight?

‑‑‑ Laughter / Rires

1LISTNUM 1 \l 14817            MR. LOWE:  Perhaps we are getting into argument.  Those are my questions, Mr. Chairman, and thank you, panel.

1LISTNUM 1 \l 14818            THE CHAIRPERSON:  Thank you very much.

1LISTNUM 1 \l 14819            Who is next, Madam Secretary?

1LISTNUM 1 \l 14820            THE SECRETARY:  It is supposed to be PIAC but I haven't seen Mr. Janigan yet.

1LISTNUM 1 \l 14821            MR. LOWE:  They are up.

1LISTNUM 1 \l 14822            THE SECRETARY:  They are up?  Okay, so it will be PIAC.

1LISTNUM 1 \l 14823            THE CHAIRPERSON:  Okay, Mr. Janigan.


1LISTNUM 1 \l 14824            COMMISSIONER CRAM:  I have a question.

1LISTNUM 1 \l 14825            THE CHAIRPERSON:  Yes, sure.  Okay.  So go ahead, Commissioner Cram.

1LISTNUM 1 \l 14826            MR. SCHMIDT:  No, PIAC is not examining.  I spoke to them this morning.  They are not examining this panel.

1LISTNUM 1 \l 14827            THE SECRETARY:  Therefore, we will change panel.  I believe this finishes the MTS cross‑examination.

1LISTNUM 1 \l 14828            THE CHAIRPERSON:  Hang on.  Before we change panel, Commissioner ‑‑ if this was the last one to cross‑examine, I have some questions for the panel and so does Commissioner Cram.  So go ahead.

1LISTNUM 1 \l 14829            COMMISSIONER CRAM:  Thank you.  Yes, you are not going to get away with ‑‑

1LISTNUM 1 \l 14830            Mr. MacDonald, you were talking a while ago about real innovation being at the application level but in order to do that you need access and I think you said at effective rates.

1LISTNUM 1 \l 14831            MR. MacDONALD:  Excuse me, at cost‑effective rates.

1LISTNUM 1 \l 14832            COMMISSIONER CRAM:  Cost‑effective rates.  And would you say cost‑effective rates could be Phase II plus 25 percent?


1LISTNUM 1 \l 14833            MR. MacDONALD:  Oh! My God.  I would say that the lower the mark‑up the better.  Obviously, you have to ensure that the service provider is going to realize a reasonable rate of return on that but as to whether it is what the actual figure is, you would ask me as a business person, I would say the lower the mark‑up the better.

1LISTNUM 1 \l 14834            Cost plus 15, obviously, would be preferable to cost plus 25 but certainly cost plus 800 percent or cost plus 1000 percent is a bit of a problem.

1LISTNUM 1 \l 14835            COMMISSIONER CRAM:  Okay.  So if the essential services were costed at Phase II plus 25 percent, would we lose Allstream from the business market?

1LISTNUM 1 \l 14836            MR. MacDONALD:  We would have to ‑‑ you see, we intend to be around for a long period of time.  I get very concerned that if we end up narrowing the definition of essential facilities ‑‑ because the way I look at it, I have a very simple engineering view of how networks get built.


1LISTNUM 1 \l 14837            Access is access, and to the extent that we are now at the mercy of incumbent players to actually negotiate forms of access that are not overseen by the CRTC, then I get very concerned about the degree of competition, particularly in the enterprise space.

1LISTNUM 1 \l 14838            I think it is quite a bit different perhaps in the consumer space where we have an alternative facility that can be used for providing access.

1LISTNUM 1 \l 14839            But I think a diminishment of competition from an enterprise perspective is a distinct possibility unless we continue with a regime that recognizes the fact that having ‑‑ a regime where we have cost‑effective access to reach our customers.

1LISTNUM 1 \l 14840            And to suggest that we are going to be able to duplicate all of this in any sort of reasonable time frame ‑‑ and I want to reiterate something we said last Friday, is that it is in our best interest to actually find alternative sources of supply and we continuously try and do just that.

1LISTNUM 1 \l 14841            We are not shy about investing and deploying the capital where there is an economic case to do so but we think that there is a big advantage that our competitors have in terms of the infrastructure that they have deployed, access that can be used not just for providing traditional dial tone and voice services but can be leveraged to provide Ethernet services and MPLS services.


1LISTNUM 1 \l 14842            I think at the end of the day this is a very, very complex system that we have and I worry that looking for very simple approaches and making a bunch of decisions that on the surface may seem reasonable and there is reliance on market forces and whatever, which I am a strong proponent of, but this is a complex system and making a few decisions can lead to unanticipated results.

1LISTNUM 1 \l 14843            I think we have seen some examples of that with what has happened in the United States and other areas as well.  So just a caution.

1LISTNUM 1 \l 14844            COMMISSIONER CRAM:  Thank you.

1LISTNUM 1 \l 14845            Now ‑‑ and I don't know your name, I am sorry, and I am too short ‑‑ Mr. Brisby, you were asked at the time of the Offcom Review about cable digital penetration but in the business market there wouldn't have been that ‑‑ in the business market in the U.K. cable wouldn't be available to business; would it?

1LISTNUM 1 \l 14846            MR. BRISBY:  Cable does serve some small businesses but it is predominantly targeted at some residential markets.  Where the cable company serves businesses, it will do that sometimes on its own network but it will also buy regulated inputs from British Telecom as well.


1LISTNUM 1 \l 14847            COMMISSIONER CRAM:  Mm‑hmm.  So the business market would be similar to Canada?

1LISTNUM 1 \l 14848            MR. BRISBY:  In business markets there has been alternative fiber network rollout, particularly in business centres like the City of London, like London Docklands and in other city centres, in some cases, fairly extensive network rollout.  So as you would expect, the City of London has multiple competing fiber networks.

1LISTNUM 1 \l 14849            COMMISSIONER CRAM:  Yes.

1LISTNUM 1 \l 14850            MR. BRISBY:  Does that answer your question?

1LISTNUM 1 \l 14851            COMMISSIONER CRAM:  Yes, thank you.

1LISTNUM 1 \l 14852            Thank you, that's all my questions.

1LISTNUM 1 \l 14853            MR. BRISBY:  Sorry, Commissioner ‑‑

1LISTNUM 1 \l 14854            THE CHAIRPERSON:  Commissioner del Val.

1LISTNUM 1 \l 14855            COMMISSIONER CRAM:  Oh! Wait.

1LISTNUM 1 \l 14856            MR. BRISBY:  Sorry, Commissioner, I have been advised it would be sensible to clarify what I mean by the City of London because it may not be apparent to everyone necessarily.

1LISTNUM 1 \l 14857            The City of London is the financial centre in London and it is an area ‑‑


1LISTNUM 1 \l 14858            THE CHAIRPERSON:  I think you can assume the panel knows this.  Thank you.

1LISTNUM 1 \l 14859            MR. BRISBY:  Okay.  I apologize, Mr. Chair.

1LISTNUM 1 \l 14860            THE CHAIRPERSON:  Commissioner del Val.

1LISTNUM 1 \l 14861            COMMISSIONER del VAL:  Dr. Selwyn, this is a question for you.

1LISTNUM 1 \l 14862            I don't think you would need to refer to your paper, that is, Appendix A to the March 15th evidence of MTS.

1LISTNUM 1 \l 14863            You said in your paper that:

"The implosion of competitive telecommunications in the U.S. demonstrates that failure to ensure cost‑based wholesale access to components of the ILECs' local exchange networks undermines the ability of competing carriers to build their customer base and over time to make new investments in network infrastructure." (As read)


1LISTNUM 1 \l 14864            I think if I look back on the Commission decisions, back 10 years, say, back to '97, there has been talk of encouraging facilities‑based competition.

1LISTNUM 1 \l 14865            So I was just wondering when you referred to "over time," how much time do you think we should expect to give the competitors?  Ten years have passed and how much more time do you think would be reasonable?

1LISTNUM 1 \l 14866            DR. SELWYN:  Commissioner, I think that, first of all, there is no condition that in my view would lead to a total replication.

1LISTNUM 1 \l 14867            We first began to see the construction of competitive fiber in the business market in the U.S. actually in the mid‑1980s when Teleport began to wire up the New York financial district with fiber.

1LISTNUM 1 \l 14868            And yet ‑‑

1LISTNUM 1 \l 14869            COMMISSIONER del VAL:  Dr. Selwyn, I think you need to take the other mike, please.  I don't think your mike is working.

1LISTNUM 1 \l 14870            DR. SELWYN:  Sorry.

1LISTNUM 1 \l 14871            And yet, at its height just prior to its merger with SBC, AT&T was serving approximately 186,000 enterprise customers at the DS‑1 level or higher and only about 6,000 of those locations were on net.


1LISTNUM 1 \l 14872            In other words, AT&T was still reliant primarily on the ILECs for something close to 175,000 to 180,000 locations and it is simply unrealistic to ever expect anything close to the kind of overbuild that would eliminate that dependence.

1LISTNUM 1 \l 14873            I would note also that Mr. MacDonald mentioned mark‑ups of 800 or 1000 percent over incremental cost.  If there were any realistic prospect of competitive overbuilds, given those kinds of economic pricing, of uneconomic pricing or excessive pricing, you would expect that competitors would be able to respond.

1LISTNUM 1 \l 14874            The very fact that incumbent LECs are able to sustain prices of that magnitude for an extended period of time, apparently indefinitely, certainly suggests that it is just unrealistic to ever expect this process to somehow transition to a full overbuild.

1LISTNUM 1 \l 14875            COMMISSIONER del VAL:  So, Dr. Selwyn, you are saying this is as good as it will ever get?


1LISTNUM 1 \l 14876            DR. SELWYN:  Well, you know, there is always some small degree of construction as new demands come up.  A few hundred, perhaps even, you know, around a thousand buildings might conceivably be connected to competitor networks by competitor facilities on an annual basis.  But we are talking about a process that simply has no realistic expectation of ever happening.

1LISTNUM 1 \l 14877            And if the policy of the Canadian Government is to rely on that as an outcome, as suggested in the passage from the TPR report that we were just looking at, I think there is an immense risk that would limit innovation, limit competition at the application and service levels simply because of the potential for uneconomic pricing on the underlying service.

1LISTNUM 1 \l 14878            COMMISSIONER del VAL:  So time isn't going to do the trick, is it?

1LISTNUM 1 \l 14879            DR. SELWYN:  No.

1LISTNUM 1 \l 14880            COMMISSIONER del VAL:  Okay, thank you.

1LISTNUM 1 \l 14881            DR. SELWYN:  You have to look for triggers in the market are not time dependant.  Just simply the passage of time ‑‑ the disease is not going to be cured simply if you wait long enough ‑‑

1LISTNUM 1 \l 14882            COMMISSIONER del VAL:  Thank you.

1LISTNUM 1 \l 14883            DR. SELWYN:  ‑‑ and that is really the essence of it.


1LISTNUM 1 \l 14884            THE CHAIRPERSON:  Mr. MacDonald, I would like to take you back to your testimony on Friday.

1LISTNUM 1 \l 14885            The transcript from Friday, I don't know whether you have it or not, but at line 13,157 you say, "retail trumps wholesale," that is the result of your 30‑year experience.  That means that we talk about all sorts of alternative sources of supply and what I believe to be a very simple‑minded approach that in the instance of one can be generalized in to an instance of many in terms of this notion of duplicability, which I find completely ludicrous in terms of practical implementation of networks.

1LISTNUM 1 \l 14886            What is your non‑ludicrous suggestion?  I mean, you know, we are here to look at these various services to determine whether they are essential or not.  And one of the notions that everybody brings forward, all the academics, et cetera, is you have to look at whether it is duplicable, both technical and economically.  Now, how do it, not being ludicrous, but using a MacDonald approach?


1LISTNUM 1 \l 14887            MR. MacDONALD:  Well, my very simple MacDonald approach is access is access, right.  And, you know, I believe that a lot of the benefits that the incumbents have realized in terms of, you know, the number of customers that they serve on a particular access route, the ability of those customers to support incremental investment into the next generation technologies, be they either Ethernet or DSL, et cetera, to me leads to a conclusion that, you know, it is somewhat independent of whether it is going to be an access used for voice or an access that is used for Ethernet or an access used for DSL.  It is the access itself that becomes critical.

1LISTNUM 1 \l 14888            I think that, you know, left to our own devices we will try our best to ensure that where we have economic business cases to support it we will deploy capital in the access network.  And we have a significant concentration of customers, we will do that.

1LISTNUM 1 \l 14889            But at the end of the day, what I was alluding to there, is that the value of the network is the total number of connections that actually are attached to that network.  As Kelvin pointed out to me, it is actually a forum they call Metcalfe's law where the value of the network is in direct proportion of the square of the number of access points.


1LISTNUM 1 \l 14890            And so when we talk about an end‑to‑end network or we talk about a fibre that is going through the streets of Ottawa and it seems, you know, on its face to be obvious that just to have a lateral from that fibre into a building is not such a big thing.  But, in effect, it is a very big thing.  When you multiply that across a network on a wide‑area basis, it becomes a very big thing.

1LISTNUM 1 \l 14891            THE CHAIRPERSON:  I understand that, but operationalize that for me in terms of what we are about here, looking at specific services that have been mandated, now having been told by the government, look at all of those services and see whether they still have to be mandated or not.

1LISTNUM 1 \l 14892            MR. MacDONALD:  See my argument, Mr. Chairman, would be is that you actually should be expanding.  And I know that is swimming upstream relative to some of the conventional wisdom that you are hearing.  But when we look at the full policy direction and all of the various attributes that the government has asked the Commission to consider, we think at the end of the day what is important, not just at a point in time to evaluate what is essential versus what has been essential, but actually to take a forward look.

1LISTNUM 1 \l 14893            Because increasingly, to have buggy whips ‑‑ I think is a term that was used recently ‑‑ to be classified as essential is neither here nor there ultimately.


1LISTNUM 1 \l 14894            THE CHAIRPERSON:  And in that same testimony on Friday you said the other thing is that, and I've heard it in many cases during this proceeding, one of the intentions is to encourage investment, that is by establishing high wholesale prices we will be encouraging investment, which I think does not apply as well. Encouraging I think is probably the wrong word.  I mean, the idea is it always give negative incentives that, because prices are going up, you will invest and..  You don't think that works I gather?

1LISTNUM 1 \l 14895            MR. MacDONALD:  No, I don't think it works, because right now if there is an economic case to invest and there is a variety of reasons why, you know, if the case is there and my CFO will let me do it, is that if I can put a case together then the money will be there.

1LISTNUM 1 \l 14896            The issue of course is that the case does not exist.  And I keep on coming back to that example where we looked at the deployment to that financial institution, in a 206‑year payback it will be considered to be market price, the price that the customer has actually paid.


1LISTNUM 1 \l 14897            We actually took it one step forward, because when the engineer showed me the figures I said, that can't be.  And so we said, well, we will only build in those situations less than 160 kms.  If the branch is greater than 160 kms from an access point, then we will lease.  That cut it in half, that brought it down from $2 billion to, I believe, about $1 billion.  But the payback interval was still about 200 years.

1LISTNUM 1 \l 14898            THE CHAIRPERSON:  This concept here which has been mentioned by many parties is really tied into the phase out.  I think TELUS suggested there should be a five‑year pace or phase out for everybody and there should be sort of payout by price increases so as to sort of lend a sense of urgency, you had better cut a deal or you build.  Because it is going to be out and it is becoming more expensive each year.  And I gather you don't buy this theory either?

1LISTNUM 1 \l 14899            MR. MacDONALD:  I don't really buy it, Mr. Chairman, because I don't think we have any leverage in that negotiation.  Because I think that the incumbents know is that the case to actually build and the amount of money that is going to be required to build and duplicate the network were our customers are, you know, it is not as if there is, you know, you have this building where you have a concentration of customers and you serve the majority of customers in that building.


1LISTNUM 1 \l 14900            We have to go where our customers are located, whether it is a bank branch or it is a retail outlet, and they are right across the country by definition, where people are.  And for us to actually go and invest the capital to actually duplicate that network, I mean, the incumbents know that that is not a viable alternative.  And therefore, we have no leverage in any sort of negotiation and that concerns me.  And the point that I raised last week as well, is that you have to look within the context in the enterprise space of longer‑term contracts.

1LISTNUM 1 \l 14901            THE CHAIRPERSON:  I guess where we are stuck, you are sort of the lone outsider, everybody else before us, all the economists, everybody has ‑‑

1LISTNUM 1 \l 14902            MR. MacDONALD:  Yes, I understand.

1LISTNUM 1 \l 14903            THE CHAIRPERSON:  ‑‑ put forward quite a different theory, as you know.

1LISTNUM 1 \l 14904            MR. MacDONALD:  Yes.


1LISTNUM 1 \l 14905            THE CHAIRPERSON:  And I'm asking you, because you describe yourself as a grizzled veteran of the industry.  I have known you for many years in many different companies and in different positions, so obviously I pay so me heed to what you are saying.  And I find it strange that the TPR representative's point of view, it has been echoed by the various academics and economists and yet you believe this is just misguided.

1LISTNUM 1 \l 14906            MR. MacDONALD:  Well, I don't believe that they are misguided.  I understand it is very well intended, I just disagree with the result.  But I have a track record of doing that from my days back east at NBTel.

1LISTNUM 1 \l 14907            But my concern, as I mentioned earlier, Mr. Chairman, is that we end up with a set of decisions that on the face seem perfectly reasonable and, you know, follows conventional wisdom.  But at the end of the day it is not going t be a good day in terms of competitive alternatives in the enterprise space specifically. That is my big concern.

1LISTNUM 1 \l 14908            THE CHAIRPERSON:  Professor Selwyn, we will deal with you after you have been cross‑examined by ‑‑

1LISTNUM 1 \l 14909            DR. SELWYN:  (off microphone)

1LISTNUM 1 \l 14910            THE CHAIRPERSON:  I really think I should give counsel a chance to cross‑examine you before we do it, okay.  Thank you.

1LISTNUM 1 \l 14911            So we will now take a five‑minute break while we set‑up the next panel.


1LISTNUM 1 \l 14912            THE SECRETARY:  I do have a little something to say please.  I need to present two exhibits that were brought to my attention just recently.

1LISTNUM 1 \l 14913            That will be MTS Exhibit 15, it is a table related to parties' pre‑hearing evidence on the impact of the CDN decision.  At the same time we will distribute CRTC Exhibit 6A, which is the undertaking register, updated version.

EXHIBIT MTS‑15:  List re: (Facilities‑Based) Parties' pre‑hearing evidence on the Impact of the CDN Decision on Facilities Construction Construction or Capital Expenditure Programs

EXHIBIT CRTC‑6A:  CRTC Undertaking register of CRTC version updated 29‑10‑2007

1LISTNUM 1 \l 14914            Furthermore, Mr. Chair, if you can allow us a little bit more than five minutes, because it is a big ‑‑

1LISTNUM 1 \l 14915            THE CHAIRPERSON:  However long you take, you let us know when you are ready.  Okay?

1LISTNUM 1 \l 14916            THE SECRETARY:  Thank you.

1LISTNUM 1 \l 14917            MS SONG:  Mr. Chairman.

1LISTNUM 1 \l 14918            THE CHAIRPERSON:  Ms Song.


1LISTNUM 1 \l 14919            MS SONG:  I do apologize, Mr. Chairman.  I believe that counsel for Bell would like to address Exhibit 15.  It has to do with a matter that was dealt with on Friday's cross‑examination by counsel for Bell et al.  And I believe that he would like to speak briefly to it, as would I.  It should take no more than a few minutes.

1LISTNUM 1 \l 14920            THE CHAIRPERSON:  Okay, by all means go ahead.  Mr. Hofley or Mr. Daniels?

1LISTNUM 1 \l 14921            MR. DANIELS:  It is Mr. Daniels, yes.

1LISTNUM 1 \l 14922            It has been brought to my attention, I am looking at reference of something that I had said during my cross‑examination of MTS Allstream at page 2,220 of Friday's transcript where I had made the statement.

"Now, Bell's put forward in this proceeding the proposition that the creation of CDN and lowering of rates for CDN access in 2005 undermined other parties' incentive to invest, at least in the access facilities."

1LISTNUM 1 \l 14923            And skipping down I said that there were:


"... at least seven parties including Atria, NMAX, Hydro One, QMI, SCBN, Telecom Ottawa and TELUS, not to mention The Companies, state that they spent less on access as a result of CDN decisions."

1LISTNUM 1 \l 14924            And skipping down to line 13,314:

"But throughout the interrogatory process, MTS is the only party to claim the contrary who's actually building facilities."

1LISTNUM 1 \l 14925            Now, it has been brought to my attention by counsel of MTS Allstream that the term "contrary" could suggest, and I think this is right ‑‑ it's a possible way to read it, a fair reading ‑‑ that I was suggesting that other parties ‑‑ that no other party had said it had ‑‑ CDN had no impact on their ability.

1LISTNUM 1 \l 14926            There are some parties who have said, a number of the Telcos have said, some other parties have said that the introduction of CDN had no impact one way or another.


1LISTNUM 1 \l 14927            That wasn't the intention of my statement.  The intention of my statement was to say that MTS is the only party who was building access facilities who claimed that CDN helped them build access facilities.

1LISTNUM 1 \l 14928            And that's what I meant when I said contrary to that statement.

1LISTNUM 1 \l 14929            So, I think there's two ways to read the term contrary.  It's been brought to my attention  that MTS counsel, I think rightly, says that there's two ways and I wish to clarify that statement.

1LISTNUM 1 \l 14930            Having made that clarification, I hope that satisfies my colleagues.

1LISTNUM 1 \l 14931            THE CHAIRPERSON:  Ms Song.

1LISTNUM 1 \l 14932            MS SONG:  Yes.  Mr. Chairman, thank you.  And thank you, Mr. Daniels for that retraction.

I will simply say that that retraction is acceptable to MTS Allstream.

1LISTNUM 1 \l 14933            The table which we prepared over the weekend provides an actual summary of the parties' pre‑hearing evidence on the issue of the impact of the CDN decision.

1LISTNUM 1 \l 14934            Counsel for Bell have asked that they be provided ‑‑ that they will come forward and indicate whether there is any information on this table that they disagree with, but the table is self explanatory and contains all relevant references to the record that are provided.


1LISTNUM 1 \l 14935            MTS Allstream notes that certain major cable companies such as East Link, Persona, Rogers and Shaw were not asked by Bell, et al what the impact of the CDN decision was on them whereas, as the table shows, certain other cable companies and municipal and electrical utilities were asked those types of questions.

1LISTNUM 1 \l 14936            So, in the interest of time we will not walk the Commission through the table.

1LISTNUM 1 \l 14937            However, contrary to Mr. Daniels' assertions on Friday, a review of the parties' evidence and the interrogatory responses shows that apart from Bell and TELUS, only Atria, SCBN and Hydro One provided unequivocal evidence that they had identified a direct causal negative impact from the CDN decision.

1LISTNUM 1 \l 14938            Thank you.

1LISTNUM 1 \l 14939            THE CHAIRPERSON:  Thank you.

1LISTNUM 1 \l 14940            We will take a break now.

‑‑‑ Recessed at 0938 / Suspension à 0938

‑‑‑ Resumed at 0952 / Reprise à 0952

1LISTNUM 1 \l 14941            THE SECRETARY:  Please be seated.

‑‑‑ Pause

1LISTNUM 1 \l 14942            THE CHAIRPERSON:  Madam Secretary, who is next?


1LISTNUM 1 \l 14943            THE SECRETARY:  Counsel Rogers will introduce the new panel for TELUS, the expert witnesses.

1LISTNUM 1 \l 14944            MR. ROGERS:  Good morning, Mr. Chairman, Phil Rogers for TELUS.  Again, I'm assisted by Mr. Steven Schmidt.

1LISTNUM 1 \l 14945            It's my pleasure to introduce to you  the TELUS expert panel.  I will introduce them from my left to right.

1LISTNUM 1 \l 14946            Sitting in the front row closest to me is Dr. Debra Aron.  Dr. Aron is a Director of the Economics and Competition consulting firm, LECG, LLC and adjunct Professor of Communications Studies, Northwestern University.

1LISTNUM 1 \l 14947            Dr. Aron has extensive experience in telecommunications pricing and appears regularly before state regulators and the FCC regarding pricing, costing, competition issues and ILEC mergers.

1LISTNUM 1 \l 14948            Dr. Aron has developed pricing principles and recommendations for TELUS.

1LISTNUM 1 \l 14949            Sitting next to Dr. Aron is Mr. Willie Grieve, TELUS Vice‑President, Telecom Policy and Regulatory Affairs who has already appeared in this proceeding.


1LISTNUM 1 \l 14950            Next is Dr. Dennis Weisman who is Professor of Economics at Kansas State University.  Dr. Weisman is an expert in the economics of telecommunications regulation and deregulation.

1LISTNUM 1 \l 14951            Dr. Weisman was asked to identify the economic principles that should guide the Commission in its policy regarding mandatory unbundling of essential facilities.

1LISTNUM 1 \l 14952            And sitting next to Dr. Weisman is Professor Glen Robinson.  Professor Robinson is the David A. and Mary Harrison Professor of Law at the University of Virginia Law School.  Professor Robinson is one of the leading authorities on the law of the essential facilities doctrine and the application of that doctrine.

1LISTNUM 1 \l 14953            I would note that Professor Robinson and Dr. Weisman have overlapping expertise in law and economics in respect of the definition of essential facilities.

1LISTNUM 1 \l 14954            Next is Dr. Robert Crandall.  Dr. Crandall is a Senior Fellow at the Brookings Institution in Washington, D.C. and a founder of criterion economics.

1LISTNUM 1 \l 14955            Dr. Crandall has conducted extensive empirical research on the effects of unbundling and other regulatory policies on incentives and investment.


1LISTNUM 1 \l 14956            Next to Dr. Crandall is Mr. John Fleiger, Vice‑President Global Sourcing Solutions for TELUS Partner Solutions Business Unit.  Mr. Fleiger leads the TELUS team responsible for managing supplier relationships and carrier matters.  Mr. Fleiger has previously appeared in this proceeding.

1LISTNUM 1 \l 14957            Finally, in the second row, and continuing to assist the panel is Mr. Mark Morikami, a TELUS Director in Partner Solutions and Mr. Eric Adora, Senior Regulatory Advisor.

1LISTNUM 1 \l 14958            The CVs of the witnesses have already been filed on the record.

1LISTNUM 1 \l 14959            At this point I would ask that the TELUS expert witnesses be affirmed.  Mr. Grieve and Mr. Fleiger are already under oath.

1LISTNUM 1 \l 14960            THE SECRETARY:  Thank you very much.

1LISTNUM 1 \l 14961            I'm asking the new witnesses that are not under oath yet to please stand up.

1LISTNUM 1 \l 14962            Thank you.

AFFIRMED:  DR. DEBRA ARON

AFFIRMED:  DR. DENNIS WEISMAN

AFFIRMED:  PROF. GLEN ROBINSON

AFFIRMED:  DR. ROBERT CRANDALL

1LISTNUM 1 \l 14963            THE SECRETARY:  Thank you very much.

1LISTNUM 1 \l 14964            You wish to examine your witnesses.

1LISTNUM 1 \l 14965            MR. ROGERS:  Yes, very briefly.


EXAMINATION / INTERROGATOIRE

1LISTNUM 1 \l 14966            MR. ROGERS:  I would now like to ask each of the expert panel members to confirm individually that your qualifications are correctly set out in the TELUS letter filed with your qualifications dated October 2nd, 2007.

1LISTNUM 1 \l 14967            DR. ARON:  They are.

1LISTNUM 1 \l 14968            DR. WEISMAN:  They are.

1LISTNUM 1 \l 14969            PROF. ROBINSON:  Yes, they are.

1LISTNUM 1 \l 14970            MR. CRANDALL:  Yes, they are.

1LISTNUM 1 \l 14971            MR. ROGERS:  Thank you.

1LISTNUM 1 \l 14972            Turning now to Dr. Aron.  Dr. Aron, did you prepare your statement entitled:  Pricing Principles for Wholesale Services in the Canadian Telecommunications Industry, Appendix "C" to TELUS evidence?

1LISTNUM 1 \l 14973            DR. ARON:  I did.

1LISTNUM 1 \l 14974            MR. ROGERS:  Are there any corrections you wish to make?

1LISTNUM 1 \l 14975            DR. ARON:  No, there are not.

1LISTNUM 1 \l 14976            MR. ROGERS:  Is this statement true to the best of your knowledge and belief?

1LISTNUM 1 \l 14977            DR. ARON:  Yes, it is.


1LISTNUM 1 \l 14978            MR. ROGERS:  Dr. Weisman, did you prepare your statement:  Economic Principles Underlying the Essential Facilities Doctrine in Canadian Telecommunications, and a second statement:  Regulatory Rate‑Making Versus Competition Enabling Policies in Canada Telecommunications, Appendix "B" to the supplementary evidence?

1LISTNUM 1 \l 14979            DR. WEISMAN:  Yes, I did.

1LISTNUM 1 \l 14980            MR. ROGERS:  Are there any corrections you wish to make?

1LISTNUM 1 \l 14981            DR. WEISMAN:  No, there are not.

1LISTNUM 1 \l 14982            MR. ROGERS:  Are these statements true to the best of your knowledge and belief?

1LISTNUM 1 \l 14983            DR. WEISMAN:  They are.

1LISTNUM 1 \l 14984            MR. ROGERS:  Professor Robinson, did you prepare your statement:  The Role of Essential Facilities Doctrine in Competition and Regulatory Policy, and a second statement:  Consistency and Clarity in Competition and Regulatory Policy, attachments to the TELUS evidence?

1LISTNUM 1 \l 14985            PROF. ROBINSON:  Yes.

1LISTNUM 1 \l 14986            MR. ROGERS:  Are there any corrections you wish to make?

1LISTNUM 1 \l 14987            PROF. ROBINSON:  No.

1LISTNUM 1 \l 14988            MR. ROGERS:  Are these statements true to the best of your knowledge and belief?

1LISTNUM 1 \l 14989            PROF. ROBINSON:  Yes.


1LISTNUM 1 \l 14990            MR. ROGERS:  Dr. Crandall, did you prepare your statement:  Response to Lee Selwyn, Appendix "C" to TELUS supplementary evidence, and a statement prepared with Dr. Alan Ingraham, The Relevance of Recent United Kingdom Telecommunications Policy to the Policy Choices in Canada?

1LISTNUM 1 \l 14991            MR. CRANDALL:  I did.

1LISTNUM 1 \l 14992            MR. ROGERS:  Are there any corrections you wish to make to either of those statements?

1LISTNUM 1 \l 14993            MR. CRANDALL:  None, except for the correction that was submitted in regard to one table, one chart in the testimony which resulted in a very minor change in that chart.

1LISTNUM 1 \l 14994            MR. ROGERS:  And that was previously filed ‑‑

1LISTNUM 1 \l 14995            MR. CRANDALL:  Yes.

1LISTNUM 1 \l 14996            MR. ROGERS:  ‑‑ with the Commission?  Are these statements true to the best of your knowledge and belief?

1LISTNUM 1 \l 14997            MR. CRANDALL:  Yes.

1LISTNUM 1 \l 14998            MR. ROGERS:  Mr. Chairman, the witnesses are now available for cross‑examination.

1LISTNUM 1 \l 14999            THE CHAIRPERSON:  Thank you very much.


1LISTNUM 1 \l 15000            I guess we are starting with the Competition Bureau.

1LISTNUM 1 \l 15001            MS PALUMBO:  Yes, that's right.

1LISTNUM 1 \l 15002            THE CHAIRPERSON:  Go ahead.

1LISTNUM 1 \l 15003            MS PALUMBO:  Good morning, Mr. Chairman, Commissioners and members of the TELUS panel.

1LISTNUM 1 \l 15004            Josephine Palumbo here for the Competition Bureau with the assistance of Mr. George Hariton to my right.  I will be seeking to obtain information on the impact of mandatory unbundling on  investments by ILECs and CLECs in network facilities.

1LISTNUM 1 \l 15005            This is an area, Members of the Commission, that TELUS experts and, in particular, Dr. Crandall have addressed in their evidence.

EXAMINATION / INTERROGATOIRE

1LISTNUM 1 \l 15006            MS PALUMBO:  And, so, I'll begin with you, Dr. Crandall.

1LISTNUM 1 \l 15007            Dr. Crandall, you're here as an expert on regulation of telecommunications; isn't that correct?

1LISTNUM 1 \l 15008            MR. CRANDALL:  Yes.

1LISTNUM 1 \l 15009            MS PALUMBO:  And you have examined the empirical impact of various forms of regulation on the industry; isn't that right?


1LISTNUM 1 \l 15010            MR. CRANDALL:  Yes.

1LISTNUM 1 \l 15011            MS PALUMBO:  And in fact you've published a number of books on the subject.

1LISTNUM 1 \l 15012            MR. CRANDALL:  Yes, over the years I have.

1LISTNUM 1 \l 15013            MS PALUMBO:  Okay.  And in July of 2005 you published a book entitled:  Competition and Chaos, U.S. Telecommunications Since the 1996 Telecom Act.  That's a 2005 publication.

1LISTNUM 1 \l 15014            You're familiar with that text book?

1LISTNUM 1 \l 15015            MR. CRANDALL:  Yes, of course.

1LISTNUM 1 \l 15016            MS PALUMBO:  And that book has been the subject of some discussion at this hearing, Dr. Crandall, and I'll be asking you a few questions in relation thereto just so that we can assist the Commission in getting a good understanding of what your conclusions were in that text book.

1LISTNUM 1 \l 15017            MR. CRANDALL:  Mm‑hmm.

1LISTNUM 1 \l 15018            MS PALUMBO:  Now, in this publication you discuss the U.S. experience with mandated access to various unbundled network elements, including local loops; isn't that correct?

1LISTNUM 1 \l 15019            MR. CRANDALL:  Yes.


1LISTNUM 1 \l 15020            MS PALUMBO:  Thank you.  And that discussion included the link between unbundled network elements and investment by incumbent telephone companies; correct?

1LISTNUM 1 \l 15021            MR. CRANDALL:  Yes, yes.

1LISTNUM 1 \l 15022            MS PALUMBO:  And would you say you are an expert therefore on this topic?

1LISTNUM 1 \l 15023            MR. CRANDALL:  Well, I've studied it.  I don't know ‑‑ this is an evolving literature and an evolving phenomenon, so I certainly have studied it.

1LISTNUM 1 \l 15024            MS PALUMBO:  You've dabbled in it quite a bit?

1LISTNUM 1 \l 15025            MR. CRANDALL:  Well, yes, quite a bit, yes.

1LISTNUM 1 \l 15026            MS PALUMBO:  Okay, thank you.  And could you assist the Commission, sir, by summarizing the conclusions in your book on the impact of mandatory unbundling on investments by CLECs in their networks and the basis for those conclusions?

1LISTNUM 1 \l 15027            MR. CRANDALL:  Well, the conclusions in the book, of course, were completed by late 2004, early 2005 and what I concluded there was that the sharp decline in ILEC spending was due in part, not entirely, but in part to the uncertainty and the continuing expansion of the unbundling regime in the United States.


1LISTNUM 1 \l 15028            Since that time though that unbundling regime, of course, has been changed and a substantial amount of investment has occurred among the U.S. ILECs, particularly Verizon.

1LISTNUM 1 \l 15029            MS PALUMBO:  Perhaps, Madam Secretary, we could have copies of the text book circulated.

1LISTNUM 1 \l 15030            MR. CRANDALL:  I've got a copy ‑‑ oh, I see.

1LISTNUM 1 \l 15031            MS PALUMBO:  But for the other members of the Panel.

1LISTNUM 1 \l 15032            This would be the text book entitled:  Competition and Chaos, U.S. Telecommunications Since the 1996 Telecom Act.

‑‑‑ Pause

1LISTNUM 1 \l 15033            MR. TACIT:  Mr. Chairman, while this is happening ‑‑ it's Chris Tacit from Cybersurf ‑‑ I don't want to interrupt my colleague prematurely, but I know that the subject matter of what she's cross‑examining on I'm not disputing is relevant, but it appears, at least on its face, that it's more in the nature of an examination‑in‑chief than a cross‑examination.

1LISTNUM 1 \l 15034            I will let it go for the time being, but, you know, it strikes me that this may not be pure cross‑examination going on at the moment.


1LISTNUM 1 \l 15035            THE CHAIRPERSON:  Well, when you feel she has crossed the line, make your objection.

1LISTNUM 1 \l 15036            MR. TACIT:  Thank you.

1LISTNUM 1 \l 15037            MS PALUMBO:  Mr. Chair, actually, there will be a tie‑in, a link‑in here as to why we are asking Dr. Crandall these questions.  We have some evidence on the record ‑‑

1LISTNUM 1 \l 15038            THE CHAIRPERSON:  Ms Palumbo, I didn't call you to task, so you don't have to defend yourself.

1LISTNUM 1 \l 15039            MS PALUMBO:  Thank you, I won't.

1LISTNUM 1 \l 15040            Do we have copies now of the textbook?

1LISTNUM 1 \l 15041            MR. CRANDALL:  Yes.

1LISTNUM 1 \l 15042            MS PALUMBO:  And I would like you, in particular, to turn to page 37 specifically.  You present evidence that is inconsistent with the stepping‑stone hypothesis at page 37.

1LISTNUM 1 \l 15043            You note that, and I'm quoting here your words:


"Since 2000, the facilities‑based lines of non‑cable company entrants remain constant.  Thus, it appears that non‑cable entrants stopped the investing in their own facilities."  (As read)

1LISTNUM 1 \l 15044            Those are your words.  Do you see that?

1LISTNUM 1 \l 15045            MR. CRANDALL:  Now, where are you reading, I'm sorry?

1LISTNUM 1 \l 15046            MS PALUMBO:  I'm at page 37.

1LISTNUM 1 \l 15047            MR. CRANDALL:  Yes.  Oh, yes.  Okay, fine, I got it.

1LISTNUM 1 \l 15048            MS PALUMBO:  Do you see that?

1LISTNUM 1 \l 15049            MR. CRANDALL:  Yes.

1LISTNUM 1 \l 15050            MS PALUMBO:  And you note that this may have been because of the adverse outcomes for those who did so before the 2000 collapse on LECG's stock values, but, you say:

"Also, because the environment created by regulators provided passive resellers of incumbent services, for example CLECs that use UNE‑P, more attractive returns that did investing in their own switches or even their own complete networks."  (As read)

1LISTNUM 1 \l 15051            Do you see that?


1LISTNUM 1 \l 15052            MR. CRANDALL:  Yes.

1LISTNUM 1 \l 15053            MS PALUMBO:  And then you also say, at page 37:

"There is no evidence that the entrants who use the entire UNE‑P, such as MCI, AT&T, TalkAmerica and Z‑Tel, were doing so to obtain a toehold before launching facilities‑based entries."  (As read)

1LISTNUM 1 \l 15054            So your prediction was that with the withdrawal of UNE‑P, they would be more likely to withdraw from local service than to invest.  Isn't that right?

1LISTNUM 1 \l 15055            MR. CRANDALL:  I think that's a logical deduction, yes.

1LISTNUM 1 \l 15056            MS PALUMBO:  Okay.

1LISTNUM 1 \l 15057            Now, I understand that you also coauthored a separate paper in 2004 entitled, "Do Unbundling Policies Discourage CLEC Facilities‑Based Investment?".


1LISTNUM 1 \l 15058            This, Mr. Chair, members of the Commission, is already on the record.  It was cited in the Bureau's evidence, March 15th, at footnotes 15 and 43.

1LISTNUM 1 \l 15059            So Dr. Crandall, back to you, you did coauthor this ‑‑

1LISTNUM 1 \l 15060            MR. CRANDALL:  That was the Crandall, Ingraham, Singer paper you are talking about, I believe?

1LISTNUM 1 \l 15061            MS PALUMBO:  That is correct.

1LISTNUM 1 \l 15062            MR. CRANDALL:  Okay.  Because the dates, I don't remember the dates, I'm sorry.

1LISTNUM 1 \l 15063            MS PALUMBO:  Yes, that's correct.

1LISTNUM 1 \l 15064            Again, the results of that study found:

"The share of CLEC lines that are facilities‑based is lower in states where unbundled network elements (UNE) rental rates are lower."  (As read)

which suggests that unbundling decreases facilities‑based competition in the short term.

1LISTNUM 1 \l 15065            Do you remember ‑‑


1LISTNUM 1 \l 15066            MR. CRANDALL:  Yes, specifically, the driving force was the ratio of the unbundled loop rate to the cost of building in that state, as measured by two separate estimates we had of the cost of building, and we found that ratio was very significant in the choice of whether to build or not.

1LISTNUM 1 \l 15067            MS PALUMBO:  Okay.  Could you summarize your results in this paper and comment specifically on the implications for the stepping‑stone hypothesis?

1LISTNUM 1 \l 15068            MR. CRANDALL:  Well, what that paper does is to look across the states for which there are data in the United States for a two‑year period and to look at what drove the share of UNE lines to actual facility‑based lines from the competitive local carriers at that time, and it showed that the lower the unbundled loop rate the more they would rely upon unbundled facilities and not build their own facilities.

1LISTNUM 1 \l 15069            This does not go dispositively to the question, however, that whether they would eventually have built facilities, that's the stepping‑stone hypothesis, but I would observe that few of them ever did.

1LISTNUM 1 \l 15070            MS PALUMBO:  I believe Madam Secretary has distributed the second document, if I'm not mistaken, and this is, again, going back to the 2004, this 2004 article ‑‑ or paper, I should say.

1LISTNUM 1 \l 15071            In fact, if you turn to page 20 ‑‑

1LISTNUM 1 \l 15072            MR. CRANDALL:  Twenty of...?


1LISTNUM 1 \l 15073            MS PALUMBO:  Of this second article ‑‑ or paper.

1LISTNUM 1 \l 15074            MR. CRANDALL:  Oh, the article.

1LISTNUM 1 \l 15075            MS PALUMBO:  Yes.

1LISTNUM 1 \l 15076            MR. CRANDALL:  I don't it.

1LISTNUM 1 \l 15077            MS PALUMBO:  "Do Unbundling Policies Discourage CLEC..." ‑‑

1LISTNUM 1 \l 15078            MR. CRANDALL:  I don't have it in front of me.  Oh, here we are.  Okay, yes.

1LISTNUM 1 \l 15079            MS PALUMBO:  Do you have that?

1LISTNUM 1 \l 15080            MR. CRANDALL:  Yes.  Yes, I do.

1LISTNUM 1 \l 15081            MS PALUMBO:  At page 20.

1LISTNUM 1 \l 15082            You say at page 20:

"But that notion, that is the notion that low UNE rates stimulate future facilities‑based investment..."

‑‑ you concluded ‑‑

"...appears to be undermined by other results."  (As read)

1LISTNUM 1 \l 15083            MR. CRANDALL:  Oh, I see, yes.  Yes, I got you.

1LISTNUM 1 \l 15084            MS PALUMBO:  And you say there, and in particular you suggested:


"A regression of the change in facilities‑based investment over time indicates that facilities‑based lines' growth relative to UNE growth was faster in states where the cost of UNEs was higher relative to the cost of facilities‑based investments."  (As read)

1LISTNUM 1 \l 15085            MR. CRANDALL:  Yes.

1LISTNUM 1 \l 15086            MS PALUMBO:  And based on that initial evidence, you and your coauthors concluded that you believe:

"The burden or proof should now shift to the competitive local exchange carriers.  If there is no evidence that low UNE rates stimulate facilities‑based CLEC investments in future periods, then the entire unbundling experiment should be reconsidered."  (As read)

were your conclusions.

1LISTNUM 1 \l 15087            MR. CRANDALL:  Yes.

1LISTNUM 1 \l 15088            MS PALUMBO:  Right?

1LISTNUM 1 \l 15089            MR. CRANDALL:  Yes.


1LISTNUM 1 \l 15090            MS PALUMBO:  Have you reviewed the literature since 2005, since your book was published, on the impact of unbundling in CLEC investments?

1LISTNUM 1 \l 15091            MR. CRANDALL:  Yes.

1LISTNUM 1 \l 15092            MS PALUMBO:  You have?

1LISTNUM 1 \l 15093            MR. CRANDALL:  Yes.

1LISTNUM 1 \l 15094            MS PALUMBO:  Yes.  Thank you.

1LISTNUM 1 \l 15095            MR. TACIT:  Mr. Chairman, I think now counsel for the Bureau is now really eliciting new evidence out of the witness, as opposed to testing his evidence.

1LISTNUM 1 \l 15096            THE CHAIRPERSON:  I assume she's leading up to something, Ms Palumbo.

1LISTNUM 1 \l 15097            MR. CRANDALL:  That is correct.

1LISTNUM 1 \l 15098            THE CHAIRPERSON:  Well, how about asking the question, because we now know enough of the background.  Let's ask him something rather than walking him through his past studies.

1LISTNUM 1 \l 15099            MS PALUMBO:  Well, we know that he has reviewed recent literature.

1LISTNUM 1 \l 15100            Can you tell me whether you are familiar with Dr. Waverman's publication entitled, "Access Regulation and Infrastructure Investment in the Telecommunications Sector"?


1LISTNUM 1 \l 15101            MR. CRANDALL:  Yes.  I believe it's Waverman and about three coauthors.  A report published by LECG.  Correct?

1LISTNUM 1 \l 15102            MS PALUMBO:  Right.

1LISTNUM 1 \l 15103            MR. CRANDALL:  Yes, I guess I am.

1LISTNUM 1 \l 15104            MS PALUMBO:  Okay.

1LISTNUM 1 \l 15105            And, in fact, that is, Mr. Chair, an exhibit that has been entered by the Bureau at Exhibit 1.

1LISTNUM 1 \l 15106            Would you agree with me that the results of that 2007 Waverman study on the impact of access regulation on facilities investments are generally consistent with the results of your own 2004 study on the same topic?

1LISTNUM 1 \l 15107            MR. CRANDALL:  They are generally consistent, but they are in a completely different environment.

1LISTNUM 1 \l 15108            Ingraham, Singer and I were looking at the choice between using a local loop and building your own facility to deliver, basically, voice services.


1LISTNUM 1 \l 15109            The Waverman study, as I recall, looks at Europe and the choice ‑‑ the effect of unbundled loop rates on the growth of alternative platforms to deliver broadband and finds that the lower the local loop rate, the less construction of alternative facilities and the fewer subscribers on alternative platforms.

1LISTNUM 1 \l 15110            So it's slightly different, but it's in the same spirit.

1LISTNUM 1 \l 15111            MS PALUMBO:  But both documents found the impact on investment to be negative, isn't that correct?

1LISTNUM 1 \l 15112            MR. CRANDALL:  Yes.

1LISTNUM 1 \l 15113            MS PALUMBO:  Okay.  Therefore, can we conclude that, based on your writings and based on your literature, the impact of mandatory unbundling on CLEC investment is negative?

1LISTNUM 1 \l 15114            MR. CRANDALL:  I think that's what the literature shows to this point.  Those of us who have engaged in these studies find that.  Obviously, this is an evolving literature, but I think that is certainly a reasonable conclusion to draw from it at that this point.

1LISTNUM 1 \l 15115            MS PALUMBO:  Thank you, Dr. Crandall.  I will move on now to another area.

1LISTNUM 1 \l 15116            You are also familiar with Dr. Willig's publication entitled, "Stimulating Investment in the Telecommunications Act of 1996"?

1LISTNUM 1 \l 15117            MR. CRANDALL:  Yes.


1LISTNUM 1 \l 15118            MS PALUMBO:  And in fact, you do cite this paper in your textbook 2005, "Competition and Chaos"?

1LISTNUM 1 \l 15119            MR. CRANDALL:  Yes.

1LISTNUM 1 \l 15120            MS PALUMBO:  And, in essence, would you agree with me that Dr. Willig concluded that the ILEC investment increased with decreasing access prices to mandated facilities?  That was his conclusion.

1LISTNUM 1 \l 15121            MR. CRANDALL:  Yes.

1LISTNUM 1 \l 15122            MS PALUMBO:  And you were critical of those findings.  Is that correct?

1LISTNUM 1 \l 15123            MR. CRANDALL:  Correct.

1LISTNUM 1 \l 15124            MS PALUMBO:  Could you explain to us why you were critical, Dr. Crandall?

1LISTNUM 1 \l 15125            MR. CRANDALL:  Well, the basic reason on a priori grounds, to be critical, is that Willig and associates ‑‑ again, this was a multi‑author study ‑‑looked at investment in the ILECs cumulated over, as I recall, without going back to the actual document, '96, '97, '98, '99, 2000, 2001, 2002, as a function of a number of variables that all of us would put in such an equation, but then the UNE‑P rate in 2001.


1LISTNUM 1 \l 15126            Since the UNE‑P didn't even get started until 1999, it would have taken incredible foresight, on the part of the ILECs, to know that there would be a UNE‑P, and what the UNE‑P rates would be across states, to drive their '96, '97, '98, '99, 2000 investment.  So on a priori grounds, it turns out, I think, you have to be sceptical.

1LISTNUM 1 \l 15127            I then went and re‑estimated his results, breaking down the periods, looking at the earlier period and the late period, and I found that the result is strongest in the earlier period, that is '96, '97, '98 and '99, which would suggest something else is going on here.

1LISTNUM 1 \l 15128            And my conclusion, ultimately was ‑‑ or tentative conclusion, I wouldn't say that I would claim that it couldn't be rebutted, but my tentative conclusion was that what was happening was that in those states in which the ILECs invested most, they obtained, subsequently, the lowest UNE‑P rates, perhaps because their networks are most efficient in the arbitration process that weighed on them and got them a lower UNE‑P rate, so that the causation may have been running from investment to UNE‑P rate, not from UNE‑P rate back to investment in some historical period.

1LISTNUM 1 \l 15129            MS PALUMBO:  Thank you for that.


1LISTNUM 1 \l 15130            Are you aware of any other studies, other than Willig's report, which you have just refuted, that have found a positive relationship between ILEC investment and decreasing access prices?

1LISTNUM 1 \l 15131            MR. CRANDALL:  Well, there were a couple of things done by a place called the Phoenix Centre, but I don't think they were very well done either.

1LISTNUM 1 \l 15132            MS PALUMBO:  You don't think they were very well done?

1LISTNUM 1 \l 15133            MR. CRANDALL:  No, no, no.

1LISTNUM 1 \l 15134            MS SONG:  Mr. Chairman, I think it's MTS's turn to interject at this point.

1LISTNUM 1 \l 15135            I listened very carefully to the first series of questions addressed by counsel for the Bureau.  It did not lead to any question in relation to Dr. Crandall's actual evidence in this proceeding, nor did it test any of the conclusions or statements made by Dr. Crandall.

1LISTNUM 1 \l 15136            She is now taking Dr. Crandall through yet new and further evidence not filed by himself in this proceeding, and we really question whether or not this is a true cross‑examination in the spirit of what a true cross should be.

1LISTNUM 1 \l 15137            MS PALUMBO:  I'm sorry, Mr. Chairman, I thought cross‑examination was an exercise to elicit information to assist the Commission in coming to a complete and thorough understanding of the issues.


1LISTNUM 1 \l 15138            We have heard some evidence from other parties in relation to Dr. Crandall's textbooks and publications, and I think it is only correct that the Commission have a full understanding of what Dr. Crandall meant.

1LISTNUM 1 \l 15139            In fact, I believe one of my colleagues from Bell initiated a cross‑examination exercise of Dr. Ware particularly on Dr. Crandall's findings.

1LISTNUM 1 \l 15140            Dr. Crandall is here and is able to now clarify those findings.

1LISTNUM 1 \l 15141            MS SONG:  I think that counsel has aptly actually stated what the problem is.  She said that her first line of questioning had to do with the impact of mandated access on decisions to invest.  I note that the Bureau did not choose to actually examine the parties to this proceeding on that very issue and is now leading this panel through something akin to examination in‑chief.

1LISTNUM 1 \l 15142            THE CHAIRPERSON:  Mr. Rogers?

1LISTNUM 1 \l 15143            MR. ROGERS:  Mr. Chairman, very briefly.


1LISTNUM 1 \l 15144            A fair reading of the record of this proceeding, going back to the beginning, the original statements, would lead anyone to conclude that there are some fundamental differences between the approach recommended by the Bureau and that recommended by TELUS.

1LISTNUM 1 \l 15145            If you look at the definitions of the central facility, and so on, the two parties have not started in the same place at all and that was explored through the record.

1LISTNUM 1 \l 15146            Through the examination being conducted by the Bureau, in my view it is perfectly reasonable to test the boundaries and find out where there are limits, where there is commonality and where the parties cannot agree.  All of that will go into the recommendations that will be made into final argument.

1LISTNUM 1 \l 15147            It seems to me it is perfectly appropriate for the Bureau to explore that.

1LISTNUM 1 \l 15148            THE CHAIRPERSON:  I tend to agree with you.  This is cross‑examination and obviously you can ask leading questions.

1LISTNUM 1 \l 15149            On the other hand, Ms Palumbo, maybe what you can do is tie it into what your own experts brought out.  Rather than asking him what he stands for, you can say, "Our witness Dr. Ware said so‑and‑so.  Do you agree with it or not?"  And find out the relevance rather than doing something which sounds, I must say, very akin to direct examination.


1LISTNUM 1 \l 15150            So try to tie it back to your expert evidence.

1LISTNUM 1 \l 15151            MS PALUMBO:  Dr. Crandall, the Bureau has taken the position that the impact on investment in facilities is a consideration that must go to cost‑benefit analysis when the Commission is determining whether or not to mandate access to particular facilities.

1LISTNUM 1 \l 15152            Do you agree with that?

1LISTNUM 1 \l 15153            MR. CRANDALL:  I certainly agree that in telecommunications it is very important to stimulate investment in new technologies and new competitive platforms in order to provide consumer benefits.  Investment is very important, yes.

1LISTNUM 1 \l 15154            MS PALUMBO:  One final question for you.

1LISTNUM 1 \l 15155            Dr. Ware summarizes your view that you expressed in your textbook entitled "Competition in Chaos", and this is what he says in regard to your book.

1LISTNUM 1 \l 15156            He says:


"Crandall 2005 reviewed all of the empirical studies to date and concluded that when carefully analyzed, none of the studies supported the view that mandatory access rates had influenced the level of capital spending by Bell companies."

1LISTNUM 1 \l 15157            Do you agree with that characterization?

1LISTNUM 1 \l 15158            MR. CRANDALL:  I do agree with that, yes.

1LISTNUM 1 \l 15159            MS PALUMBO:  Thank you very much, Dr. Crandall.

1LISTNUM 1 \l 15160            Those are my questions, Mr. Chairman.

1LISTNUM 1 \l 15161            THE CHAIRPERSON:  Thank you.

1LISTNUM 1 \l 15162            Commissioner Cram, you had some questions?

1LISTNUM 1 \l 15163            COMMISSIONER CRAM:  Dr. Crandall, how then would you explain the Canadian experience?

1LISTNUM 1 \l 15164            We have had local loop rates, initially I think at Phase 2 plus 25 per cent, and then we reduced it in 2005 to Phase 2 plus 15 per cent.

1LISTNUM 1 \l 15165            Our monitoring report shows in 2006 that the ‑‑ it is the 2006 monitoring report, which I believe is an exhibit here.

1LISTNUM 1 \l 15166            Maybe somebody can get a copy of that; and 2007.


1LISTNUM 1 \l 15167            In the 2006 it is Figure 4.2.5 and in 2007 it is Figure 4.2.2.

1LISTNUM 1 \l 15168            In the 2007 it is at page 46.  And I don't have a page because this is out of the Web for the 2006.

‑‑‑ Pause

1LISTNUM 1 \l 15169            COMMISSIONER CRAM:  Do you have it?

1LISTNUM 1 \l 15170            In the very times that we reduced the margin, in the 2006 report for 2005 we had 27 per cent owned facilities by alternate telecom service providers.  And in the next year it increased from 27 per cent to 41 per cent.

1LISTNUM 1 \l 15171            Now can you tell me how I should interpret that?

1LISTNUM 1 \l 15172            MR. CRANDALL:  I don't know because I haven't tried ‑‑ first of all, I understand there is some dispute about the numbers.  But presuming the numbers are right, I don't know where that is coming from.  I don't know to what extent that is coming from perhaps cable extending into small businesses at the time when they are obviously offering a lot of VoIP telephony.  There has been a huge increase in cable telephony.

1LISTNUM 1 \l 15173            So I simply don't know where that is coming from.


1LISTNUM 1 \l 15174            I don't think anything in that comparison, though, refutes the notion that providing very low cost access to incumbents' facilities at the margin reduces the incentive to invest.

1LISTNUM 1 \l 15175            There is investment going on.  There is no doubt about it.  It has been a prosperous time.

1LISTNUM 1 \l 15176            In your model explaining investment, you want to take into account the degree of prosperity, yes.

1LISTNUM 1 \l 15177            COMMISSIONER CRAM:  You do agree with me that it is, I guess, the exact opposite of the American experience then.

1LISTNUM 1 \l 15178            MR. CRANDALL:  No, I'm not sure it is the exact opposite of the American experience.

1LISTNUM 1 \l 15179            First of all, we have no evidence at this point from our Federal Communications Commission about what has happened in the last year or so to local access lines.  They haven't published the data for some reason or another.

1LISTNUM 1 \l 15180            What I was referring to earlier was mostly to the mass market.  Here I think you are looking entirely at the business market.

1LISTNUM 1 \l 15181            COMMISSIONER CRAM:  I am, yes.


1LISTNUM 1 \l 15182            MR. CRANDALL:  Yes.  So it does not run counter to the United States.  The United States has had a huge amount of building of alternative facilities to reach Enterprise customers and business customers as well.  Whether we have had that kind of an increase in a year, as I say, I simply don't know because we don't have the numbers.

1LISTNUM 1 \l 15183            COMMISSIONER CRAM:  So notwithstanding price then you have had increases, you think?

1LISTNUM 1 \l 15184            MR. CRANDALL:  I don't know what has happened recently.  We had enormous building of alternative facilities back in the bubble period obviously seeking to connect customers on the basis that there was going to be enormous growth in Internet traffic.

1LISTNUM 1 \l 15185            So there are other things that drive investment besides unbundled loop rates.

1LISTNUM 1 \l 15186            At this juncture I think unbundled loop rates would be very important.

1LISTNUM 1 \l 15187            COMMISSIONER CRAM:  You said that ILEC Capex was down in 04‑05 because of the regulatory uncertainty.

1LISTNUM 1 \l 15188            I think it's CRTC Exhibit 1 that shows the ILEC Capex as reported by the FCC.

1LISTNUM 1 \l 15189            Can that document be given to Dr. Crandall?  I have it.


1LISTNUM 1 \l 15190            It's the one from the FCC.  Or do you in fact have that?

1LISTNUM 1 \l 15191            MR. CRANDALL:  I don't have it with me now, sorry.

‑‑‑ Pause

1LISTNUM 1 \l 15192            COMMISSIONER CRAM:  Here, I can give you this one.  I can just read off it.

1LISTNUM 1 \l 15193            You said it went up after 2004‑2005.  From what I'm looking, it went up marginally.

1LISTNUM 1 \l 15194            Would you agree with that?

1LISTNUM 1 \l 15195            MR. CRANDALL:  Over what period are you talking?

1LISTNUM 1 \l 15196            COMMISSIONER CRAM:  You said at the end of 2004‑2005 Capex was down because of regulatory uncertainty.  But Capex, really from 2005 on, has not sky‑rocketed at all.  In fact, it looks to me like there is ‑‑ is that $2 billion increase in both plant ‑‑ well, plant additions?

1LISTNUM 1 \l 15197            It's not a big number.

1LISTNUM 1 \l 15198            MR. CRANDALL:  Okay.  You are looking at the column "Total Plant Additions" as opposed to "Telephone Plant Additions".

1LISTNUM 1 \l 15199            COMMISSIONER CRAM:  Yes.


1LISTNUM 1 \l 15200            MR. CRANDALL:  Well, both of them show a decline until 2003 ‑‑ 2004, I'm sorry, and then a recovery.  The one shows about a 40 per cent increase 2004 to 2006, and the other one shows about a 22 per cent or so increase.

1LISTNUM 1 \l 15201            I think that is a rather substantial increase.

1LISTNUM 1 \l 15202            By the way, if you extend this now out to 2007, I think you will see it is continuing to grow because of the enormous amount being spent by Verizon and its fibre rollout.

1LISTNUM 1 \l 15203            COMMISSIONER CRAM:  Yes, fibre to the home.

1LISTNUM 1 \l 15204            So you think this increase is significant.

1LISTNUM 1 \l 15205            MR. CRANDALL:  Yes, I think the turnaround is significant and I think that it is driven very much by investment in new technology, namely, fiber to the home.  Yes.

1LISTNUM 1 \l 15206            COMMISSIONER CRAM:  Thank you.

1LISTNUM 1 \l 15207            THE CHAIRPERSON:  Okay, thank you.

1LISTNUM 1 \l 15208            MR. McCALLUM:  Mr. Chair?

1LISTNUM 1 \l 15209            THE CHAIRPERSON:  Yes.


1LISTNUM 1 \l 15210            MR. McCALLUM:  Miss Palumbo can correct me if I am wrong but I believe the two documents that she distributed have only been referred to in footnotes and so I would propose to make the "Competition and Chaos" document Bureau Exhibit 6 and the second one, "Do Unbundling Policies Discourage CLEC Facilities‑Based Investment?" as Bureau Exhibit 7.

EXHIBIT BUREAU‑6:  Article by Robert W. Crandall entitled: Competition and Chaos, U.S. Telecommunications since the 1996 Telecom

EXHIBIT BUREAU‑7:  Topics in Economic Analysis & Policy, Volume 4, Issue 1, 2004, Article 14 re: Do Unbundling Policies Discourage CLEC Facilities‑Based Investment

1LISTNUM 1 \l 15211            MS PALUMBO:  That is fine.

1LISTNUM 1 \l 15212            THE CHAIRPERSON:  Okay.  Thank you, Miss Palumbo.

1LISTNUM 1 \l 15213            THE SECRETARY:  Thank you very much.

1LISTNUM 1 \l 15214            I am calling on the Shaw panel, counsel Milton.

‑‑‑ No response / Aucune réponse

1LISTNUM 1 \l 15215            THE SECRETARY:  We have been notified that she withdrew her intention to cross‑examine.

1LISTNUM 1 \l 15216            Therefore, we can move perhaps to the next panel.

1LISTNUM 1 \l 15217            THE CHAIRPERSON:  Okay.


1LISTNUM 1 \l 15218            THE SECRETARY:  MTS Allstream, please Mr. Koch.

‑‑‑ Pause

1LISTNUM 1 \l 15219            THE CHAIRPERSON:  Okay, Mr. Koch.

EXAMINATION / INTERROGATOIRE

1LISTNUM 1 \l 15220            MR. KOCH:  Good morning, Mr. Chairman, commissioners.  Good morning, panel.

1LISTNUM 1 \l 15221            Dr. Crandall, perhaps I could just start with a couple of questions on the exhibits that were just entered.

1LISTNUM 1 \l 15222            The first exhibit was the excerpt from your book.  Now, as I understand it, this book deals with the effect of the wholesale unbundling regime on incumbent spending; correct?

1LISTNUM 1 \l 15223            MR. CRANDALL:  The book deals with the effect of the '96 Act on U.S. telecommunications.  The effect on incumbents is part of it.

1LISTNUM 1 \l 15224            MR. KOCH:  Okay.  These excerpts though that have been introduced deal with incumbents?

1LISTNUM 1 \l 15225            MR. CRANDALL:  Yes.  Yes.  I believe so, yes.

1LISTNUM 1 \l 15226            MR. KOCH:  And you fairly ‑‑


1LISTNUM 1 \l 15227            MR. CRANDALL:  No ‑‑ wait a minute, let me look at this.  The last set of questions in that appendix dealt with incumbents.  Other aspects of this deal with the entrants.

1LISTNUM 1 \l 15228            MR. KOCH:  Okay.  But the portions that Miss Palumbo read to you, for example, at 37 and 69 ‑‑ well actually at 69, the heading is, at the top of the page, "Effect of the 1996 Act on Incumbent Local Companies"; correct?

1LISTNUM 1 \l 15229            MR. CRANDALL:  I think ‑‑ let me just check one thing.

‑‑‑ Pause

1LISTNUM 1 \l 15230            MR. CRANDALL:  Page 69 is an excerpt from a chapter entitled "Effect on the Local Incumbent Companies," yes.

1LISTNUM 1 \l 15231            MR. KOCH:  Okay.  And the second paragraph under the heading "Capital Expenditures" says:

"How far the wholesale unbundling regime affected Bell Companies' incentives to invest is the subject of lively debate." (As read)

1LISTNUM 1 \l 15232            MR. CRANDALL:  Yes.

1LISTNUM 1 \l 15233            MR. KOCH:  And it continues to be, does it not?  I mean, in fairness, you indicated that the literature is evolving in this area.


1LISTNUM 1 \l 15234            MR. CRANDALL:  It does not continue to be much of a source of debate in the United States.  Now, it has turned to sort of the international arena and the effect of unbundling and line sharing arrangements on capital spending to deliver broadband.

1LISTNUM 1 \l 15235            MR. KOCH:  Okay.  Now, you said that there was a ‑‑ my note says that you indicated there was a sharp decline in ILEC spending due in part to expansion of the unbundling regime.

1LISTNUM 1 \l 15236            What period of time were you speaking of there?

1LISTNUM 1 \l 15237            MR. CRANDALL:  The decline begins around 2000.  The expansion of the unbundling regime in late '99 to the UNE‑P, I think, could arguably be said to have had some impact on that.

1LISTNUM 1 \l 15238            MR. KOCH:  Arguably said to have some impact?

1LISTNUM 1 \l 15239            MR. CRANDALL:  Yes.  Yes.  Yes.

1LISTNUM 1 \l 15240            MR. KOCH:  Okay.  And there are other factors at play, correct?

1LISTNUM 1 \l 15241            MR. CRANDALL:  Oh! Certainly.  The bursting of the telecom bubble in the stock market certainly had an effect.

1LISTNUM 1 \l 15242            MR. KOCH:  Okay, thank you.


1LISTNUM 1 \l 15243            The other article that Miss Palumbo referred you to, Topics in Economic Analysis and Policy, this dates it around the same time as your book, is that correct, 2004?

1LISTNUM 1 \l 15244            MR. CRANDALL:  Yes, it is published a little earlier than the book.

1LISTNUM 1 \l 15245            MR. KOCH:  Okay.  And the analysis that you do in this paper is really based on a regression analysis; is that correct?

1LISTNUM 1 \l 15246            MR. CRANDALL:  Yes.

1LISTNUM 1 \l 15247            MR. KOCH:  So you take a number of factors and you try and draw inferences or correlations between those factors?

1LISTNUM 1 \l 15248            MR. CRANDALL:  Yes.

1LISTNUM 1 \l 15249            MR. KOCH:  And from that you draw whatever conclusions you do or do not draw in your paper; correct?

1LISTNUM 1 \l 15250            MR. CRANDALL:  Correct.

1LISTNUM 1 \l 15251            MR. KOCH:  Okay.  Now, if I could ask you to turn to page 1 under the introduction, you indicate here ‑‑ there is a long paragraph.  It is the second paragraph under the heading "Introduction."

1LISTNUM 1 \l 15252            You indicate, about seven or eight lines from the bottom:


"Proponents of mandatory unbundling argued that unbundled loops by themselves could generate facilities‑based investments in the future but we are unaware of any data that supports the stepping stone hypothesis.  In particular, they argue that unbundled network elements would in some situations serve as a transitional arrangement until fledgling competitors could develop a customer base and complete construction of their own networks." (As read)

1LISTNUM 1 \l 15253            As I understood ‑‑ and you will have to appreciate I only have those excerpts, those parts of the article that Miss Palumbo produced today.

1LISTNUM 1 \l 15254            But as I understand it from the brief description of your regression analysis, you did a regression analysis that compares the loops that are leased under the various unbundling arrangements and the loops that are built by competitors; correct?

1LISTNUM 1 \l 15255            MR. CRANDALL:  Right.

1LISTNUM 1 \l 15256            MR. KOCH:  Okay.

1LISTNUM 1 \l 15257            MR. CRANDALL:  It is the ratio of the two, yes.


1LISTNUM 1 \l 15258            MR. KOCH:  Right.  So you do not deal then ‑‑ that regression analysis does not deal then with the argument that my client, among others, are making that by making the physical layer available, there will be investment and innovation at other layers in the network; correct?

1LISTNUM 1 \l 15259            MR. CRANDALL:  We do ‑‑ as Miss Palumbo indicated, we do a little analysis of what has happened to the change in facilities‑based investment over time but it is for a limited period and I would agree with you that we do not have dispositive results of whether after our period those people using unbundled loops might have built their own facilities.

1LISTNUM 1 \l 15260            I think the evidence coming out of the United States is that they did not though.

1LISTNUM 1 \l 15261            MR. KOCH:  Doctor ‑‑ is it Professor Robinson or Dr. Robinson?

1LISTNUM 1 \l 15262            PROF. ROBINSON:  It is professor.

1LISTNUM 1 \l 15263            MR. KOCH:  Professor Robinson, welcome.  Welcome to Canada.

1LISTNUM 1 \l 15264            THE CHAIRPERSON:  Excuse me.

1LISTNUM 1 \l 15265            Could you just repeat what you just said, Mr. Crandall, your last statement?

1LISTNUM 1 \l 15266            MR. CRANDALL:  I am sorry?


1LISTNUM 1 \l 15267            THE CHAIRPERSON:  Could you repeat your last statement?

1LISTNUM 1 \l 15268            MR. CRANDALL:  My very last statement was that I do not believe the evidence coming from the United States would show that those people who used either the UNE‑P, the total unbundled network platform, or loops have moved into providing their own facilities.

1LISTNUM 1 \l 15269            I mean there may be some exceptions to this among small regional players in the business market and maybe even one or two national players but I don't think ‑‑ unfortunately, we don't have the data past June 2006 but I think it is going to show that most of the facilities‑based competition in the United States for telephony is coming from the cable companies, not from people building loops who were once using the UNE‑P or UNE loops.

1LISTNUM 1 \l 15270            THE CHAIRPERSON:  But doesn't that undermine the central premise of your thesis that you should not mandate these services in order to encourage investment?

1LISTNUM 1 \l 15271            MR. CRANDALL:  I am not saying you should not.  What we were doing is looking at the effects of unbundled loop rates on investment.  I am not concluding you shouldn't do it at all.


1LISTNUM 1 \l 15272            I think you should continue to look at the effects on investment.  If you find the effects on investment are sufficiently negative, it ought to cause you to be very cautious in requiring any such unbundling.

1LISTNUM 1 \l 15273            THE CHAIRPERSON:  When I said you, I guess I meant your client.  I mean your client TELUS, for whom you are the expert witness, is in this proceeding suggesting to us that we should not mandate anything, that essentially there are no essential services and we should only take an ex post facto approach if there is a problem somewhere and part of the reason being advanced is that mandating discourages investment.

1LISTNUM 1 \l 15274            MR. CRANDALL:  Yes.  Yes, and that is what I am here to testify about.  I am not here to ‑‑ I haven't really spent much time with their specific proposal.

1LISTNUM 1 \l 15275            Over time, that which is an essential facility certainly must be declining and I am certainly sympathetic with the notion that one would have a contracting number of essential facilities over time but I haven't looked at it in the context of Canada.

1LISTNUM 1 \l 15276            THE CHAIRPERSON:  Okay, thank you.


1LISTNUM 1 \l 15277            MR. KOCH:  Professor Robinson, in your report you discuss the essential facilities doctrine that emerges from the U.S. anti‑trust jurisprudence; correct?

1LISTNUM 1 \l 15278            PROF. ROBINSON:  Yes, that is correct.

1LISTNUM 1 \l 15279            MR. KOCH:  Okay.  And one of the things, is it fair to say, that you take from that jurisprudence is that the obligation to share a facility with a competitor is an exceptional or rare obligation under that jurisprudence?

1LISTNUM 1 \l 15280            PROF. ROBINSON:  It is exceptional.

1LISTNUM 1 \l 15281            MR. KOCH:  Okay.  In fact, you say ‑‑ and I don't know whether it is necessary to turn up the page because I want to try and move efficiently through the cross‑examination.

1LISTNUM 1 \l 15282            You say at page 2, paragraph 5(a) of your report:

"The essential facilities doctrine is an unusual exception to the general principle that firms do not have a duty to deal with other firms and particularly not with their competitors." (As read)


1LISTNUM 1 \l 15283            Now, just so we can all understand, this jurisprudence that you are referring to, this arises out of private anti‑trust enforcement in the United States; correct?

1LISTNUM 1 \l 15284            PROF. ROBINSON:  Well, the cases are private.  I mean the jurisprudence is general.

1LISTNUM 1 \l 15285            MR. KOCH:  Right.

1LISTNUM 1 \l 15286            PROF. ROBINSON:  It is the same jurisprudence for public and private.  It just happens that there are virtually no government cases.

1LISTNUM 1 \l 15287            MR. KOCH:  Okay.  So the cases that you are citing are about private litigants bringing private actions?

1LISTNUM 1 \l 15288            PROF. ROBINSON:  That is correct.

1LISTNUM 1 \l 15289            MR. KOCH:  And the cases you cite arise in a variety of industries; correct?

1LISTNUM 1 \l 15290            PROF. ROBINSON:  That is correct.

1LISTNUM 1 \l 15291            MR. KOCH:  Okay.  Indeed, one of the seminal cases, Associated Press, is about access to the AP news pool; correct?

1LISTNUM 1 \l 15292            PROF. ROBINSON:  I am sorry, I didn't hear that.

1LISTNUM 1 \l 15293            MR. KOCH:  One of the seminal cases you cite, the Associated Press case, is about non‑discriminatory access to the AP News pool, correct?

1LISTNUM 1 \l 15294            PROF. ROBINSON:  This is correct.


1LISTNUM 1 \l 15295            MR. KOCH:  And one of the other cases, Aspen Skiing, that is the leading case you say on unilateral refusal to deal, that arose in the ski industry, correct?

1LISTNUM 1 \l 15296            PROF. ROBINSON:  Yes, that was not an essential facilities doctrine case.

1LISTNUM 1 \l 15297            MR. KOCH:  Okay.  But it is one of the body of jurisprudence that you cite in your report?

1LISTNUM 1 \l 15298            PROF. ROBINSON:  I don't cite it as an essential facilities doctrine case.

1LISTNUM 1 \l 15299            MR. KOCH:  I am not saying you are.

1LISTNUM 1 \l 15300            PROF. ROBINSON:  Oh, yes I do.

1LISTNUM 1 \l 15301            MR. KOCH:  Professor Robinson, thank you.

1LISTNUM 1 \l 15302            Now, in this general context of the general economy would you have been surprised if the court had held there was a general duty to share?

1LISTNUM 1 \l 15303            PROF. ROBINSON:  Yes, I would be very surprised.


1LISTNUM 1 \l 15304            MR. KOCH:  Okay.  In your report at page 19 you cite the U.S. Supreme Court's 2004 decision in Verizon and Trinko, you go from page 19 over to 20.  Just so we can move through it quickly, Professor Robinson, you will agree with me that was a case regarding the alleged failure of Verizon, a U.S. ILEC, to provide adequate access to unbundled elements of its local exchange network, correct?

1LISTNUM 1 \l 15305            PROF. ROBINSON:  That is correct.

1LISTNUM 1 \l 15306            MR. KOCH:  And you say in your report, the Supreme Court did not accept or reject the essential facilities doctrine in that case, but simply held that it served no purpose where regulatory remedies were available, correct?

1LISTNUM 1 \l 15307            PROF. ROBINSON:  That is correct.

1LISTNUM 1 \l 15308            MR. KOCH:  Okay.  So that case, is it not fair to say, stands to the proposition that there is no role for private antitrust enforcement in the context of an industry subject to a specific regulatory scheme such as the U.S. Telecom Act of 1996, correct?

1LISTNUM 1 \l 15309            PROF. ROBINSON:  As a matter of antitrust law, yes, that is the way I interpret it.

1LISTNUM 1 \l 15310            MR. KOCH:  In other words, the point of Trinko is that antitrust laws were not the proper route where a statutory scheme existed that was directly applicable to the telecommunications industry?

1LISTNUM 1 \l 15311            PROF. ROBINSON:  At least as a matter of private enforcement, yes.

1LISTNUM 1 \l 15312            MR. KOCH:  Now, is the statutory regime for unbundling of network elements in the U.S. 1996 Act based on U.S. antitrust doctrine of essential facilities?


1LISTNUM 1 \l 15313            PROF. ROBINSON:  No, it is not.

1LISTNUM 1 \l 15314            MR. KOCH:  No.  Are you familiar with the statutory regime set out in the Telecommunications Act in Canada?

1LISTNUM 1 \l 15315            PROF. ROBINSON:  Am I familiar with the statutory regime?

1LISTNUM 1 \l 15316            MR. KOCH:  Yes.

1LISTNUM 1 \l 15317            PROF. ROBINSON:  Only in a very general way.

1LISTNUM 1 \l 15318            MR. KOCH:  Okay.  Are you aware that the Act gives the federal cabinet the power to bury CRTC decisions and also to issue general policy directions to the CRTC?

1LISTNUM 1 \l 15319            PROF. ROBINSON:  Yes.

1LISTNUM 1 \l 15320            MR. KOCH:  Okay.  Are you aware that the federal cabinet in Canada has in fact articulated a policy in favour of facilities‑based competition?

1LISTNUM 1 \l 15321            PROF. ROBINSON:  Yes.

1LISTNUM 1 \l 15322            MR. KOCH:  In this context, are you aware that the federal cabinet has defined facilities‑based competition or competitors as including those who compete, using a combination of their own facilities and facilities leased from incumbents, in other words shared facilities?


1LISTNUM 1 \l 15323            PROF. ROBINSON:  Are you referring to the forbearance variation order?

1LISTNUM 1 \l 15324            MR. KOCH:  Yes, I am.

1LISTNUM 1 \l 15325            PROF. ROBINSON:  Yes, I am familiar.

1LISTNUM 1 \l 15326            MR. KOCH:  Okay.  We talked about what would be surprising in a private antitrust context in the United States.  I think you agreed that it would have been surprising to find that there was a general obligation to share.  But would you not agree with me that in the context of a specific statutory regime such as the Telecom Act and, specifically, the government's recognition that it was promoting facilities‑based competition and including in its definition of facilities‑based competitors those that use both their own facilities and leased facilities that it would be far less surprising if the Commission were to treat the obligation to share essential facilities not as an exceptional obligation but rather as a necessary part of its mandate?

1LISTNUM 1 \l 15327            That's a long question, sorry.

1LISTNUM 1 \l 15328            PROF. ROBINSON:  Mr. Koch, I think you lost me there.  I don't whether we are talking about the U.S. or we are talking about Canada at this point.

1LISTNUM 1 \l 15329            MR. KOCH:  Okay, we are talking about Canada.


1LISTNUM 1 \l 15330            PROF. ROBINSON:  When you asked me before about would I be surprised, it was in reference to would I be surprised about the U.S. experience.

1LISTNUM 1 \l 15331            MR. KOCH:  Correct, and the private antitrust litigation experience.

1LISTNUM 1 \l 15332            PROF. ROBINSON:  Yes.

1LISTNUM 1 \l 15333            MR. KOCH:  That was the context.

1LISTNUM 1 \l 15334            PROF. ROBINSON:  Yes.  I don't ‑‑ yes.

1LISTNUM 1 \l 15335            MR. KOCH:  The point I am making is it would be a lot less surprising, I am suggesting to you, in the context of a commission like this one with a statutory mandate and with a government that has told it that it favours facilities‑based competition including, from competitors sharing facilities, to find that the obligation to share essential facilities is not such an exceptional obligation.

1LISTNUM 1 \l 15336            PROF. ROBINSON:  Well, the premise of your question seems to rest on the forbearance order and I don't know why that would be pertinent here.  I mean, we are not talking about forbearance, we are talking about mandatory access.

1LISTNUM 1 \l 15337            MR. KOCH:  But you understand that the Commission has to make its decision in the context of the overall regulatory scheme in Canada?


1LISTNUM 1 \l 15338            PROF. ROBINSON:  Well yes, of course.

1LISTNUM 1 \l 15339            MR. KOCH:  Okay.  And that would include the retail forbearance?

1LISTNUM 1 \l 15340            PROF. ROBINSON:  Well, I don't know what you are getting at.  It doesn't follow that it would have to include the definition of facilities‑based competition used in the forbearance variation order if that is what you mean.  I don't see the connection.

1LISTNUM 1 \l 15341            MR. KOCH:  Well, I won't take you into interpreting Canadian law.  Perhaps I'll go to the next area of my cross‑examination.

1LISTNUM 1 \l 15342            Is it Dr. Crandall or Professor Crandall with you?

1LISTNUM 1 \l 15343            MR. CRANDALL:  Well, I'm a PhD and I don't teach at this time, so call me Mr. Crandall, I don't care.

‑‑‑ Laughter / Rires

1LISTNUM 1 \l 15344            MR. KOCH:  Once I had a case where someone went from being Dr. to Mr. to witness, I will try not to take you down that path, Dr. Crandall.

1LISTNUM 1 \l 15345            As I understand it, you filed two pieces.  You filed one in respect of the U.S. ‑‑

1LISTNUM 1 \l 15346            MR. CRANDALL:  Experience, yes.


1LISTNUM 1 \l 15347            MR. KOCH:  ‑‑ experience and one in respect of the UK experience, correct?

1LISTNUM 1 \l 15348            MR. CRANDALL:  Yes.

1LISTNUM 1 \l 15349            MR. KOCH:  Okay.  The one on the U.S. was intended as a response to Dr. Selwyn, correct?

1LISTNUM 1 \l 15350            MR. CRANDALL:  Yes.

1LISTNUM 1 \l 15351            MR. KOCH:  Now, if I could ask you to turn up that piece perhaps.

1LISTNUM 1 \l 15352            Do you have that, Dr. Crandall?

1LISTNUM 1 \l 15353            MR. CRANDALL:  Yes, I do.

1LISTNUM 1 \l 15354