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 30, 2007                      Le 30 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 30, 2007                  Le 30 octobre 2007

 

- iv -

 

           TABLE DES MATIÈRES / TABLE OF CONTENTS

 

 

                                                 PAGE / PARA

 

RESUMED:  DR. KEVIN HICKEY                     2721 / 16713

RESUMED:  TED CHISLETT

RESUMED:  JOE BOUTROS

RESUMED:  DR. LEE SELWYN

 

Cross-examination by The Companies (Mr. Daniels)     2721 / 16714

Cross-examination by The Companies (Mr. Hofley) 2773 / 17062

Cross-examination by TELUS                     2816 / 17362

 

 

AFFIRMED:  MARCEL MERCIA                       2851 / 17609

 

Examination-in-chief by Cybersurf              2852 / 17611

Cross-examination by The Companies             2854 / 17635

Cross-examination by TELUS                     2867 / 17731

 

 

 

- v -

 

              EXHIBITS / PIÈCES JUSTIFICATIVES

 

 

No.                                              PAGE / PARA

 

CRTC-11:      Chart 3, FCC report re local

              competition in the U.S.,

              June 30, 2006                    2816 / 17355

 

COMPANIES-23:  Response to Exhibit 15 filed

              by Ms Song to clarification made

              on Friday, October 26            2854 / 17633

 

CRTC-10:      CRTC Staff Interrogatories

              with covering letter             2886 / 17916

 

 

 

                 Gatineau, Quebec / Gatineau (Québec)PRIVATE

‑‑‑ Upon resuming on Tuesday, October 30, 2007

    at 0826 / L'audience reprendre le mardi

    30 octobre 2007 à 0826

1 LISTNUM  "WP List 3" \l 1 \s 6712 6712            THE CHAIRPERSON:  Good morning.

1listnum "WP List 3" \l 16713            Mr. Daniels, I think we left off with you questioning.

RESUMED:  DR. KEVIN HICKEY

RESUMED:  TED CHISLETT

RESUMED:  JOE BOUTROS

RESUMED:  DR. LEE SELWYN

EXAMINATION / INTERROGATOIRE

1listnum "WP List 3" \l 16714            MR. DANIELS:  Thank you, Mr. Chair.

1listnum "WP List 3" \l 16715            Gentlemen, we were talking yesterday about your first category, which is the access category of your three categories:  access, network and interconnection.

1listnum "WP List 3" \l 16716            I would like to now turn to your second category in your opening statement, which is network facilities.

1listnum "WP List 3" \l 16717            The term "network" here refers, I take it, to the backbone from the CO, the central office, or the other logical point of interconnection to your point of presence.

1listnum "WP List 3" \l 16718            Is that correct?

1listnum "WP List 3" \l 16719            MR. CHISLETT:  It would include that, but basically in our way of thinking network is almost everything other than access.

1listnum "WP List 3" \l 16720            MR. DANIELS:  So to your point of presence, whatever you need to backhaul throughout your network and so on.

1listnum "WP List 3" \l 16721            Is it fair to say that what you call network is referred to by The Companies as transport?  Is that your understanding?

1listnum "WP List 3" \l 16722            MR. HICKEY:  It certainly would include transport.  But we include all the different layers that several witnesses have talked about.  In network, as you talked about yesterday, it involves things that are not just the transport component of access or the transport component of the facilities through the network.  But there are several higher layer functions and applications which we would include.

1listnum "WP List 3" \l 16723            Even back office support systems, to enable those things to work at some level could be included if you chose to.

1listnum "WP List 3" \l 16724            MR. CHISLETT:  I guess the other thing I would like to clarify is that when you look at the commercial marketplace, access to large buildings where there are multiple tenants, we include the network portion as well, because that is very much from an engineering/construction perspective, like a network facility.  Often competitors may put a POP in the building location as well.

1listnum "WP List 3" \l 16725            MR. DANIELS:  That is really helpful.

1listnum "WP List 3" \l 16726            To follow this along then, for the next part of this discussion I'm going to focus on the physical layer discussion.  I understand that you are saying network could include some back office functions and so on and so forth.

1listnum "WP List 3" \l 16727            Just to understand that last comment, Mr. Chislett, I want to make sure that I'm correct in understanding that in that case, when you are talking about your network when it goes to a large building, you are including the access as part of the network definition there.

1listnum "WP List 3" \l 16728            Am I misunderstanding?  I was a little bit confused when you say anything but access, but when you said to a large building it includes network.

1listnum "WP List 3" \l 16729            MR. HICKEY:  If you look at our opening statement, on the access side in the first column we say:

                      "The main characteristic of such facilities, service and functions is that new construction of such facilities is rarely economically and socially warranted by the benefits derived from such facilities.  It is for this reason that access facilities to large customers and buildings, which often are economically justifiable, have been excluded from this category.  Such access facilities are more similar to network facilities."

1listnum "WP List 3" \l 16730            MR. DANIELS:  If I understand that ‑‑ I did read that and I just want to make sure I understand.

1listnum "WP List 3" \l 16731            We are excluding from access building to large buildings.  That falls into your network categories.  And even though from an ILEC perspective, if you were buying that service from us, in that situation it would be CDN access.

1listnum "WP List 3" \l 16732            Is that correct?

1listnum "WP List 3" \l 16733            MR. CHISLETT:  Yes.

1listnum "WP List 3" \l 16734            MR. DANIELS:  So we have some situations ‑‑ CDN transport is clearly part of your network category and CDN access, part of CDN access, is part of your network category, depending if it's a DS‑3 and above maybe.

1listnum "WP List 3" \l 16735            Would that be sort of a good line to draw between when you are making this distinction?

1listnum "WP List 3" \l 16736            MR. CHISLETT:  That is certainly a not unreasonable distinction.  From our perspective, the access is once we just ‑‑ there is some level where you cannot afford to build.  So we have categorized those in access.  As you get larger capacity, then put that into part network.

1listnum "WP List 3" \l 16737            MR. DANIELS:  And whether it's to a building or even, to be honest also ‑‑ and this again will get a little confusing.

1listnum "WP List 3" \l 16738            When you are talking about a piece of network to go back to your POP, for example, from the serving CO, let's say you are in that same location, you would actually order CDN access back to your POP although you probably are at one of these higher levels as well, like at a DS‑3, I would assume.

1listnum "WP List 3" \l 16739            Is that pretty accurate?

1listnum "WP List 3" \l 16740            MR. CHISLETT:  That's quite possible and that would again be part of our network.

1listnum "WP List 3" \l 16741            MR. DANIELS:  Network, okay.  I think, therefore, we can sort of agree on the distinction here that network probably includes CDN access at DS‑3 and above.

1listnum "WP List 3" \l 16742            MR. CHISLETT:  Except for going to individual customers potentially.

1listnum "WP List 3" \l 16743            MR. DANIELS:  Sorry.  So it's different if it's going to an individual customer as opposed to a building?

1listnum "WP List 3" \l 16744            MR. CHISLETT:  You added at the very end the DS‑3 and above clarification.

1listnum "WP List 3" \l 16745            I think it's fair to say that your statement is correct with DS‑3 and above.

1listnum "WP List 3" \l 16746            MR. DANIELS:  As I understand it, network facilities is something that you could and will build.  I'm taking this from your opening statement.

1listnum "WP List 3" \l 16747            Is that a fair description?

1listnum "WP List 3" \l 16748            MR. CHISLETT:  I think network facilities are ones where we can see a path to having somebody build them.  In many cases, it may be us.  Some of them, as we have a broader description of network, includes things like central offices and terminal equipment, and things like that.

1listnum "WP List 3" \l 16749            So these are areas where we would look to invest.

1listnum "WP List 3" \l 16750            MR. DANIELS:  Did you have something you wanted to add, Mr. Hickey?

1listnum "WP List 3" \l 16751            MR. HICKEY:  Just to be clear, as I'm sure you know, Primus is not allowed to build those facilities.  We include the Globility as the builder, if that's the appropriate interpretation.

1listnum "WP List 3" \l 16752            MR. DANIELS:  That's a helpful clarification.

1listnum "WP List 3" \l 16753            If I can get you to turn ‑‑ and again, Mr. Chair, I'm in our compendium, Tab A, which is the Primus opening statement.

1listnum "WP List 3" \l 16754            I would ask you to turn to page 2 of that opening statement.

1listnum "WP List 3" \l 16755            I'm looking at the third‑last bullet.  This is where you are talking about network facilities and you say:

                      "The stepping stone approach to facilities‑based competition is working with respect to network facilities but is not applicable to access facilities."

1listnum "WP List 3" \l 16756            Do you see where that statement is?

1listnum "WP List 3" \l 16757            MR. CHISLETT:  Yes, I do.

1listnum "WP List 3" \l 16758            MR. DANIELS:  If I understand, when we talk network, this is where the stepping stone is going to work.  We give you access, if you pardon the pun.  I really should say if we give you network.

1listnum "WP List 3" \l 16759            This will lead you or someone else to build your own facilities that eventually will justify the removal of wholesale regulation of those facilities.

1listnum "WP List 3" \l 16760            Is that a fair description of your position?

1listnum "WP List 3" \l 16761            MR. CHISLETT:  We can see that over time that is a possibility.  That's right.

1listnum "WP List 3" \l 16762            MR. DANIELS:  You need time.  That is the key issue.  Right?

1listnum "WP List 3" \l 16763            MR. CHISLETT:  Certainly time is one of the key issues.

1listnum "WP List 3" \l 16764            There is a number of stepping stones to put network facilities in place.  I think if I can give you an idea as to how we have progressed over time in the stepping stones in some of these areas, initially when we came to Canada we purchased a couple of switches.  We put some leased lines in place between some major centres, but largely we resold the long distance services of other carriers and other suppliers.

1listnum "WP List 3" \l 16765            As our volume grew, we could put in more leased facilities to more carriers, more leased facilities to more cities and carry more traffic on our own network.  Interdependence on resale from other people decreased.

1listnum "WP List 3" \l 16766            Eventually our volumes grew to the stage where we were able to purchase a fibre backbone across the country.  With the fibre backbone, we then installed points of presence in most of the major cities across Canada.  We installed IP routers in these locations, SONET transport equipment, equipment for Internet dial‑up pools, and offered services across the country.

1listnum "WP List 3" \l 16767            As the evolution from there went, we had lots of Internet dial‑up business across the country.  So we then went to Globility and said I think there's an opportunity for you to become a CLEC, and rather than us purchasing these dial access facilities from Bell, for you to build them yourselves.

1listnum "WP List 3" \l 16768            So then Globility became a CLEC in these areas.  We migrated the traffic off of the telco facilities onto the CLEC facilities.

1listnum "WP List 3" \l 16769            We then worked with other players, such as Allstream, and tried to leverage off their collocation facilities that they had across the country, which they had put in place largely for commercial customers.  And we said can we leverage that investment and offer services to residential customers in the same central offices.

1listnum "WP List 3" \l 16770            So working with Allstream we got into the local business and basically valued the business model that we could provide and access customers to offer local services to them.

1listnum "WP List 3" \l 16771            Customers also wanted more than just local service.  They also want high speed Internet.  Unfortunately, Allstream wasn't able to offer a combined high speed Internet and local service.  So again we went back to Globility and sort of said we have a requirement to offer bundles, if you will, of packages to customers, and started to construct collocations of our own with Globility across Canada.

1listnum "WP List 3" \l 16772            So then we constructed 70 collocations across Canada and offered on our own facilities, with unbundled loop regime, local services, as well as high speed Internet, what we call a triple value bundle.

1listnum "WP List 3" \l 16773            As the local services built up, we then migrated from what was initially in Canada two switches in Canada to you then start distributing your switches to more out of the network rather than backhauling everything to your switches.  As you get lots of local traffic in a place like Ottawa or Montreal, you put a switch there.  So we started distributing the switches out to those locations and evolved in that manner.

1listnum "WP List 3" \l 16774            We looked at then whether it made sense for us to start building to some of these central offices and, working with Globility, concluded that in downtown Toronto it looked like we could economically start doing construction of some transport facilities to our offices and tried to construct fibre Globility to a number of locations in downtown Toronto; interconnect our offices there to replace some of the CDN facilities we had in place.

1listnum "WP List 3" \l 16775            In the process of doing that, we reached a number of impediments as far as trying to reach, get access to ‑‑

1listnum "WP List 3" \l 16776            MR. DANIELS:  Mr. Chislett ‑‑

1listnum "WP List 3" \l 16777            MR. CHISLETT:  ‑‑ and what have you in that regard.

1listnum "WP List 3" \l 16778            And at the same time what happened was here ‑‑

1listnum "WP List 3" \l 16779            MR. DANIELS:  Mr. Chislett, I was happy to let you get your speech in, because I knew you wanted to tell your story.  But maybe we should get a little bit back to the cross‑examination.

1listnum "WP List 3" \l 16780            MR. CHISLETT:  I thought you were asking about stepping stones.  Maybe I misunderstood your question, Mr. Daniels.

1listnum "WP List 3" \l 16781            MR. DANIELS:  I think at the time all I said is that you support the stepping stones.  That is all I had asked.

1listnum "WP List 3" \l 16782            But anyway, I didn't want to cut you off rudely because I think you got through your history here.  I know you wanted to get the speech in, and I wanted to make sure you got a chance to get it in.  But I think maybe we should get back to the cross‑examination.

1listnum "WP List 3" \l 16783            MR. CHISLETT:  I think that was an answer to your question.

1listnum "WP List 3" \l 16784            THE CHAIRPERSON:  Okay, enough.  Let's go.

1listnum "WP List 3" \l 16785            MR. DANIELS:  Can I understand in terms of ‑‑ how long has Primus been operating in Canada?

1listnum "WP List 3" \l 16786            MR. CHISLETT:  We have been operating in Canada for roughly ten years, and Globility has been operating in Canada for probably three years.  About 18 months we've been in the collocation regime.

1listnum "WP List 3" \l 16787            MR. DANIELS:  When you say Primus has been operating in Canada for ten years, are you including the fact that actually you purchased other assets or companies that were operating previous to that?

1listnum "WP List 3" \l 16788            MR. CHISLETT:  No.

1listnum "WP List 3" \l 16789            MR. DANIELS:  So how long?  I mean, if we go back in time, London Telecom, or whatever else, how long would you have been ‑‑ is it fair to say that we are greater than ten years?

1listnum "WP List 3" \l 16790            MR. CHISLETT:  I'm sorry, are you asking how long I've been in telecom in Canada?

1listnum "WP List 3" \l 16791            MR. DANIELS:  No.  As I understand it, Primus bought an operating company called London Telecom and that was sort of its big start.  But London Telecom had existed for another five years prior to that.

1listnum "WP List 3" \l 16792            Is that a fair statement?

1listnum "WP List 3" \l 16793            MR. CHISLETT:  The first acquisition we did in Canada was a company called Cam‑Net which was in CCAA proceedings.  That was in 1997.  Cam‑Net had been working, operating in Canada for a number of years.  In fact, I started a company in 1990 in Canada in the long distance business which we sold to Cam‑Net, which Primus eventually purchased in 1997.

1listnum "WP List 3" \l 16794            MR. DANIELS:  So we have a fair history of operation here in Canada in terms of your entity.  We are looking at ‑‑

1listnum "WP List 3" \l 16795            MR. CHISLETT:  Not as Primus.  But as far as history with competitive situation ‑‑

1listnum "WP List 3" \l 16796            MR. DANIELS:  I'm actually talking about the entity which Primus owns today, which includes Cam‑Net and London Telecom and other entities that you may have purchased, including ‑‑

1listnum "WP List 3" \l 16797            MR. CHISLETT:  Those are under different managements.  But yes, they have certainly had operating experience.

1listnum "WP List 3" \l 16798            MR. DANIELS:  Right.  If I look at page 6 of your opening statement, this is where you are discussing network facilities and services.

1listnum "WP List 3" \l 16799            You say ‑‑ and I'm looking here at page 6 of the opening statement on A.  It's the last page of the attachment.  It's a little tricky because you have to pull it out.

1listnum "WP List 3" \l 16800            In the second column there when you are discussing the stepping stone approach, the second column there under Network Facilities, in the third paragraph you say:

                      "The goal of the stepping stone approach should be to encourage long term development of competitive network facilities."

1listnum "WP List 3" \l 16801            Do you see that?

1listnum "WP List 3" \l 16802            MR. CHISLETT:  Yes, I do.

1listnum "WP List 3" \l 16803            MR. DANIELS:  Your proposition ‑‑ I just want to be clear ‑‑ when you are talking about stepping stones is in fact to encourage you to build your facilities as you were just describing.

1listnum "WP List 3" \l 16804            Then if we go over to the next column,  I'm going to jump down I don't know, maybe ten lines or so, or twelve lines, and there is a sentence that begins ‑‑ the line is traffic revenues to justify new facility and then there is a sentence that begins "Where traffic volumes".

1listnum "WP List 3" \l 16805            Do you see me?

1listnum "WP List 3" \l 16806            It's ten lines down in the third column.  There is a sentence that begins "Where traffic volumes".

1listnum "WP List 3" \l 16807            Are you with me?

1listnum "WP List 3" \l 16808            MR. CHISLETT:  Yes.

1listnum "WP List 3" \l 16809            MR. DANIELS:  Okay.

                      "Where traffic volumes justify new construction wholesale regulation can be scaled back." (As Read)

1listnum "WP List 3" \l 16810            So that is your proposition, right?  Where traffic volumes can justify new construction wholesale regulation can be scaled back.  That is your proposition, is it?

1listnum "WP List 3" \l 16811            MR. CHISLETT:  I would say over time.  I mean, our proposition is where traffic volumes can justify new construction, new construction will occur.  When there is evidence of the competitive marketplace, then wholesale regulation can be scaled back.

1listnum "WP List 3" \l 16812            MR. DANIELS:  So does this mean you support that services being priced along the principles of the Commission's existing Category 2 approach for ‑‑ I am talking strictly network facilities here, your definition of network facilities which we have talked about already ‑‑ should they be priced at Category 2 approach rather than the Category 1 approach which has a mark‑up, and I am not referring to the Commission's buckets, that is why I used the term buckets, but at cost plus 15 per cent?

1listnum "WP List 3" \l 16813            MR. CHISLETT:  No.

1listnum "WP List 3" \l 16814            MR. DANIELS:  Or is it your position that these network facilities should be at Phase 2 plus 15 per cent?

1listnum "WP List 3" \l 16815            MR. CHISLETT:  They should be at 15 per cent, that is right.

1listnum "WP List 3" \l 16816            MR. DANIELS:  Okay, so that would result in lowering the rate that you pay today, is that correct, for CDN, for these facilities that ‑‑

1listnum "WP List 3" \l 16817            MR. CHISLETT:  I defer to somebody who is ‑‑ I am an operator.  That could be the case, I don't know.

1listnum "WP List 3" \l 16818            MR. DANIELS:  Okay, so you are not sure.  But, subject to check, let us agree that CDN transport and CDN access at the higher speeds, DS‑3 and above, are priced at Category 2 rates today, which means that there is a mark‑up greater than 15 per cent.  Subject to check, can we agree to that?

1listnum "WP List 3" \l 16819            MR. CHISLETT:  I am informed that, yes, some of the higher speeds are priced at a rate greater than 15 per cent.

1listnum "WP List 3" \l 16820            MR. DANIELS:  As is, by the way, and you can confirm this again with Mr. Holmes if you like, the transport that we are talking about, as opposed to access, none of the transport has been set at Category 1 rates.

1listnum "WP List 3" \l 16821            MR. CHISLETT:  M'hmm.

1listnum "WP List 3" \l 16822            MR. DANIELS:  We are basically talking about your network category.  So you are aware now that you are actually asking for price decreases to those services, that is your position?

1listnum "WP List 3" \l 16823            MR. CHISLETT:  I think the efficient construction decision occurs when you are pricing at cost plus 15 per cent rather than at an inflated rate.  And I think, if you will, the policy direction says that we shouldn't encourage inefficient entry.

1listnum "WP List 3" \l 16824            MR. DANIELS:  So if I can just get this.  How are we going to promote building of these facilities if we start lowering the price of these facilities?

1listnum "WP List 3" \l 16825            MR. CHISLETT:  I think you want to build the facilities when you can do so efficiently and at cost plus 15 per cent provides the motivation for people to do this.

1listnum "WP List 3" \l 16826            MR. DANIELS:  I would like to turn you then to tab B of our material, which is an excerpt from the Telecom Policy Review.  And specifically, I would like to turn to the second page there, which is page 3‑34.

1listnum "WP List 3" \l 16827            THE SECRETARY:  Counsel Daniels, please note that this is an exhibit and it is going to be number 22.

1listnum "WP List 3" \l 16828            MR. DANIELS:  It is the TPR, so I think it has been submitted as a CRTC exhibit at the beginning of the proceeding.

1listnum "WP List 3" \l 16829            THE SECRETARY:  Okay, we will leave it as is.  Sorry, okay.

1listnum "WP List 3" \l 16830            MR. DANIELS:  No problem.  So now, I would like to jump down to the second last paragraph in the TPR report and this is when they are describing the steppingstone approach:

                      "The argument in support of mandating the availability of non‑essential facilities is that it can actually facilitate, rather than hamper, construction of facilities by entrants by providing them with a "steppingstone" until the day they can build their own facilities.  The validity of this argument rests entirely on the assumption that the CRTC can set prices that are both low enough to facilitate entrants' ability to expand their networks and more quickly acquire the customer base that would justify construction of their own facilities and high enough to provide entrants with sufficient incentives to build such facilities." (As Read)

1listnum "WP List 3" \l 16831            Now, I am going to come back to that statement in a moment.  If we can just go over the next page, the top paragraph there.  This is where the TPR said:

                      "There is no evidence in Canada that the CRTC's steppingstone strategy has provided an effective transition to greater reliance by entrants on their own facilities.  There is, on the other hand, reason to believe that these policies have distorted the behaviour incentives of new entrants in Canadian telecommunications markets." (As Read)

1listnum "WP List 3" \l 16832            So, at least in Canada, the TPR is critical of the notion of the steppingstone.

1listnum "WP List 3" \l 16833            But I want to come back the statement that we were just looking at in 3‑34.  Now, as you mentioned Globility, as I understand it, is the SILEC that is building facilities in Canada, it is not Primus, right?

1listnum "WP List 3" \l 16834            MR. CHISLETT:  Both of us are.  There is certain facilities which Primus is unable to build and Globility is the one that builds those, but there is lots of facilities that Primus does as well.

1listnum "WP List 3" \l 16835            MR. DANIELS:  When you say there are certain facilities that ‑‑ I guess I am still focused on the network transmission facilities in the ground, the type of thing that I would think, as a non‑Canadian carrier, Primus isn't able to ‑‑

1listnum "WP List 3" \l 16836            MR. CHISLETT:  The restriction is on transmission facilities, but not on other network facilities.

1listnum "WP List 3" \l 16837            MR. DANIELS:  Right, okay.  So again, I am focused on the transmission facilities, the physical layer in the ground.

1listnum "WP List 3" \l 16838            MR. CHISLETT:  Ploughing things in the ground, not the equipment that goes into each end of ‑‑

1listnum "WP List 3" \l 16839            MR. DANIELS:  No, no.  Because again, to be fair, I am just focused on the service that you are looking at CDN, which is about replacing the equipment, you know, building the facility, not the switch or whatever that you put on top.

1listnum "WP List 3" \l 16840            So now, as I understand it, Globility has built 70 co‑locations in the last 18 months, is that correct?

1listnum "WP List 3" \l 16841            MR. CHISLETT:  That is correct.

1listnum "WP List 3" \l 16842            MR. DANIELS:  And you state in your opening statement that you are starting to build your own facilities, at least in Toronto and Winnipeg with more to follow, is that correct?

1listnum "WP List 3" \l 16843            MR. CHISLETT:  That certainly was the direction we were headed.  We tried to do it in Toronto and met impediments there in doing it. And then when this proceeding was announced we basically put things on hold pending the resolution of what was going to happen here.

1listnum "WP List 3" \l 16844            MR. DANIELS:  So do you plan to build to all 70 co‑locations?  And let me just be clear, I assume when we are talking building here we are talking about building fibre.  When you build to a co‑location, let me just clarify, we are talking fibre, right?

1listnum "WP List 3" \l 16845            MR. CHISLETT:  That would be what would occur, that is right.

1listnum "WP List 3" \l 16846            MR. DANIELS:  Yes, okay.  So do you plan to build fibre to all 70 co‑locations?

1listnum "WP List 3" \l 16847            MR. CHISLETT:  In the fullness of time, that is possible.  That certainly isn't our plan, today, to build to all 70 co‑locations.  We don't do a build it and they will come when we have enough traffic to justify something.  We talk to Globility and say, hey, this makes sense.  We have looked at our existing traffic in Toronto and felt we had enough traffic to justify building to some locations there, attempted to try and do that, had some impediments and then basically put things on hold pending the resolution of this proceeding.

1listnum "WP List 3" \l 16848            MR. DANIELS:  So, at a minimum, we can agree then that CDN rates today have not stopped you from building your co‑locations?

1listnum "WP List 3" \l 16849            MR. CHISLETT:  Where it makes sense, that is correct.

1listnum "WP List 3" \l 16850            MR. DANIELS:  And CDN rates today are high enough, at least in some areas, to justify building your own facilities because you have determined that, when it makes sense, you are going to replace it, correct?

1listnum "WP List 3" \l 16851            MR. CHISLETT:  When we look at building facilities it may not necessarily just be CDN rates.  We consider a number of alternatives, whether it be getting dark fibre from hydro companies or wavelength service or something like that.  So we look at a number of those areas and make the decision where it makes sense to build.

1listnum "WP List 3" \l 16852            MR. DANIELS:  Right, so what you do is you look at the alternatives as well, not just the issue of CDN.

1listnum "WP List 3" \l 16853            MR. CHISLETT:  M'hmm.  Thank you.

1listnum "WP List 3" \l 16854            UNIDENTIFED SPEAKER:  (off microphone)

‑‑‑ Laughter / Rires

1listnum "WP List 3" \l 16855            MR. CHISLETT:  That is very kind.

1listnum "WP List 3" \l 16856            MR. DANIELS:  The full service of a law firm never ceases to amaze me.

‑‑‑ Laughter / Rires

1listnum "WP List 3" \l 16857            MR. DANIELS:  Mr. Chislett, so what we have here, just to put it in a case, is you have got 70 co‑locations, you have got your building over them and, in the fullness of time, you may build all of them, maybe not because there is other alternatives out there, fibre from the utelcos or wavelength facilities from whoever.  And on the other hand, you are coming to us and you are actually saying, oh, in order to make this whole thing work we need these rates lowered.

1listnum "WP List 3" \l 16858            So I am finding it a little hard to understand how the facts are matching up to your own position here.

1listnum "WP List 3" \l 16859            MR. CHISLETT:  Well, I think what we are saying is the most efficient way to make or build this is to base it on with the economic ‑‑ so you don't have uneconomic entry, you know what the costs are, you know, plus 15 per cent and made a decision based on that.

1listnum "WP List 3" \l 16860            MR. DANIELS:  Have you entered uneconomically anywhere?

1listnum "WP List 3" \l 16861            MR. CHISLETT:  Not that I am aware of.  But if I think of the example that Mr. MacDonald described yesterday, going across to Newfoundland where, because of inflated rates, you know, they made a decision to construct.  I think it demonstrates the difficulties with making decisions to construct facilities based on inflated rates.

1listnum "WP List 3" \l 16862            MR. DANIELS:  But you, you are not saying you have got any uneconomic building?

1listnum "WP List 3" \l 16863            MR. CHISLETT:  I don't know.

1listnum "WP List 3" \l 16864            MR. DANIELS:  You don't know, okay.  So now, to be quite honest, I am going to get to the heart of my confusion about your opening statement.  And the best way to explain this is to explain how I received it.

1listnum "WP List 3" \l 16865            When I received your opening statement you had written it, to be fair, before the October 3 CRTC letter came out with its buckets.  So it didn't refer, in the original version, to the buckets.  But the letter had come out by the time I read it, so I read it knowing about the buckets.

1listnum "WP List 3" \l 16866            And when I read it and saw your distinction between access and network facilities I sort of said, okay, well they are making a distinction between access and network.  I may not agree with them on access, but it seems to me that network falls squarely within the CRTC's bucket 3.

1listnum "WP List 3" \l 16867            And then you took the opportunity, as did we, to revise you opening statement and indicate how you responded to the buckets.  And I was surprised at that point to find that you had put your network facilities in bucket 2, conditional essential as opposed to bucket 3.

1listnum "WP List 3" \l 16868            So, I'm trying to figure out, how can that be given your own statements in the opening statement about the feasibility of building transport?

1listnum "WP List 3" \l 16869            MR. CHISLETT:  The feasibility is not what puts it in a bucket or not.  In our opinion it stays as conditional essential until the condition that puts it there has changed and, in our case, are saying what makes it go into bucket 3, subject to phase‑out, is that there's evidence of a competitive supply and until there's evidence of competitive supply, then it goes ‑‑ then you can say, okay, there's sustainable competition here, then we can phase it out.  Until then it stays in the conditional essential.

1listnum "WP List 3" \l 16870            MR. DANIELS:  So, just so we're clear, self supply or the ability of you to build your facilities, which is part of that stepping stone notion, isn't falling into your evaluation here.

1listnum "WP List 3" \l 16871            Understand what I'm saying, you've argued for the stepping stone which says, get me big enough then I'll build it.

1listnum "WP List 3" \l 16872            MR. CHISLETT:  Right.

1listnum "WP List 3" \l 16873            MR. DANIELS:  Get me big enough then I'll build it, and now you're saying that the condition is about competitive supply in the market not about your ability to build it itself, so...

1listnum "WP List 3" \l 16874            MR. CHISLETT:  But our ability and other people's ability to build it will develop competitive supply, so that you can see that there is competitive supply there and that you can remove the regulations for it.

1listnum "WP List 3" \l 16875            THE CHAIRPERSON:  Competitive supply in your definition includes self supply?

1listnum "WP List 3" \l 16876            MR. CHISLETT:  Includes self supply.  We would be supplying it to others if we built the facilities there, for example.

1listnum "WP List 3" \l 16877            MR. DANIELS:  Okay.  You mentioned in your ‑‑ earlier you had made reference to alternative supply from, you said dark fibre, but you also mentioned UTelcos.

1listnum "WP List 3" \l 16878            So, as I understand it today, you buy CDN or CDN equivalent service from MTS Allstream outside of Manitoba; is that correct?

1listnum "WP List 3" \l 16879            MR. CHISLETT:  Yes.

1listnum "WP List 3" \l 16880            MR. DANIELS:  And you understand in some cases they use their own facilities; is that correct?

1listnum "WP List 3" \l 16881            MR. CHISLETT:  I think they do.  I don't know the details of what's behind their network, but I suspect there are some locations where they have their own and some places where they're purchasing from ‑‑

1listnum "WP List 3" \l 16882            MR. DANIELS:  And other cases where they're purchasing from us.

1listnum "WP List 3" \l 16883            MR. CHISLETT:  On any case I don't necessarily know.

1listnum "WP List 3" \l 16884            MR. DANIELS:  Right.  And in your supplemental evidence you largely dismiss the notion that UTelcos as an alternative to ILEC CDN providers.  Is that a fair assessment?

1listnum "WP List 3" \l 16885            MR. CHISLETT:  Can you ‑‑ sorry, can you take me to what you're talking about.  I'm not sure I ‑‑

1listnum "WP List 3" \l 16886            MR. DANIELS:  Sure.  If I can get you to turn to your supplemental evidence to page 13, paragraph 32.

1listnum "WP List 3" \l 16887            MR. CHISLETT:  Yes, I found that.

1listnum "WP List 3" \l 16888            MR. DANIELS:  Okay.  So, your sentence there:

                      "For their part, the hydro utilities are of little or no use to competitors such as Primus and Globility."  (As read)

1listnum "WP List 3" \l 16889            And then you go on to describe why.  But that's the statement I'm referring to as largely dismissing.

1listnum "WP List 3" \l 16890            MR. CHISLETT:  Yes.

1listnum "WP List 3" \l 16891            MR. DANIELS:  Okay.  Now, Primus operates its network across the country; is that correct?

1listnum "WP List 3" \l 16892            MR. CHISLETT:  Yes, that's correct.

1listnum "WP List 3" \l 16893            MR. DANIELS:  Do you provide service in Calgary?

1listnum "WP List 3" \l 16894            MR. CHISLETT:  We have customers in Calgary.

1listnum "WP List 3" \l 16895            MR. DANIELS:  I take it you buy CDN either from TELUS or Allstream in Calgary then.

1listnum "WP List 3" \l 16896            MR. CHISLETT:  I would ‑‑

1listnum "WP List 3" \l 16897            MR. DANIELS:  You're not sure.

1listnum "WP List 3" \l 16898            MR. CHISLETT:  We probably do, I don't know.  I don't know which customers we have in Calgary.

1listnum "WP List 3" \l 16899            MR. DANIELS:  Uh‑huh.

1listnum "WP List 3" \l 16900            MR. CHISLETT:  I could probably say fairly conclusively that we purchase CDN in Calgary to interconnect between co‑locations in Bell central offices and our points of presence in Calgary.

1listnum "WP List 3" \l 16901            MR. DANIELS:  Okay.  So, let's just focus on that then.  And you purchase its CDN probably from TELUS or maybe you buy it from Allstream.

1listnum "WP List 3" \l 16902            MR. CHISLETT:  I would think it would be TELUS.  To go to the central office, it would ‑‑

1listnum "WP List 3" \l 16903            MR. DANIELS:  Probably be TELUS.

1listnum "WP List 3" \l 16904            MR. CHISLETT:  ‑‑ most likely be TELUS.

1listnum "WP List 3" \l 16905            MR. DANIELS:  Now, if I can get you to turn to tab D of our material, and here I'm referring to Primus/Globility, the Companies' 19 July, 07‑20 and this is the revised version.

1listnum "WP List 3" \l 16906            Now, here in this interrogatory we asked you a question to explain in part (b) if you engaged in negotiations with alternative providers for CDN.  And your answer was, if I go down to (b):

                      "As noted above, there are currently no workable alternatives ILEC loops.  In their July 5th, '07 evidence, Primus and Globility stated that they constantly search for the least cost CDN equivalent service."  (As read)

1listnum "WP List 3" \l 16907            So, now are you familiar with ENMAX in Calgary?

1listnum "WP List 3" \l 16908            MR. CHISLETT:  No, I'm not.

1listnum "WP List 3" \l 16909            MR. DANIELS:  Well, it's the UTelco in Calgary.  So, I take it then you haven't ‑‑ is anyone else on the panel familiar, heard of ENMAX in Calgary, the Utelco operating?

1listnum "WP List 3" \l 16910            MR. BOUTROS:  I'm familiar with them but for a different reason.

1listnum "WP List 3" \l 16911            MR. DANIELS:  Uh‑huh.  So, I take it then that you guys have never talked to them about purchasing CDN services?

1listnum "WP List 3" \l 16912            MR. BOUTROS:  No, I didn't, no.

1listnum "WP List 3" \l 16913            MR. DANIELS:  Yeah.  I mean ‑‑

1listnum "WP List 3" \l 16914            MR. CHISLETT:  Not that I'm aware of.  I'd say that the primary purpose rule causes a major obstacle in purchasing CDN going to Bell central offices from anybody other than the Telco.

1listnum "WP List 3" \l 16915            MR. DANIELS:  Well, I think there's a few ways around it, but I'm not going to get into that here in terms of that overall statement.

1listnum "WP List 3" \l 16916            But let's ‑‑ now, it doesn't surprise me because if I can get you to turn to tab F of our material, or I should say before I go there, there's ‑‑ Bell Canada in its submission, and I can turn you if you want to, it's at tab E, I'm not sure it's necessary.

1listnum "WP List 3" \l 16917            Bell Canada explained that Bell West, its operations out west, used to buy CDN equivalent service from ENMAX in Calgary, but when the CDN decision came out that that resulted in them stopping to sell the service to Bell Canada, Bell West.

1listnum "WP List 3" \l 16918            And if I turn you to tab F, when we asked ENMAX in this proceeding about it, you can see ‑‑ so this is ENMAX, the Companies' 12 April 07‑20, ENMAX states it:

                      "...builds its own facilities based on customers' orders.  When CDN services became available ENMAX Envision ceased to offer T‑1, DS‑1, DS‑3 services due to the low CDN prices.  These services were sold to our wholesale accounts (CLECs).  Without the revenue potential for these services, ENMAX build‑out of these services ceased as well."  (As read)

1listnum "WP List 3" \l 16919            So ‑‑ must be the law firm again.

1listnum "WP List 3" \l 16920            So, when we're looking at this from ENMAX, ENMAX was in the provision of doing this and stopped doing this.

1listnum "WP List 3" \l 16921            So, can we agree at Calgary ‑‑ that at least in Calgary, for example ‑‑

1listnum "WP List 3" \l 16922            MR. HICKEY:  Counsellor Daniels, may I just ask a question.  I don't see it in this tab E.  Was there any place where it said that Bell West used ENMAX to connect to their central office, or sent their facilities to TELUS central offices?

1listnum "WP List 3" \l 16923            I don't see that in this evidence.  Was there some place else I missed that?

1listnum "WP List 3" \l 16924            MR. DANIELS:  Usually I like to ask the questions but I'm happy to oblige.  Paragraph 12 it does say, and I'm in E so this is from Appendix 9 of the Companies' initial March 15th submission, it says:

                      "One MEU supplier to Bell West in Alberta (ENMAX Envision) has chosen to exit the DNA and private line service market altogether because of CDN services."  (As read)

1listnum "WP List 3" \l 16925            So, the reference to "one MEU supplier to Bell West in Alberta" refers to the fact that they were providing those services to Bell West.

1listnum "WP List 3" \l 16926            MR. HICKEY:  Yes, I understood that.  The question was, Mr. Chislett had mentioned connections to the central office and I hadn't seen anything relative to that.  So, I'll wait to see if there is.

1listnum "WP List 3" \l 16927            Thank you.

1listnum "WP List 3" \l 16928            MR. DANIELS:  So, if we're coming back then here, so we can agree that at least in Calgary CDN ‑‑ first of all, that CDN equivalent services are offered by UTelcos, and is that a fair statement?

1listnum "WP List 3" \l 16929            MR. CHISLETT:  I thought you just said they weren't.

1listnum "WP List 3" \l 16930            MR. DANIELS:  Well, it said ‑‑ no, no.

1listnum "WP List 3" \l 16931            MR. CHISLETT:  You just said they exited the DNA market, so...  And we're not familiar with them so we can't tell you.

1listnum "WP List 3" \l 16932            MR. DANIELS:  I take your point.  Let me rephrase this a little bit.  In one of your interrogatories, which I can turn you to, Primus/Globility Companies' 19 July 07‑19, you made the statement that there's technology choices that provides an impediment to UTelcos providing service here.

1listnum "WP List 3" \l 16933            And what I wanted to clarify is, we can agree that although economically they've decided to do it, technically they were able to and were providing CDN services prior to that, as we can see from the evidence here that they were selling it to CLECs.

1listnum "WP List 3" \l 16934            So, that's the reason why I'm raising this clarification here.

1listnum "WP List 3" \l 16935            MR. CHISLETT:  The question of whether they sold to CLECs prior to the CDN decision I certainly couldn't quarrel with.

1listnum "WP List 3" \l 16936            Where this CLEC Bell West used their facilities and in what conditions and under what economic arrangements would require a much longer discussion, which I'd be happy to engage in, but it's the implication that this was somehow available throughout the network and used by the CLEC I think is an unwarranted over statement.

1listnum "WP List 3" \l 16937            MR. DANIELS:  I don't think I'm trying to make that implication, I'm just at this point  trying to address your suggestion that technically there's an impediment here in terms of UTelcos being able to provide, and what I'm trying to establish is that technically CDN services can be provided by UTelcos and have been, or at least were.

1listnum "WP List 3" \l 16938            MR. CHISLETT:  There is an impediment trying to get the facilities to go to the Telco central office.

1listnum "WP List 3" \l 16939            MR. DANIELS:  Okay.  So, that's what you were referring to as the impediment.

1listnum "WP List 3" \l 16940            So, now I want to focus on this "little or no use to competitors such as Primus or Globility for UTelcos".

1listnum "WP List 3" \l 16941            Now, based on the record of this proceeding, would you be surprised to hear that UTelcos ‑‑ and I can take you to the interrogatories if you like, but I'm thinking of Blink, nAXIS, Telecom Ottawa, Telecom Hydro ‑‑ that besides the significant interconnection between each other, that UTelcos connected to each other, the same UTelcos have listed in their interrogatory responses that they are interconnected with the likes of Rogers, MTS Allstream, TELUS, Shaw, Videotron, Persona, MCI, SaskTel and Bell Canada.  Would that surprise you?

1listnum "WP List 3" \l 16942            MR. CHISLETT:  We connect to utelcos in Ottawa, in Toronto, in York Region, in Windsor and in Hamilton.  So we do use them on location, but certainly it's pretty minor.

1listnum "WP List 3" \l 16943            MR. DANIELS:  That was actually my next question, so thank you.

1listnum "WP List 3" \l 16944            MR. BOUTROS:  Interconnection, it's a different flavour, it means point‑to‑point connection, so you have to clarify what do you mean by "interconnecting".  Because when a CLEC is interconnected to another LEC or CLEC, this is interconnection, which is getting a fibre facility or whatever.

1listnum "WP List 3" \l 16945            MR. DANIELS:  That's an interesting point, because I guess what I'm trying to clarify here is in those locations that Mr. Chislett just named off, I assume that when you say "interconnected" that somehow your facilities or your lease facilities meet with their facilities and that you exchange traffic at that point, or it is a point to use their facilities to lease so that you are able to access their facilities.  One or the other.

1listnum "WP List 3" \l 16946            Just keeping it in the simplest of terms, that's what it means, doesn't it?

1listnum "WP List 3" \l 16947            MR. CHISLETT:  I think if you look at interconnections, yes, we have customers which are served by these facilities or on occasion they are used between different locations.

1listnum "WP List 3" \l 16948            MR. DANIELS:  So with that in mind I would like to turn to Tab ‑‑

1listnum "WP List 3" \l 16949            MR. HICKEY:  Mr. Daniels, the interconnection, again the words get a little tangled.

1listnum "WP List 3" \l 16950            Interconnection in the regulatory sense talks about the ability of two networks to exchange traffic.

1listnum "WP List 3" \l 16951            Where we use Telecom Ottawa, for example, we are buying a circuit from them from a data centre back to a point of presence in our network, which doesn't mean we buy a circuit from them.

1listnum "WP List 3" \l 16952            I guess if you are saying we are interconnected to their network, therefore we are using their circuit, but that is a different thing than the free‑flowing interchange of traffic between their network and ours.

1listnum "WP List 3" \l 16953            MR. DANIELS:  Right.

1listnum "WP List 3" \l 16954            MR. HICKEY:  So I'm a little confused about which kind of interconnection.

1listnum "WP List 3" \l 16955            At one point you say we are buying facilities from them, at another point you say we are interconnecting to them and those two are not equivalent so I would appreciate a little clarification, please.

1listnum "WP List 3" \l 16956            MR. DANIELS:  Fair enough.  Let's see if we can help this out a little bit.

1listnum "WP List 3" \l 16957            I am focused here, as you can tell from the majority of my cross, about your alternatives in the CDN ‑‑ to alternative CDN.  So the fact that you ‑‑ let's avoid the word "interconnect" for a moment so that we are not confusing it with passing of traffic for local exchange, how they do over ‑‑ and let's just say the fact that you are connected to utelcos in a number of places enables you, as I think you just announced, to purchase a bunch of facilities from them which would be alternatives to CDN, or could be alternatives to CDN if they were offering those services in the market.

1listnum "WP List 3" \l 16958            Is that a fair sort of summary of where we are at?

1listnum "WP List 3" \l 16959            MR. CHISLETT:  In a few locations.  Some, for example, do not offer CDN‑equivalent facilities, they only offer high‑speed Internet facilities.

1listnum "WP List 3" \l 16960            MR. DANIELS:  Right.

1listnum "WP List 3" \l 16961            MR. CHISLETT:  So there is not a CDN‑equivalent you can purchase from them.

1listnum "WP List 3" \l 16962            MR. DANIELS:  Exactly.

1listnum "WP List 3" \l 16963            MR. CHISLETT:  But we do purchase facilities, some of our facilities from MEUs where it makes sense, but that is a very small percentage of our circuits.

1listnum "WP List 3" \l 16964            MR. DANIELS:  Right.  So you can see where I'm putting this together now, is that the notion that they are capable of doing it but that they are not doing it in the market and that they are pointing to the fact that CDNs are too low as the alternative is exactly the point that I'm trying to make.

1listnum "WP List 3" \l 16965            MR. HICKEY:  Mr. Daniels, again, I'm sorry I'm just a simple technical fellow so I have to get clarification.

1listnum "WP List 3" \l 16966            The nature of a circuit, as I'm sure you are aware, is it goes from Point A to Point B and our desire, when we talk about connecting collocations back to ‑‑ or points of presence, would be to connect the equipment that we have in the collocation back to our point of presence we need a circuit from Point A to Point B there.

1listnum "WP List 3" \l 16967            The utelcos typically do not offer circuits connected to ‑‑ as I believe the evidence in the preceding shows, connected to COs, so their facilities are not available.  They might have facilities some place else, and wherever their historical fibre pipes, fibre paths have taken them they tend to follow.

1listnum "WP List 3" \l 16968            So if we get lucky enough to need Point A to Point B to follow their particular historical fibre‑build  path we may be able to use them.

1listnum "WP List 3" \l 16969            Similarly, with an ILEC, if their historical fibre‑build from COs to various places is there, we would like to use them as well.

1listnum "WP List 3" \l 16970            So when we talk about ‑‑ you talk about connecting, we talk about purchasing a circuit from them and using it to connect Point A to Point B.

1listnum "WP List 3" \l 16971            DR. SELWYN:  Also, Mr. Daniels, this reference to the phrase "too low" I think needs to be clarified.

1listnum "WP List 3" \l 16972            If we assume ‑‑ and I don't think there is any basis to assume otherwise ‑‑ that the CDN rates which follow the Commission's cost guidelines are set correctly at the ILEC's long‑run incremental costs, including that 15 per cent mark‑up, then if a competitor is unable to compete at that level, particularly for the relatively low bandwidth services such as DS‑1, it may well be simply because the competitor is not as efficient a producer of those services than the ILEC, which certainly should be no big surprise.

1listnum "WP List 3" \l 16973            In fact, if we were to artificially raise those rates, the CDN rates, solely for the purpose of making it possible for a less efficient competitor to enter the market and compete, then in effect we are creating a price umbrella for that competitor which is a very inefficient form of entry.

1listnum "WP List 3" \l 16974            So I think that we should avoid using what I believe are somewhat pejorative references to "too low".  It may be too low from the standpoint of the competitor's business model to consider entry in those services, but if they rate is properly set then the rate will produce entry were it is efficient and will discourage entry where it is inefficient.

1listnum "WP List 3" \l 16975            MR. DANIELS:  Thank you, Dr. Selwyn.

1listnum "WP List 3" \l 16976            I think what we are having here in terms of disagreement a little bit is about again you were talking about the low bandwidth.  I'm not talking about the low bandwidth, I'm talking about the high bandwidth where your party is seeking a major price decrease ‑‑ or a minor price decrease, I don't know ‑‑ but looking for a price decrease on it and then looking at the alternatives and what we have is evidence that there were alternatives and to the extent ‑‑ and I take your point Mr. Hickey, that they are not building because I don't see a market for this, but they said they were, or a number of the parties ‑‑ a few of them have stated that they were in this business and they stopped doing it.

1listnum "WP List 3" \l 16977            So let's just look and get a sense of how big a network, because the other day I used a map ‑‑ and I think a map quite often is worth 1,000 words so I would like to again use another map in turn to Tab L.  This will be The Companies exhibit, Madam Secretary.

1listnum "WP List 3" \l 16978            This is something we took off of the Toronto Hydro website and it says here in Tab L, we can see here, it has your utility telecoms have Ontario covered.  So again I am focused on the backbone network.

1listnum "WP List 3" \l 16979            We looked the other day at Toronto Hydro's map within the City of Toronto and surrounding the City of Toronto.  Now we can see how all the utelcos connect together.

1listnum "WP List 3" \l 16980            In fact, if you turn over the page you can see on the next one what utelco networks can do for your network and they list a bunch of things about IP, Ethernet, we have already addressed the question of CDN, and then they talk about a single point of contact.

1listnum "WP List 3" \l 16981            So when I'm looking at this we can see that the utelcos have a pretty extensive network in terms of covering the province and working together and that there are other alternative facilities available.

1listnum "WP List 3" \l 16982            Given this, I'm still struggling to find, when you talked about your definition of competitive supply, which includes self‑supply and alternatives, how you can say not put this into bucket three now as opposed to later.

1listnum "WP List 3" \l 16983            MR. HICKEY:  I guess I can't use ‑‑ I don't even know what non sequitur means so I can't use it.

‑‑‑ Laughter / Rires

1listnum "WP List 3" \l 16984            MR. HICKEY:  But I don't understand the hypothesis to the conclusion.

1listnum "WP List 3" \l 16985            You have given us a map that show lots of long‑haul facilities, but when I'm trying to get from the Adelaide CO that Bell has to our point of presence at 151 Front Street, what I need to know is:  Is there a utelco that can connect to Adelaide, can find its way through the fibre duct, into the congested fibre access that nobody can get through into 151 Front, and get me a circuit so I can run traffic over it.

1listnum "WP List 3" \l 16986            I don't see what this has to do with that.  This talks about getting city to city or ‑‑

1listnum "WP List 3" \l 16987            MR. DANIELS:  I take it you weren't here, then, on Friday when we put in the maps of Toronto Hydro's utelco network within the City of Toronto?  You haven't seen that?

1listnum "WP List 3" \l 16988            MR. HICKEY:  I listened to it and I have seen maps like that.  In fact, we talk quite often to the Hydro telcos.

1listnum "WP List 3" \l 16989            The issue is, they have fibre running past all sorts of buildings, that doesn't mean they are connected to the buildings, and in particular not connected to Bell COs.

1listnum "WP List 3" \l 16990            MR. DANIELS:  Just so we are clear, the hydro's aren't connected to the buildings as they run past them and then the issue is under what basis they would do that.  I think we can save this for final argument, I think that is the heart of the issue.

1listnum "WP List 3" \l 16991            So let's go on to address a few questions.  I want to ask about one particular service and then my colleague is going to have the remaining questions.  I don't think this is going to take very long.

1listnum "WP List 3" \l 16992            I would like to ask you about your claim about LRN absent service.

1listnum "WP List 3" \l 16993            For that can I get you to turn to Tab N as in Nancy, which is Primus/Globility/CRTC 12 April 07‑304.

1listnum "WP List 3" \l 16994            Do you have that there?

1listnum "WP List 3" \l 16995            As I understand it, your position here is that LNP database services are very competitive.

1listnum "WP List 3" \l 16996            Is that correct?

‑‑‑ Pause

1listnum "WP List 3" \l 16997            MR. CHISLETT:  We certainly agree that the LNP database services could be nonessential, yes.

1listnum "WP List 3" \l 16998            MR. DANIELS:  All right.  I just want to make sure, because it's not going to be ‑‑ are you guys familiar with LRN absent service that you are claiming is essential, because this isn't going to be fruitful if you are not comfortable with it.

1listnum "WP List 3" \l 16999            I just want to make sure of that.

1listnum "WP List 3" \l 17000            MR. CHISLETT:  Let me help you with LRN Absent.

1listnum "WP List 3" \l 17001            I think we are probably getting to the same place where you are going.

1listnum "WP List 3" \l 17002            As we look at LRN Absent, I think that, as a service which could develop fairly easily and have competitive supply for it ‑‑

1listnum "WP List 3" \l 17003            THE CHAIRPERSON:  For the ignorant, would you explain what LRN Absent is?

1listnum "WP List 3" \l 17004            MR. CHISLETT:  LRN Absent is when competitors have switches that don't support doing local number dips to find out which local CLEC they should send it to.

1listnum "WP List 3" \l 17005            They purchase the service today, typically, from Bell Canada.  We send the call to you, and then you have the capability within your network to determine whether it is CLEC A, B or C, and route it accordingly.

1listnum "WP List 3" \l 17006            From a transition path, many CLECs haven't got that capability, so that is something they need.

1listnum "WP List 3" \l 17007            If I look forward as to what is involved, whether obstacles are there, I think we would have to say that LRN Absent is a service which we can see a path to not needing, a path to getting competitive supply on, and a path to it not needing to be essential.

1listnum "WP List 3" \l 17008            MR. DANIELS:  I think it would be helpful to fully understand this.

1listnum "WP List 3" \l 17009            First, we need a little just on LNP, to understand what LNP is, because it is this path that I am a bit interested in.

1listnum "WP List 3" \l 17010            LNP, just so we are clear ‑‑ in this day, when I can keep my number when I switch to different carriers, the network can't route by the number any more.  What it needs to do is, it needs to dip into a database.

1listnum "WP List 3" \l 17011            Let's say you are going to call me.  You call my telephone number.  Your carrier needs to find out who is my local carrier.  So they dip into a database and look that number up to say, "Oh, I'm with Bell Canada," for example.

1listnum "WP List 3" \l 17012            Is that a fair description of the LNP service?

1listnum "WP List 3" \l 17013            MR. CHISLETT:  Yes.

1listnum "WP List 3" \l 17014            MR. DANIELS:  Okay.  What you acknowledge here is that, in terms of LNP service, there are competitive alternatives.  There is competitive supply.  There is more than one carrier who is providing LNP services in this country.

1listnum "WP List 3" \l 17015            Is that correct?

1listnum "WP List 3" \l 17016            MR. CHISLETT:  Someone who has the capability of doing LRN dips can go to a number of providers to access a database to see how it should be routed.

1listnum "WP List 3" \l 17017            MR. DANIELS:  Right.  So, basically, some companies self‑supply LNP or, if they don't want to do that, they can use someone else ‑‑ one of the competitive suppliers of LNP.  But the issue is that you have to have the ability, when you send ‑‑

1listnum "WP List 3" \l 17018            If you don't have that database yourself, you need to be able to say ‑‑ Primus is going to go to Bell Canada and say, "Can I look this up in your database?"  It gets that information, and then it routes the call.

1listnum "WP List 3" \l 17019            That's what you would be able to do if you had the LRN capability yourself.

1listnum "WP List 3" \l 17020            Is that a fair description?

1listnum "WP List 3" \l 17021            MR. CHISLETT:  Yes.

1listnum "WP List 3" \l 17022            MR. DANIELS:  The issue is that one of the Category 1 services today ‑‑ I am not quite sure if it is Category 1, but one of the services today that has it says:  If you have not installed that equipment in your switch, for whatever reason, what you can do is, you can give the call to Bell, and Bell will do the dip and route the call for you.

1listnum "WP List 3" \l 17023            Is that correct?

1listnum "WP List 3" \l 17024            MR. CHISLETT:  Yes, that is correct.

1listnum "WP List 3" \l 17025            MR. HICKEY:  And charge accordingly, yes.

1listnum "WP List 3" \l 17026            MR. DANIELS:  Okay.  So the issue is, the capability that you don't have is just something in your switch that allows you to ‑‑

1listnum "WP List 3" \l 17027            Like something you can buy from any switch manufacturer, assuming ‑‑ I don't know what switch you have, but that's the capability that we are talking about.

1listnum "WP List 3" \l 17028            It is something that you can buy from a switch manufacturer.

1listnum "WP List 3" \l 17029            Is that correct?

1listnum "WP List 3" \l 17030            MR. CHISLETT:  Right.  We have that capability.

1listnum "WP List 3" \l 17031            MR. DANIELS:  So you have that capability.

1listnum "WP List 3" \l 17032            MR. CHISLETT:  Yes, we do.

1listnum "WP List 3" \l 17033            MR. DANIELS:  So you can do it.

1listnum "WP List 3" \l 17034            Then I am trying to understand how it is that today, right now ‑‑ how can you say that it's an essential service?

1listnum "WP List 3" \l 17035            MR. CHISLETT:  Because there is not, as we stand today, a vibrant competitive market for it.  I think it could easily develop.

1listnum "WP List 3" \l 17036            Most competitors don't have that capability, and until that market develops there is the potential of lessening competition by controlling that.

1listnum "WP List 3" \l 17037            It will take some time for people to develop that service.

1listnum "WP List 3" \l 17038            MR. DANIELS:  What capability are you talking about?

1listnum "WP List 3" \l 17039            Vidéotron has its own database.  Rogers has it.  Even Yak says that it doesn't need it.  In fact, Yak says that they are making arrangements for other people to do it.

1listnum "WP List 3" \l 17040            I will take you to all of these interrogatories.

1listnum "WP List 3" \l 17041            MR. CHISLETT:  We don't need it either.

1listnum "WP List 3" \l 17042            MR. DANIELS:  Then how is it possible that you can say it's essential?

1listnum "WP List 3" \l 17043            MR. CHISLETT:  I think it's a question of timing.

1listnum "WP List 3" \l 17044            Our test ‑‑ when we look at things, Mr. Daniels, if there is a competitive supply for it, then we believe that it doesn't need to be essential, and if today there is competitive supply, we are fine with saying that it's not essential.

1listnum "WP List 3" \l 17045            It's not something which matters terribly to us, because we don't need the service.  We have the potential to provide a competitive supply to other people.

1listnum "WP List 3" \l 17046            THE CHAIRPERSON:  I am missing something here.

1listnum "WP List 3" \l 17047            Didn't Mr. Daniels just explain to you that there are about three people who supply those services, and you have your own?  So how can it not be ‑‑

1listnum "WP List 3" \l 17048            You say that it's non‑competitive.  Clearly, it is competitive.  There are several suppliers.

1listnum "WP List 3" \l 17049            MR. CHISLETT:  My understanding is that these people provide this service to themselves.  I am not sure if they provide the service to other people.  I see no reason why they couldn't provide the service to other people.  That's why I think it is something that could be very easily provided ‑‑ an easily developed competitive supply, if it's not already there today, and it could be phased out.

1listnum "WP List 3" \l 17050            I think that maybe it's timing, and maybe it's so imminent ‑‑

1listnum "WP List 3" \l 17051            Maybe, in fact, if there are people who are providing it to third parties today, then I would say yes, it meets the requirement and it should not be essential.

1listnum "WP List 3" \l 17052            THE CHAIRPERSON:  Aren't you basically contradicting what your own expert, Dr. Selwyn, said a moment ago, that you shouldn't try to construct a system to protect inefficient supplies?

1listnum "WP List 3" \l 17053            I mean, if there are several suppliers in the market, then, clearly, it is competitive, regardless of whether a company ‑‑

1listnum "WP List 3" \l 17054            I am looking at your interrogatory here.  "Services such as these allow new entrants to start building their business.  The cost is prohibitive until business reaches a certain scale."

1listnum "WP List 3" \l 17055            Isn't that exactly the point he was making, that you should try to do it on a neutral basis rather than on the financial capacity of competitors?

1listnum "WP List 3" \l 17056            MR. CHISLETT:  I agree with that.  I am not sure where the difference of opinion is.

1listnum "WP List 3" \l 17057            THE CHAIRPERSON:  I am looking at your interrogatory under Tab N.

1listnum "WP List 3" \l 17058            "LRN Absent, in contrast, should be considered an essential service."

1listnum "WP List 3" \l 17059            Is that still your position or not?

1listnum "WP List 3" \l 17060            MR. CHISLETT:  Based on how things have evolved, we would say that it does not have to be essential, based on the evidence that there is competitive supply.

1listnum "WP List 3" \l 17061            THE CHAIRPERSON:  Thank you.

EXAMINATION / INTERROGATOIRE

1listnum "WP List 3" \l 17062            MR. HOFLEY:  Good morning, Mr. Chairman.

1listnum "WP List 3" \l 17063            Good morning, panel.

1listnum "WP List 3" \l 17064            Dr. Selwyn, at long last, good morning.  I have a few questions for you; not very many.

1listnum "WP List 3" \l 17065            My first question relates to a statement in your March 15 report at paragraph 19.

1listnum "WP List 3" \l 17066            I am happy for you to turn to it if you would like, but I will read it to you, and my guess is that it will be intimately familiar to you.

1listnum "WP List 3" \l 17067            DR. SELWYN:  Paragraph 19 did you say?

1listnum "WP List 3" \l 17068            MR. HOFLEY:  Yes, paragraph 19.  It's in the middle of the paragraph, and it reads:

                      "If a customer needs facilities at 20 locations and the CLEC has facilities at only 4 of them, it will not be able to compete for that customer's business, even at those 4 locations, unless it can utilize the ILEC's network for the remaining 16 locations."  (As read)

1listnum "WP List 3" \l 17069            Do you recall that?

1listnum "WP List 3" \l 17070            DR. SELWYN:  Yes.

1listnum "WP List 3" \l 17071            MR. HOFLEY:  If Bell Canada's customers need services in New York, Massachusetts, B.C. and Alberta, it cannot compete unless it utilizes others' networks.  Correct?

1listnum "WP List 3" \l 17072            DR. SELWYN:  That's true.

1listnum "WP List 3" \l 17073            MR. HOFLEY:  And Bell makes arrangements with your client, MTS Allstream, in Manitoba.

1listnum "WP List 3" \l 17074            Would you believe that, Dr. Selwyn?

1listnum "WP List 3" \l 17075            DR. SELWYN:  I certainly do believe that.

1listnum "WP List 3" \l 17076            MR. HOFLEY:  And with TELUS for western Canada?

1listnum "WP List 3" \l 17077            Does that sound right to you?

1listnum "WP List 3" \l 17078            DR. SELWYN:  Sounds right.

1listnum "WP List 3" \l 17079            MR. HOFLEY:  In fact, just like your client Primus says at page 18 of its March 15th evidence, they engage in arrangements of this nature.

1listnum "WP List 3" \l 17080            In fact, I will take you to it, or, at least, I will read it to you, because you might not be as familiar with Primus' statement as opposed to your own reports.

1listnum "WP List 3" \l 17081            It's page 18 of March 15:

                      "Primus provides direct links into the United States through two cross‑border crossing points, providing links to international gateways in New York and Washington.  Through these links, and with strategic partnerships and alliances in Canada and abroad, Primus provides worldwide reach to Canadian consumers for voice and internet services."  (As read)

1listnum "WP List 3" \l 17082            This is an example of the kinds of arrangements that CLECs and ILECs are making and must make.

1listnum "WP List 3" \l 17083            Is that a fair statement?

1listnum "WP List 3" \l 17084            DR. SELWYN:  Yes, but there is one huge difference between the examples that you have just provided and what I am referring to in paragraph 19.

1listnum "WP List 3" \l 17085            Bell Canada, in making an interconnection arrangement with Verizon in New York or AT&T in Chicago or TELUS in Vancouver, is not itself the dominant provider in those markets and is not itself using that ability to compete in the downstream market with the entity from whom it is buying the interconnection service.

1listnum "WP List 3" \l 17086            In other words, when a CLEC ‑‑

1listnum "WP List 3" \l 17087            MR. HOFLEY:  Excuse me, Dr. Selwyn, I just want to understand what you said there.

1listnum "WP List 3" \l 17088            DR. SELWYN:  Let me clarify it.

1listnum "WP List 3" \l 17089            MR. HOFLEY:  Are you suggesting that Bell West is not competing with TELUS in western Canada?

1listnum "WP List 3" \l 17090            DR. SELWYN:  Let me continue.

1listnum "WP List 3" \l 17091            MR. HOFLEY:  I apologize.

1listnum "WP List 3" \l 17092            DR. SELWYN:  Let's first start with the traditional ‑‑

1listnum "WP List 3" \l 17093            We have had interconnection arrangements going back more than a century between operating telephone companies whose service areas are non‑overlapping.  So the notion that, historically, Bell and TELUS or Bell and MTS or Verizon and AT&T or the predecessors would interconnect with each other to provide a connection in areas where they themselves are not operating is certainly no surprise.

1listnum "WP List 3" \l 17094            What makes the situation unique when you introduce a CLEC entrant into a market is that in my specific example in paragraph 19 the CLEC is competing directly with the ILEC in that same geography and the ILEC is in a position, by withholding or by excessively pricing the connections to those 16 additional buildings, to either block the CLEC from competing or increase the CLEC's costs to a point where it would have difficulty competing or where Bell would itself be able to impose a higher retail price in the downstream market.

1listnum "WP List 3" \l 17095            This does not occur when we are dealing with non‑overlapping territories.

1listnum "WP List 3" \l 17096            Now, you then introduce the wrinkle that Bell is competing in TELUS' operating areas and, conversely, TELUS is competing in Bell operating areas, and we have the same thing now in the U.S. with Verizon competing in what is now the AT&T, or formerly SBC, BellSouth footprint and AT&T is competing in the Verizon footprint.

1listnum "WP List 3" \l 17097            In that case, at a sort of superficial level one might conclude, well, they are really in the same position as any other CLEC, but the reality is they are not because they are sufficiently ‑‑ they are doing business with each other at a sufficient level that their negotiations are influenced by their respective purchases from the other.

1listnum "WP List 3" \l 17098            In other words, AT&T negotiating with Verizon, Bell negotiating with TELUS is not the same thing as a Bell negotiating with a CLEC with which it competes in its own territory.  In that situation Bell has absolutely nothing to gain by facilitating the entry of the CLEC.  There is no quid pro quo, there is no balance of negotiating power.

1listnum "WP List 3" \l 17099            So it's quite a different situation and I don't think it is a fair comparison to cite historic non‑overlapping interconnections between ‑‑ interconnections between non‑overlapping ILECs as somehow undermining the point that I am making here.

1listnum "WP List 3" \l 17100            MR. HOFLEY:  What about MTS Allstream, would that be a big enough company for you?

1listnum "WP List 3" \l 17101            DR. SELWYN:  MTS certainly is an ILEC in Manitoba, but Manitoba certainly, in terms of its portion of the Canadian market, is considerably smaller than the eastern Canada market that Bell and its affiliates serve, or the western Canada market that TELUS serves.  So the core problem ‑‑ while there might be a little bit of quid pro quo in that situation, on a relative scale the Bell's and TELUS' interests in Manitoba are certainly far less than Allstream's interest in the Bell and TELUS footprints.

1listnum "WP List 3" \l 17102            MR. HOFLEY:  Now, if I proceed on your report to Figure 1, page 23 ‑‑ you will be familiar with this I'm sure.  It's the map of San Francisco.  You use this figure to illustrate ‑‑

1listnum "WP List 3" \l 17103            DR. SELWYN:  Unfortunately my copy is ‑‑

1listnum "WP List 3" \l 17104            MR. HOFLEY:  I'm sure you have it committed to memory.

1listnum "WP List 3" \l 17105            DR. SELWYN:  I am familiar with the map, yes.

1listnum "WP List 3" \l 17106            MR. HOFLEY:  Right.

1listnum "WP List 3" \l 17107            You attempt to demonstrate this network effect that you claim by reference to this Figure 1 and you point out that notwithstanding the network not every building, in fact not most of the buildings, are connected.  The CLEC there chooses to use special access circuits.

1listnum "WP List 3" \l 17108            Correct?  Is that a fair ‑‑

1listnum "WP List 3" \l 17109            DR. SELWYN:  This is not the same network effect that I was describing in paragraph 19.

1listnum "WP List 3" \l 17110            This is going to the issue of the cost of constructing laterals even where there is fibre in front of a building is sufficiently high that CLECs, in a majority of cases, will choose to lease facilities, yes.

1listnum "WP List 3" \l 17111            MR. HOFLEY:  So they would choose to lease facilities because, isn't it fair to say, the rate that they are paying for their special access circuits do not justify a decision to build?

1listnum "WP List 3" \l 17112            Isn't that a fair assessment of this?

1listnum "WP List 3" \l 17113            DR. SELWYN:  Yes.  If the special access service is priced at an efficient level, then that is the right decision, it is the right decision from the CLEC's perspective, it is the right decision ‑‑ it is the right societal decision for the CLEC to utilize the existing infrastructure, the existing build‑out into the buildings that it's talking about.

1listnum "WP List 3" \l 17114            In fact, special access rates in the U.S. are not themselves priced at long‑run incremental cost, they are priced considerably in excess of long‑run incremental costs, and in most of the principal metropolitan markets right now they are largely deregulated and are priced at many multiples of incremental cost and even then ‑‑

1listnum "WP List 3" \l 17115            MR. HOFLEY:  Dr. Selwyn ‑‑

1listnum "WP List 3" \l 17116            DR. SELWYN:  Let me finish.

1listnum "WP List 3" \l 17117            Even then CLECs are finding it so costly to build‑out facilities that they will elect to use special access for DS‑1, DS‑3 level type connections.

1listnum "WP List 3" \l 17118            MR. HOFLEY:  I think your point, Dr. Selwyn ‑‑ I want to make sure it was quite clear.  Your basic point was that if priced at what you consider to be the efficient level, which is whatever long‑run incremental costs ‑‑ we can debate how we define that in Canada or in the United States ‑‑ it is not in society's interest, in your view, to encourage more wireline facilities‑based providers.

1listnum "WP List 3" \l 17119            Is that a fair statement of your position?

1listnum "WP List 3" \l 17120            DR. SELWYN:  As a general matter it is, yes.  I think that's consistent ‑‑

1listnum "WP List 3" \l 17121            MR. HOFLEY:  Right.  So you would disagree with the policy direction that construction of facilities should be encouraged?

1listnum "WP List 3" \l 17122            DR. SELWYN:  My recollection of the policy direction is that it speaks of efficient entry and efficient competition, and efficient competition does not involve creating an artificial price umbrella so that a competitor is encouraged to duplicate or replicate facilities that are already in the ground and where there is sufficient capacity.

1listnum "WP List 3" \l 17123            So I don't believe that my position is in any way inconsistent with the policy direction.

1listnum "WP List 3" \l 17124            MR. HOFLEY:  I am not going to debate the policy direction, you will be happy to know, with anyone here.  I will certainly do so in argument.

1listnum "WP List 3" \l 17125            But what you seem to be saying, Dr. Selwyn, to this Commission is:  Wait until all the homes and all the buildings in a geographic market are connected to alternative networks before deregulation.

1listnum "WP List 3" \l 17126            DR. SELWYN:  That's not what I'm saying at all.

1listnum "WP List 3" \l 17127            MR. HOFLEY:  It's not?

1listnum "WP List 3" \l 17128            DR. SELWYN:  No.

1listnum "WP List 3" \l 17129            What I'm saying is it is unrealistic to expect that ever to happen and that simply allowing some span of time to pass is not going to make it happen.  The incumbent will ‑‑ if you deregulate the incumbent's rates for a wholesale service the incumbent will set its price not in relation to the incumbent's costs, but in relation to the competitor's costs.

1listnum "WP List 3" \l 17130            If the incumbent can provide the service $100 and the competitor would require $1,000 to provide it, the incumbent is able to set its price at anything up to but just below $1,000.

1listnum "WP List 3" \l 17131            MR. HOFLEY:  Sorry, that is the incumbent who is a monopolist.

1listnum "WP List 3" \l 17132            Correct?

1listnum "WP List 3" \l 17133            DR. SELWYN:  That's correct.

1listnum "WP List 3" \l 17134            Where it is not efficient ‑‑ you know, when you use the words "Who is a monopolist?"  In the example here in San Francisco, if the cost of building laterals into individual buildings where the demand is not sufficient to justify those costs, is sufficiently high that the laterals cannot be constructed, then for all practical purposes we are dealing with a monopolist with respect to those buildings.

1listnum "WP List 3" \l 17135            When the company has facilities in the building, the facilities were constructed to serve the entire demand in that building, not just a single customer, and the incumbent is in a position to offer the connection to that building far more efficiently than a CLEC that is being asked to construct the facilities to, for example, serve a single customer whose demand is, let's say, the DS‑1 or maybe a single DS‑3 level.

1listnum "WP List 3" \l 17136            MR. HOFLEY:  All right.

1listnum "WP List 3" \l 17137            I'm glad I ask you about whether or not you were saying that you needed all homes and all buildings to be connected, because what I want to put to you:  Isn't the relevant question, Dr. Selwyn, whether there are enough buildings ‑‑ or enough customers if we are talking about mass market ‑‑ in a geographic market with sufficient demand to warrant connection to an alternative network, that the market's price will be affected?

1listnum "WP List 3" \l 17138            DR. SELWYN:  No.  No, that's not ‑‑

1listnum "WP List 3" \l 17139            MR. HOFLEY:  Are not prices in telecom determined at the margin ‑‑ as in all other industries, determined that the margin, Dr. Selwyn?  Are they not determined at the margin?

1listnum "WP List 3" \l 17140            DR. SELWYN:  If the market were competitive that might occur, but if the market is not competitive, or if the condition confronting a particular geographic location does not confront competitive alternatives, and without any pricing constraints, there is no reason why, for example, the incumbent cannot price the service at a building with competitive facilities differently than at a building without competitive facilities.

1listnum "WP List 3" \l 17141            MR. HOFLEY:  Sorry, when you say "the market is not competitive", you mean the market downstream?

1listnum "WP List 3" \l 17142            You mean the retail market, Dr. Selwyn?  You must.  Correct?

1listnum "WP List 3" \l 17143            DR. SELWYN:  No.  I'm speaking here in the specific example that we are discussing, which is the facilities market, the wholesale market, if self‑supply is impractical in the majority of locations, as is the case in almost every metropolitan ‑‑ in fact I would say in every metropolitan area in North America, if not everywhere, then entrants in the downstream market will necessarily have to rely on incumbent's facilities, and with respect to the places where they have to rely on incumbent facilities the incumbent is monopolist.

1listnum "WP List 3" \l 17144            MR. HOFLEY:  So all business or residential customers don't benefit from competition for the business or residential customers that have sufficient demand, in your view?

1listnum "WP List 3" \l 17145            Think about the mass market.  Let's take the mass market for example.

1listnum "WP List 3" \l 17146            You are suggesting that all customers don't benefit from the price set for the folks in their neighbourhood?

1listnum "WP List 3" \l 17147            DR. SELWYN:  That would depend upon the competitiveness of the downstream market.

1listnum "WP List 3" \l 17148            MR. HOFLEY:  Right, that was my question, Dr. Selwyn.

1listnum "WP List 3" \l 17149            DR. SELWYN:  All right.

1listnum "WP List 3" \l 17150            For example, in a downstream market that has only two entrants that are able to provide service ubiquitously in a particular town or city, it is not really clear to me that there is much indication of a price competition.

1listnum "WP List 3" \l 17151            I can tell you, for example, that in the Boston area where I live, I can get telephone service from Comcast, the cable company, and from Verizon.  There has been very little price competition there.

1listnum "WP List 3" \l 17152            I can get Internet access from Comcast and I can get Internet access from Verizon.  And now Verizon is deploying FiOS in my neighbourhood, and three months ago Comcast raised the price of my cable modem service by $5.00 by eliminating a discount they previously had been providing for customers who take both cable TV and Internet service.

1listnum "WP List 3" \l 17153            MR. HOFLEY:  This is your point about duopoly.  Correct, Dr. Selwyn?

1listnum "WP List 3" \l 17154            MR. SELWYN:  My experience is that where we have a duopoly with only two facilities‑based providers in the mass market, there is very little evidence of price competition.  And certainly from some anecdotal experience, I can tell you that prices seem to be going up.

1listnum "WP List 3" \l 17155            Verizon has been raising prices for some of its optional telephone services.  Comcast has been raising prices for its cable modem service, even in the face of FiOS, which is offering higher download speeds than Comcast.

1listnum "WP List 3" \l 17156            MR. HOFLEY:  Dr. Selwyn, of course this Commission is more than aware of the presence or, if we believe you, the lack of presence of competition in markets where there are two principal players.  There are many examples of that in Canada, and you are talking about the United States.

1listnum "WP List 3" \l 17157            Let's talk about your concerns with duopoly.

1listnum "WP List 3" \l 17158            If I can take you to paragraph 56 of your March 15th report, there you say:

                      "It is well understood in economic theory that it takes more than two firms to create a market that behaves competitively, where individual actions by any one firm are disciplined by the potential response of others."

1listnum "WP List 3" \l 17159            I want to be fair to you, Dr. Selwyn.  You changed that statement in a response of Primus to The Companies, 12April07‑27.  You changed it to read "monopoly" ‑‑ I'm sorry, I didn't read the next sentence.

                      "In a duopoly the two incumbents, even without any sort of overt or tacit collusion per se, will tend to produce a monopoly outcome while still acting in their own individual interests."

1listnum "WP List 3" \l 17160            In Primus12April07‑27 you changed that to read "monopolistic outcome".

1listnum "WP List 3" \l 17161            I wanted to make sure that was clear.

1listnum "WP List 3" \l 17162            Do you recall that?

1listnum "WP List 3" \l 17163            MR. SELWYN:  Yes.

1listnum "WP List 3" \l 17164            MR. HOFLEY:  Again, you say:

                      "It is well understood in economic theory that it takes more than two firms..."

1listnum "WP List 3" \l 17165            You are of course familiar with Bertrand competition, Dr. Selwyn.

1listnum "WP List 3" \l 17166            MR. SELWYN:  Yes.

1listnum "WP List 3" \l 17167            MR. HOFLEY:  Under this form of competition, only two firms compete but such competition results in a competitive price.

1listnum "WP List 3" \l 17168            Is that a fair statement?

1listnum "WP List 3" \l 17169            MR. SELWYN:  In theory, that could happen if you ended up with a Bertrand outcome, which is extremely rare.

1listnum "WP List 3" \l 17170            MR. HOFLEY:  Am I right to say it is a little extreme to suggest that it is well understood in economic theory that it takes more than two firms to create a market that creates a competitive outcome?

1listnum "WP List 3" \l 17171            This theory is well‑known.  It has been documented.

1listnum "WP List 3" \l 17172            MR. SELWYN: