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

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

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

 

 

 

 

 

 

 

              TRANSCRIPT OF PROCEEDINGS BEFORE

             THE CANADIAN RADIO‑TELEVISION AND

               TELECOMMUNICATIONS COMMISSION

 

 

 

 

             TRANSCRIPTION DES AUDIENCES DEVANT

              LE CONSEIL DE LA RADIODIFFUSION

           ET DES TÉLÉCOMMUNICATIONS CANADIENNES

 

 

                      SUBJECT / SUJET:

 

 

 

Review of regulatory framework for wholesale

services and definition of essential service /

Examen du cadre de réglementation concernant les services

de gros et la définition de service essentiel

 

 

 

 

 

 

 

 

 

 

 

 

 

HELD AT:                              TENUE À:

 

Conference Centre                     Centre de conférences

Outaouais Room                        Salle Outaouais

140 Promenade du Portage              140, Promenade du Portage

Gatineau, Quebec                      Gatineau (Québec)

 

October 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:  It's well‑known.  It has been documented and it has been documented as a theoretical level.  But I'm not aware of any serious example of where it is taking place.  And the conditions that would have to exist for a Bertrand outcome certainly do not apply here.

1listnum "WP List 3" \l 17173            There is no evidence.  As I said, the empirical evidence certainly does not suggest that the outcome is other than heading toward the Cournot theory, which implies a monopolistic outcome.

1listnum "WP List 3" \l 17174            MR. HOFLEY:  Let's assume you are correct on that ‑‑ and I say "assume" ‑‑ we then look to see if the individual firms would tacitly ‑‑ because you have been clear about that; we are not talking about collusion ‑‑ would tacitly coordinate conduct with an anti‑competitive result.

1listnum "WP List 3" \l 17175            Correct?  That's what you would do.

1listnum "WP List 3" \l 17176            MR. SELWYN:  Yes.

1listnum "WP List 3" \l 17177            MR. HOFLEY:  Have you done that analysis?

1listnum "WP List 3" \l 17178            MR. SELWYN:  In what ‑‑

1listnum "WP List 3" \l 17179            MR. HOFLEY:  Have you done the analysis to determine whether or not the conditions exist for such tacit coordination?

1listnum "WP List 3" \l 17180            MR. SELWYN:  Not specifically.

1listnum "WP List 3" \l 17181            MR. HOFLEY:  Right.  The Bureau has, though.  The Competition Bureau has, hasn't it?

1listnum "WP List 3" \l 17182            MR. SELWYN:  They say they have.

1listnum "WP List 3" \l 17183            MR. HOFLEY:  Well, having been there for two years, I can tell you that they did, because I believe them.

1listnum "WP List 3" \l 17184            What did their economists conclude, Dr. Selwyn?

1listnum "WP List 3" \l 17185            MR. SELWYN:  I'm trying to recall.

1listnum "WP List 3" \l 17186            MR. HOFLEY:  Would you like some help?

1listnum "WP List 3" \l 17187            MR. SELWYN:  Yes, please.

1listnum "WP List 3" \l 17188            THE CHAIRPERSON:  Mr. Hofley, so we can follow you, doesn't he say in paragraph 56:

                      "Even without any sort of overt or tacit collusion per se..."

1listnum "WP List 3" \l 17189            So doesn't he say in the essence of ‑‑

1listnum "WP List 3" \l 17190            MR. HOFLEY:  No.  I suggested to him that you still need to look to whether or not there would be coordination, whether the factors exist, Mr. Chairman, that would suggest there would be tacit coordination; like non‑collusionary coordination of conduct.  And he said you do.

1listnum "WP List 3" \l 17191            So what I'm asking him is whether he has done that analysis.  He said he has not.

1listnum "WP List 3" \l 17192            I've asked him whether he is aware of the Bureau's analysis.  He says he is but not too familiar with the Bureau's analysis, which is a fair statement.

1listnum "WP List 3" \l 17193            I provided you and the Commission with a blue ‑‑ you are going to be happy.  It's not a big binder.  It's a blue duotang.  The last day of the hearing, blue duotangs.

1listnum "WP List 3" \l 17194            MR. SELWYN:  Yes.

1listnum "WP List 3" \l 17195            MR. HOFLEY:  There, Dr. Selwyn, in Tab E, I have asked the helpful folks at The Companies to reproduce what they could find said about duopolies by the Bureau.

1listnum "WP List 3" \l 17196            What I would like to take you to, Dr. Selwyn, is the last three pages of that Tab E.  It comes from Volume 2 of the transcript, pages 378 to 383, paragraph 2528.

1listnum "WP List 3" \l 17197            Unfortunately, I have just noticed that they have not reproduced every paragraph number.  But if you turn to the third‑last page of that and you begin at the middle, you will see this is Dr. Church in answer to the Chair.

1listnum "WP List 3" \l 17198            He says:

                      "There are a number of reasons that the Bureau has pointed out in the local forbearance proceeding, and I think Bell in its evidence of CRA lists a bunch of reasons as well based on what the Bureau's analysis was in local forbearance which indicates why this kind of coordination would be difficult."

1listnum "WP List 3" \l 17199            And then he goes on to cite all of the reasons.  He summarizes the analysis that the Competition Bureau did of this very question, which you didn't do.

1listnum "WP List 3" \l 17200            MR. SELWYN:  Well, let's walk through it.

1listnum "WP List 3" \l 17201            MR. HOFLEY:  What he concludes, just before we walk through it ‑‑ because you have just said you haven't done this analysis, Dr. Selwyn.

1listnum "WP List 3" \l 17202            MR. SELWYN:  I haven't done a formal analysis, assuming that this constitutes one.

1listnum "WP List 3" \l 17203            MR. HOFLEY:  This is simply a summary of a very formal analysis in the actual submissions of the Bureau.

1listnum "WP List 3" \l 17204            What he concludes, if you look down to the next page, in the middle of the page, he says:

                      "So if you put all those things together, I don't think that the concern of the Bureau is going to be about a coordinated outcome.

                      In fact, going back to a paper that was introduced yesterday, 'Is Two Enough?' paper, if you read that paper carefully at the end of it they say that the potential for coordination is a very low risk with the two competitors in The Netherlands.

                      THE CHAIRPERSON:  Could I summarize it by saying theoretically possible, but highly unlikely?

                      MR. CHURCH:  Very highly unlikely."

1listnum "WP List 3" \l 17205            MR. SELWYN:  Okay.  May I comment?

1listnum "WP List 3" \l 17206            MR. HOFLEY:  Absolutely.

1listnum "WP List 3" \l 17207            MR. SELWYN:  Let me first refer you in my July 5th reply, at page 14.  This is in paragraph 19, which begins on the previous page, but the specific text that I want to refer you to is a quotation from the submission by Bell Canada in the Commission's AWS spectrum auction proceeding ‑‑ that is Industry Canada, not the Commission.

                      "Given the large fixed costs associated with providing a facilities‑based wireless network, only a limited number of firms will be able to profitably enter using a facilities‑based model.  For example, as each new firm enters the market, industry profits decline due to increased competition.  Since profits decrease with the addition of each new entrant, there will be a point at which the profits an entrant earns will be less than the fixed costs of entering.  After this point additional entry will be unprofitable.  Thus, the larger the fixed costs, the smaller the number of firms that can profitably operate in the market."

1listnum "WP List 3" \l 17208            And I go on to explain that in fact if you take spectrum out of the picture, the fixed costs associated with wireless are actually considerably less than the fixed costs of the wireline entry.

1listnum "WP List 3" \l 17209            I raise this because what we are dealing with here is pretty much an almost absolute lack of contestability with respect to the mass market in the context of the cable‑telco duopoly.

1listnum "WP List 3" \l 17210            In other words, the prospects of additional entry at the mass market level at this point, given existing technology and existing market conditions, are sufficiently slim that both firms can operate without fear of further entry.

1listnum "WP List 3" \l 17211            Let's go to Dr. Church's observation.

1listnum "WP List 3" \l 17212            MR. HOFLEY:  So you are suggesting that Dr. Church didn't consider this, Dr. Selwyn.

1listnum "WP List 3" \l 17213            MR. SELWYN:  No.  Let's go to ‑‑

1listnum "WP List 3" \l 17214            MR. HOFLEY:  Or Mr. Osborne in his report.  Or Dr. Taylor in his report.

1listnum "WP List 3" \l 17215            MR. SELWYN:  I don't know what they considered or didn't consider.

1listnum "WP List 3" \l 17216            MR. HOFLEY:  I can take you to each of them, Dr. Selwyn.

1listnum "WP List 3" \l 17217            MR. SELWYN:  Well, what they say they did and what they did are two different things.  Let's just walk through some of the observations.

1listnum "WP List 3" \l 17218            The first observation Dr. Church makes here ‑‑ by the way, I was here during his testimony, so I did hear it ‑‑ the first is that:

                      "The cable companies and the new entrants had much smaller market shares than the incumbents and, consequently, they are not interested in cooperating." (As Read)

1listnum "WP List 3" \l 17219            All right, again, you know, cooperation does not necessarily have to produce the Cournot‑type outcome.  It is simply the knowledge that the other side may not be responding in a price‑cutting way.

1listnum "WP List 3" \l 17220            Well, the first statement here is actually factually incorrect, because with respect at least to hi‑speed internet services cable and ILEC have roughly similar market shares approaching 50 per cent each.

1listnum "WP List 3" \l 17221            MR. HOFLEY:  We are, of course, telephony here, Dr. Selwyn.

1listnum "WP List 3" \l 17222            DR. SELWYN:  I understand, I understand we are talking about telephony.

1listnum "WP List 3" \l 17223            MR. HOFLEY:  Okay.

1listnum "WP List 3" \l 17224            DR. SELWYN:  But both are also moving into the market for bundles and are leveraging, particularly in the case of cable, its digital network and its IP‑based services into the residential market.

1listnum "WP List 3" \l 17225            So I think that what you are looking at here is a situation where the cable company dominates the video business, the telephone company dominates the voice dial tone telephone business, they roughly split the internet business and they are both sort of trying to develop a triple play bundle of voice, internet and video.

1listnum "WP List 3" \l 17226            And, viewed at in that context, I don't think I would agree with this notion that cable is smaller than telco, particularly since the market direction is focusing on bundles and they each have a countervailing dominance in one component and one different component of the bundle.

1listnum "WP List 3" \l 17227            MR. HOFLEY:  Dr. Selwyn, so you are suggesting that Vidéotron, for example, is not lowering telephone rates in Canada?  They are in the exact same circumstance you are talking about. You are suggesting they are not lowering rates in Canada?

1listnum "WP List 3" \l 17228            DR. SELWYN:  I am not familiar specifically with what they are doing, whether they are offering standalone telephone service at a lower rate or whether it is part of a bundle or an adjunct to a video service.

1listnum "WP List 3" \l 17229            I can tell you that, you know, what we certainly have been seeing in the U.S. are lowering of rates on a promotional basis, usually lasting six months to a year and then going back up again.

1listnum "WP List 3" \l 17230            MR. HOFLEY:  As an American and a Canadian, I am always interested in what is happening in the U.S., but we are talking about Canada.  So I just gave you an example that undermines completely your statement.  And do you know that Vidéotron is lowering rates in telephone in Canada?

1listnum "WP List 3" \l 17231            DR. SELWYN:  I don't know that one way or the other.

1listnum "WP List 3" \l 17232            MR. HOFLEY:  Maybe, Dr. Selwyn, we could foreclose this.  So suffice it to say you disagree, although you haven't done the analysis, with Dr. Church.  And I take it that if the cablecos said to you that they were going to compete vigorously in a market structure that had two principal players that wouldn't be of any consequence to your analysis.  Is that a fair statement?

1listnum "WP List 3" \l 17233            DR. SELWYN:  Well, what I heard yesterday was the CEO of one of the major cablecos in Canada saying that they didn't expect to be competing, expected the prices to be going up.

1listnum "WP List 3" \l 17234            MR. HOFLEY:  Well, perhaps I could take you to tab F of that very same CEO ‑‑

1listnum "WP List 3" \l 17235            MR. RUBY:  Mr. Chairman ‑‑ I am sorry, Mr. Hofley, it is Mr. Ruby back here.  Mr. Hofley took the Commission and Dr. Selwyn to this extensive piece of evidence that is on a crucial issue ‑‑

1listnum "WP List 3" \l 17236            MR. HOFLEY:  It is a transcript, Mr. Ruby, it is not an extensive piece of evidence.

1listnum "WP List 3" \l 17237            MR. RUBY:  ‑‑ and asked Dr. Selwyn to comment and then cut him off.  I think the Commission would benefit from hearing the full answer to what Dr. Selwyn has to say to Dr. Church's evidence.

1listnum "WP List 3" \l 17238            THE CHAIRPERSON:  Mr. Ruby, it is Mr. Hofley's turn at cross‑examination.  When he is finished I was going to ask Dr. Selwyn to do the very thing you are ‑‑ but I didn't want to interrupt his flow.  So let him do his cross‑examination and we will get there.

1listnum "WP List 3" \l 17239            MR. RUBY:  Thank you, Mr. Chairman.

1listnum "WP List 3" \l 17240            MR. HOFLEY:  I am mindful of the time, Mr. Chairman.  I think I have 15 minutes to make my deadline.

1listnum "WP List 3" \l 17241            If I could take you to tab F.  This is a response from Shaw, the very same company you just referred to and was mentioned yesterday to Primus‑12‑April‑07‑02.  And if I can take you down to the middle of the paragraph.  Here, Mr. Shaw, through his company, says:

                      "Furthermore, there is absolutely no reason to presume that competition between two facilities‑based service providers will not be extremely vigorous.  As Shaw has stated on numerous occasions, it has every incentive to ensure that usage of its network capacity is maximized through vigorous competition in the provision of retail services and in the provision of wholesale services to competing service providers.  In the circumstances, residential customers can be expected to have access to a broad range of both facilities‑based and non‑facilities‑based choices." (As Read)

1listnum "WP List 3" \l 17242            So that is what Shaw said in response to an interrogatory.

1listnum "WP List 3" \l 17243            DR. SELWYN:  I am sorry, are you representing that Mr. Shaw himself said this or that one of his ‑‑

1listnum "WP List 3" \l 17244            MR. HOFLEY:  I am representing that his company said this.

1listnum "WP List 3" \l 17245            DR. SELWYN:  Well, his company said it, and then he said something the other day that sounds like it is very different.

1listnum "WP List 3" \l 17246            MR. HOFLEY:  I see.

1listnum "WP List 3" \l 17247            DR. SELWYN:  And I assume that, organizationally, what he says goes.

‑‑‑ Laughter / Rires

1listnum "WP List 3" \l 17248            MR. HOFLEY:  I assume, Dr. Selwyn, that this interrogatory speaks for the company and we also heard other testimony yesterday about how we have to be careful with statements to analysts, but we won't go into that.

1listnum "WP List 3" \l 17249            DR. SELWYN:  Well, perhaps.  But this speaks to whoever wrote it.

1listnum "WP List 3" \l 17250            MR. HOFLEY:  I see.

1listnum "WP List 3" \l 17251            DR. SELWYN:  And perhaps ‑‑

1listnum "WP List 3" \l 17252            MR. HOFLEY:  So you don't believe it?  Bottom line is you don't believe it?

1listnum "WP List 3" \l 17253            DR. SELWYN:  Well, you know, I read it and I heard the testimony, the discussion yesterday regarding Mr. Shaw's statement the other day.  His statement the other day is far more consistent with the experience that I am certainly familiar with.  We have had experience in the wireless industry where we are dealing with a duopoly and, in the U.S., where that duopoly was broken by the introduction of three or four additional competitors.  The price point for cellular, which had remained almost unchanged for a decade, suddenly dropped by a factor of 70 to 80 per cent as soon as three or four additional competitors had entered the market.

1listnum "WP List 3" \l 17254            I mean, you know, in this situation it is clearly in the interests of both firms in a duopoly, particularly where they have roughly equivalent market shares, and in the context of the bundles, as I have just explained they do, to operate in a way that is focusing on non‑price competition or the use of promotional pricing that reverts back to a higher price is what we are seeing in the U.S.

1listnum "WP List 3" \l 17255            I can't answer for you ‑‑ I don't know anything about Vidéotron.  I know it is not as big as either Shaw or Rogers.  I don't know what its condition is or where it serves.  But I would be very surprised that, over time, once the bundled service packages are established and the market becomes established if there is any price competition in a duopoly condition of that sort.

1listnum "WP List 3" \l 17256            MR. HOFLEY:  And that would be what you call coordinated conduct?

1listnum "WP List 3" \l 17257            DR. SELWYN:  It doesn't have to be coordinated.  You see, when you words ‑‑

1listnum "WP List 3" \l 17258            MR. HOFLEY:  I have understood you to say ‑‑

1listnum "WP List 3" \l 17259            DR. SELWYN:  ‑‑ like passive and coordinated and so on, if I am in the market and I have got one other competitor and I have a pretty solid belief that nobody else is going to be showing up ‑‑

1listnum "WP List 3" \l 17260            MR. HOFLEY:  Nobody like wireless, for example?

1listnum "WP List 3" \l 17261            DR. SELWYN:  Well, not yet.  You know, I am going to certainly experiment with pricing and see what happens and I am not going to just suddenly start dropping my price dramatically to end upon a price war when, in fact, I have the opportunity to test the market and test my only rival's response to my pricing conduct.  And I am certainly going to prefer to keep my price level high and find other ways to compete with my rival rather than end up in a price war and sacrifice profit.

1listnum "WP List 3" \l 17262            And if I can accomplish that, that is exactly what I am going to do.  I don't have to coordinate, I don't have to engage in tacit illusion, none of that, I just simply have to go out there and test the water and see what happens.

1listnum "WP List 3" \l 17263            MR. HOFLEY:  And that is in a world of excess capacity, rapid technological change, impending wireless and, in this world, business people are going to make those decisions in your suggestion, Dr. Selwyn?

1listnum "WP List 3" \l 17264            DR. SELWYN:  Now, you use terms like impending.  You know, I have got to tell you, I have been doing this for a long time and I have appeared at hearings of this type and in other jurisdictions for many years and I can't tell you how many times I have seen exhibits put in by incumbents showing advertising or websites or mailings from putative competitors.

1listnum "WP List 3" \l 17265            And this is going back not two years or five years or 10 years, even more than that.  We keep hearing about competition.  You know what, if wireless ever actually or some other technology ever shows up to a point where it seriously threatens that duopoly, then the duopolies will react.  But they are not going to react now, why would they?  Why would I give up profit on a come bet that someday down the road somebody else might show up?

1listnum "WP List 3" \l 17266            MR. HOFLEY:  Well, it depends on what your view of down the road is of course, Dr. Selwyn.  And we can debate whether or not wireless is here or there.  But I guess you would agree with me that, for example, the prospect of two‑way cable telephony was something that was down the road and it has had a ‑‑ what was the word that we used yesterday ‑‑ a disruptive, that was the word, a disruptive effect?

1listnum "WP List 3" \l 17267            DR. SELWYN:  That is a very good example.  Two‑way cable telephony has been, you know, out there, people have been talking about cable telephony for many ‑‑

1listnum "WP List 3" \l 17268            UNIDENTIFIED SPEAKER:  Since 1980.

1listnum "WP List 3" \l 17269            DR. SELWYN:  Yes, well even longer than that.  And ‑‑

1listnum "WP List 3" \l 17270            MR. HOFLEY:  But it is here now, Dr. Selwyn.

1listnum "WP List 3" \l 17271            DR. SELWYN:  Well, wait a minute, just wait a minute.  So, for example, I know there was some discussion yesterday about Telewest.  In about a dozen years or so I travelled to London on a trip with the New York State Cable Television Association and we went to visit two cable operators in the UK, one of which was Telewest that were attempting to enter the telephone business.

1listnum "WP List 3" \l 17272            And what I remember about TeleWest was that their business model for telephone entry basically involved the creation of both ‑‑ of a copper‑based wire line network that used a copper drop wire together with the coaxial cable for the video service into their customers.

1listnum "WP List 3" \l 17273            And they had this cable that they described as Siamese drop cable, and the reason they called it Siamese drop cable is because it basically consisted of two sheaths that were glued together, a coaxial sheath and a twisted‑pair copper and that was their play.

1listnum "WP List 3" \l 17274            And, in fact, cable telephony remained in that sort of hybrid model really not using cable technology at all, but simply using their distribution infrastructure to run a cooper over‑build for many, many years.

1listnum "WP List 3" \l 17275            In the 2003 FCC tri‑annual review decision that we had some discussion about yesterday, the FCC commented that cable telephone service had never made it, sort of peaked at about 3‑million in the U.S.

1listnum "WP List 3" \l 17276            Now, it is true that now cable found a technology that enables it to come into that market in the form of VoIP and it was sort of a happy coincidence of their interest in getting into the hi‑speed Internet business and developing a two‑way cable modem type service with an IP‑based two‑way channel which was originally put in place for Internet access, and that itself was an adjunct to a conversion from analog to digital video.

1listnum "WP List 3" \l 17277            So, you go ‑‑ first you take the core video business, convert it to digital, then you overlay the two‑way Internet service on that and now VoIP comes along and you can now offer dial tone.

1listnum "WP List 3" \l 17278            And, yeah, it finally happened and, so, now we actually have the potential for a mass market duopoly for the first time.  But we didn't see the telephone companies, you know, sitting there shaking in their shoes because some day down the road cable might show up with telephone service.

1listnum "WP List 3" \l 17279            When cable showed up, then they'd be there reacting.  And I don't even see that they are reacting, but they're certainly not going to react in advance.  There's no reason to expect that ‑‑

1listnum "WP List 3" \l 17280            THE CHAIRPERSON:  You made your point, Dr. Selwyn, we're under a time pressure.

1listnum "WP List 3" \l 17281            Your point is they won't react until the competition is there.

1listnum "WP List 3" \l 17282            DR. SELWYN:  Right.

1listnum "WP List 3" \l 17283            THE CHAIRPERSON:  Okay.  Mr. Hofley.

1listnum "WP List 3" \l 17284            MR. HOFLEY:  I'm sorry, give me 30 seconds here.  I'm getting instructions in front of you.

‑‑‑ Pause

1listnum "WP List 3" \l 17285            MR. HOFLEY:  Those are my questions, Mr. Chairman.

1listnum "WP List 3" \l 17286            THE CHAIRPERSON:  Okay.  Dr. Selwyn, very briefly let's go back to tab D of Mr. Hofley's binder.

1listnum "WP List 3" \l 17287            You were telling us why you disagree with Dr. ‑‑ who was this ‑‑ Church.  You went through point 1.  Just tell us very briefly, in the interest of time, why you disagree with point 2, 3 and 4.

1listnum "WP List 3" \l 17288            DR. SELWYN:  Well, his point 2 is sort of what I said is why I disagree with point 1, and I think it undermines his point 1; that is, they're going to be both be providing broadband services, they are ‑‑ you know, as to the starting point for broadband services are roughly splitting the market today and, I mean, he says you're going to have intense competition.

1listnum "WP List 3" \l 17289            I'm not suggesting they're not going to compete.  The question is:  Will they compete on price and will the assurance that a third entrant is not going to arrive if collectively they charge a super competitive price enable them to find others way to compete?  They might compete on speed, they might compete on, you know, other components of their service.

1listnum "WP List 3" \l 17290            But the notion that they would compete on price I don't see follows from this analysis.

1listnum "WP List 3" \l 17291            His third point he says:

                      "I think it's true that cable companies and ILECs have historically been rivals in the public policy arena.  They are not natural allies."  (As read)

1listnum "WP List 3" \l 17292            Well, that's sort of interesting because we're already beginning to see changes in that.  For example, on the issue of net neutrality, which I know is a very hot issue in the U.S., I believe it's arisen here, we're finding that the cable companies and the ILECs are on exactly the same side on that issue, they want the ability to exercise control over the content that is delivered via their broadband services.

1listnum "WP List 3" \l 17293            So, you know, alliances change.  That's hardly, you know, a basis to conclude that things won't happen going forward.  And I'm reminded that Rogers and Bell even have a partnership with respect to Inukshuk.  So we see, you know, affirmative evidence of that.

1listnum "WP List 3" \l 17294            The ability to coordinate depends on, is it truly a duopoly or are there other sources of competition.  I've already discussed that.

1listnum "WP List 3" \l 17295            THE CHAIRPERSON:  I think you said something, yes.

1listnum "WP List 3" \l 17296            DR. SELWYN:  So, I don't need to do that again.

1listnum "WP List 3" \l 17297            THE CHAIRPERSON:  Okay.

1listnum "WP List 3" \l 17298            DR. SELWYN:  I think, you know, that's pretty much...

1listnum "WP List 3" \l 17299            THE CHAIRPERSON:  Okay.  That answers my question.  Thanks very much.

1listnum "WP List 3" \l 17300            Commissioner Cram.

1listnum "WP List 3" \l 17301            COMMISSIONER CRAM:  Thank you.

1listnum "WP List 3" \l 17302            It's Dr. Selwyn?

1listnum "WP List 3" \l 17303            DR. SELWYN:  Yes.

1listnum "WP List 3" \l 17304            COMMISSIONER CRAM:  Is it?

1listnum "WP List 3" \l 17305            DR. SELWYN:  Yes.

1listnum "WP List 3" \l 17306            COMMISSIONER CRAM:  Dr. Selwyn, in the blue duotang, if you could go to C, tab C, and this is local competition in the U.S. June 30, 2006.  I don't know if there's any more ‑‑ and if you could go to the last page.

1listnum "WP List 3" \l 17307            DR. SELWYN:  I'm sorry, in the...

1listnum "WP List 3" \l 17308            COMMISSIONER CRAM:  B.

1listnum "WP List 3" \l 17309            DR. SELWYN:  You mean the FCC...?

1listnum "WP List 3" \l 17310            COMMISSIONER CRAM:  "B" as in Barb.

1listnum "WP List 3" \l 17311            DR. SELWYN:  Yeah, I actually have the whole document, so let me get it.

1listnum "WP List 3" \l 17312            COMMISSIONER CRAM:  Oh well, I can't tell you what page it is.

1listnum "WP List 3" \l 17313            DR. SELWYN:  Oh, okay.

1listnum "WP List 3" \l 17314            COMMISSIONER CRAM:  But he's got the whole document.

1listnum "WP List 3" \l 17315            DR. SELWYN:  Well, I have this too.  Let me start with this, but I might want to refer to something else that wasn't provided.

1listnum "WP List 3" \l 17316            But go ahead, I have it.

1listnum "WP List 3" \l 17317            COMMISSIONER CRAM:  Now, I think I'm just becoming defensive in my old age, that's all.

1listnum "WP List 3" \l 17318            DR. SELWYN:  I know, I know.

1listnum "WP List 3" \l 17319            COMMISSIONER CRAM:  And what I'm looking at is that as of 2006 chart 3 says, end user lines, 35.9 per cent are owned by CLECs.

1listnum "WP List 3" \l 17320            DR. SELWYN:  I think these are retail ‑‑

1listnum "WP List 3" \l 17321            COMMISSIONER CRAM:  Are they only retail?

1listnum "WP List 3" \l 17322            DR. SELWYN:  Oh, I'm on the wrong page.  Okay, I'm sorry.

1listnum "WP List 3" \l 17323            That 35.9 per cent is the percentage of all CLEC lines that are owned by CLECs, it's not the percentage of the total market.

1listnum "WP List 3" \l 17324            COMMISSIONER CRAM:  Okay.  Percentage of lines.

1listnum "WP List 3" \l 17325            DR. SELWYN:  It's percentage of ‑‑ in other words, if you go to the total CLEC lines which is in the column ‑‑ third column from the left, total end user lines, 29‑million, and then if you look at CLEC owned lines there's 10‑million and some change.  That's the 35 per cent.  So, it's a percentage of the total CLEC retail lines that CLECs own.

1listnum "WP List 3" \l 17326            COMMISSIONER CRAM:  And it's CLECs self provisioning; right?

1listnum "WP List 3" \l 17327            DR. SELWYN:  Yes.

1listnum "WP List 3" \l 17328            COMMISSIONER CRAM:  Yes.  Now, if I could get somebody to give you our monitoring report.

1listnum "WP List 3" \l 17329            DR. SELWYN:  I actually have it.

1listnum "WP List 3" \l 17330            COMMISSIONER CRAM:  You have it?

1listnum "WP List 3" \l 17331            DR. SELWYN:  Yes.

1listnum "WP List 3" \l 17332            COMMISSIONER CRAM:  At page 46.

1listnum "WP List 3" \l 17333            DR. SELWYN:  Yes.

1listnum "WP List 3" \l 17334            COMMISSIONER CRAM:  Would the chart I had just shown you be equivalent to a combination of the two charts together in figure 4.2.2?

1listnum "WP List 3" \l 17335            DR. SELWYN:  In that figure 4.2.2 separates business and residential and the chart on ‑‑ the chart 3 in the FCC report seems to combine them.

1listnum "WP List 3" \l 17336            COMMISSIONER CRAM:  Yes.

1listnum "WP List 3" \l 17337            DR. SELWYN:  Yes, that would appear to be the case.

1listnum "WP List 3" \l 17338            COMMISSIONER CRAM:  So, by my calculation we have 60.1 per cent self provisioning under our regime and the U.S. as, of I think it would have been ‑‑ our data is I think to December, 2006 and theirs is to two thousand and ‑‑

1listnum "WP List 3" \l 17339            DR. SELWYN:  June of ‑‑

1listnum "WP List 3" \l 17340            COMMISSIONER CRAM:  June.

1listnum "WP List 3" \l 17341            DR. SELWYN:  Of 2006 I think.

1listnum "WP List 3" \l 17342            COMMISSIONER CRAM:  2006, they have 36 per cent.  So, it looks like our regime has been fairly successful in encouraging self provisioning.

1listnum "WP List 3" \l 17343            DR. SELWYN:  So, it would seem.  I believe there was some discussion yesterday of the equivalent chart in the previous ‑‑ in the 2006 monitoring report which I think was around the same page.

1listnum "WP List 3" \l 17344            COMMISSIONER CRAM:  It's figure 4.2.5 for the year before.

1listnum "WP List 3" \l 17345            DR. SELWYN:  Right.  So, to be fair what we should probably do is take the mid‑point of these two, December '05 ‑‑ the average of December, '05 to December, '06 if we want to compare it to the June of '06 number in the U.S.

1listnum "WP List 3" \l 17346            But, you know, other than that it would appear that, at least in the mass market the development of cable telephony as a percentage ‑‑ it's the residential side that seems to be pushing this figure up.

1listnum "WP List 3" \l 17347            COMMISSIONER CRAM:  Yes.

1listnum "WP List 3" \l 17348            DR. SELWYN:  And it seems to be there.  What we probably also need to do is compare the overall CLEC shares which I think are a little less in Canada, but I may be wrong about that.

1listnum "WP List 3" \l 17349            COMMISSIONER CRAM:  Ah, okay.  So, the number of lines.  Okay.

1listnum "WP List 3" \l 17350            Thank you very much.

1listnum "WP List 3" \l 17351            THE CHAIRPERSON:  Okay.  Thank you very much.

1listnum "WP List 3" \l 17352            MR. HOFLEY:  Mr. Chair ‑‑

1listnum "WP List 3" \l 17353            THE CHAIRPERSON:  Yes.

1listnum "WP List 3" \l 17354            MR. HOFLEY:  ‑‑ perhaps the document Commissioner Cram referred to could be made an exhibit and I propose that it be made CRTC Exhibit 11.

1listnum "WP List 3" \l 17355            THE CHAIRPERSON:  Okay.

                      EXHIBIT NO. CRTC‑11: Chart 3, FCC report re local competition in the U.S., June 30, 2006

1listnum "WP List 3" \l 17356            Madam Secretary, who is next?

1listnum "WP List 3" \l 17357            THE SECRETARY:  The next panel to cross‑reference is the panel of TELUS Communications.

1listnum "WP List 3" \l 17358            THE CHAIRPERSON:  Okay.  Let's give you time to set yourself up.

1listnum "WP List 3" \l 17359            We will take a five‑minute break.

‑‑‑ Recessed at 1026 / Suspension à 1026

‑‑‑ Resumed at 1033 / Reprise à 1033

1listnum "WP List 3" \l 17360            THE CHAIRPERSON:  Please proceed.

1listnum "WP List 3" \l 17361            MR. LOWE:  Thank you, sir.

EXAMINATION / INTERROGATOIRE

1listnum "WP List 3" \l 17362            MR. LOWE:  Good morning, panel.

1listnum "WP List 3" \l 17363            I'm just trying to understand the Primus and the MTS Allstream intervenors or parties share two common experts, is that right, Dr. Selwyn and Towerhouse Consulting?

1listnum "WP List 3" \l 17364            DR. SELWYN:  I think Mr. Brisby appeared only for MTS, but perhaps counsel for MTS can clarify that.

1listnum "WP List 3" \l 17365            MR. LOWE:  I'm just asking The Company what their understanding is.  I'm just asking.

1listnum "WP List 3" \l 17366            MR. CHISLETT:  No, we had no arrangement with Mr. Brisby.

1listnum "WP List 3" \l 17367            MR. LOWE:  It's just Dr. Selwyn that you share?

1listnum "WP List 3" \l 17368            MR. CHISLETT:  That's correct.

1listnum "WP List 3" \l 17369            MR. LOWE:  Your proposal is somewhat similar to MTS Allstream's proposal.

1listnum "WP List 3" \l 17370            Is that a fair characterization?

‑‑‑ Pause

1listnum "WP List 3" \l 17371            MR. CHISLETT:  Proposal for what?

1listnum "WP List 3" \l 17372            MR. LOWE:   Your proposal for what the Commission should determine in this proceeding as far as essential facilities are concerned, what facilities should be unbundled?

1listnum "WP List 3" \l 17373            MR. CHISLETT:  Our test for essential facilities?

1listnum "WP List 3" \l 17374            MR. LOWE:  Yes, your test and what facilities should be unbundled on a mandated basis?

1listnum "WP List 3" \l 17375            MR. CHISLETT:  They are similar, yes.

1listnum "WP List 3" \l 17376            MR. LOWE:  Not identical, but similar.

1listnum "WP List 3" \l 17377            MR. CHISLETT:   Yes.

1listnum "WP List 3" \l 17378            MR. LOWE:   You heard the MTS Allstream proposal definition for "essential facilities" being characterized as broad.

1listnum "WP List 3" \l 17379            Do you recall that?

1listnum "WP List 3" \l 17380            MR. CHISLETT:  No.  But if you say it was, I will ‑‑

1listnum "WP List 3" \l 17381            MR. LOWE:  I don't want to be ‑‑

1listnum "WP List 3" \l 17382            MR. CHISLETT:  If you say it was characterized as that by someone, that's ‑‑

1listnum "WP List 3" \l 17383            MR. LOWE:  I don't want to be called up for a retraction or anything like that.

1listnum "WP List 3" \l 17384            THE CHAIRPERSON:  Why don't you ask them for their definition?

1listnum "WP List 3" \l 17385            MR. LOWE:  All right.

1listnum "WP List 3" \l 17386            Well, what is your definition of an "essential facility"?

1listnum "WP List 3" \l 17387            MR. CHISLETT:  Our definition is given in our evidence at paragraph 142.

1listnum "WP List 3" \l 17388            In our belief an essential facility is, first:

                      "It is an input important to a competitor or new entrant in order to compete effectively or efficiently in the provision of retail services;"  (As read)

1listnum "WP List 3" \l 17389            And then:

                      "and the firm control on the input is assumed to possess the power to lessen or prevent competition in the downstream markets provided that the CRTC has not determined as a matter of fact that there is sufficient evidence and effective substitute for the input or that a competitive price is part of a sustainable vigorous wholesale market, i.e., a feasible alternative source of supply."  (As read)

1listnum "WP List 3" \l 17390            MR. LOWE:  Dr. Selwyn, do you think that definition is similar to the MTS Allstream definition?

1listnum "WP List 3" \l 17391            DR. SELWYN:  I tried to compare the two.  I think they are approximately the same.  I certainly tended to interpret them as being essentially the same.

1listnum "WP List 3" \l 17392            MR. LOWE:  Dr. Selwyn, you testified that you have appeared at a number of telecommunications hearings over the years?

1listnum "WP List 3" \l 17393            DR. SELWYN:  Yes.

1listnum "WP List 3" \l 17394            MR. LOWE:  Would it be the past 35 years?

1listnum "WP List 3" \l 17395            DR. SELWYN:  Yes, probably.

1listnum "WP List 3" \l 17396            MR. LOWE:  You have appeared in Canada in 1995 in the split rate base hearing?

1listnum "WP List 3" \l 17397            DR. SELWYN:  I have ‑‑

‑‑‑ Pause

1listnum "WP List 3" \l 17398            DR. SELWYN:  That would be ‑‑

1listnum "WP List 3" \l 17399            MR. LOWE:  I'm just asking if you remember, Dr. Selwyn.

1listnum "WP List 3" \l 17400            DR. SELWYN:  I don't remember the title and I'm just ‑‑ I appeared in the CRTC‑1990 4‑130 ‑‑ is that the case ‑‑ information highway.

1listnum "WP List 3" \l 17401            MR. LOWE:  It was the allocation of economies of scope I think in the split rate base proceeding.  But I don't want to dwell on it too much, I just thought you might remember.

1listnum "WP List 3" \l 17402            DR. SELWYN:  Okay.

1listnum "WP List 3" \l 17403            MR. LOWE:  Could you turn to ‑‑ and I hope you have it ‑‑ the binder of exhibits that we passed to you when you are on the MTS panel?

1listnum "WP List 3" \l 17404            DR. SELWYN:  Yes, I have it.

1listnum "WP List 3" \l 17405            MR. LOWE:  I would like to turn to Tab 1.  I have passed this document out separately, but it is also in the binder.  If you saved your binders, it's Tab 1 of the MTS.

1listnum "WP List 3" \l 17406            THE SECRETARY:  The loose copy was given to everybody.

1listnum "WP List 3" \l 17407            MR. LOWE:  Dr. Selwyn, this is evidence given by you in an Illinois proceeding?

1listnum "WP List 3" \l 17408            DR. SELWYN:  Well, to be precise these were responses to interrogatories submitted to the Attorney General of the State of Illinois that I assisted in drafting responses to.

1listnum "WP List 3" \l 17409            MR. LOWE:  So you were on for the people in that case?

1listnum "WP List 3" \l 17410            DR. SELWYN:  Yes.

1listnum "WP List 3" \l 17411            MR. LOWE:  In the first page of the document there are some blanket objections to each and every data request, they are over broad, vague and ambiguous, some other objections and then some responses are provided subject to those objections?

1listnum "WP List 3" \l 17412            DR. SELWYN:  Yes.  Again, these responses were prepared by counsel, not by me.

1listnum "WP List 3" \l 17413            MR. LOWE:  All right.

1listnum "WP List 3" \l 17414            Then in response 1.01, which is on the second page, you were asked to provide:

                      "... a list of all state and federal regulatory proceedings in which you had sponsored testimony since January 1, 2000."  (As read)

1listnum "WP List 3" \l 17415            The answer is:

                      "Subject to the objections above, and without waiving these objections, a DVD containing Dr. Selwyn's testimony is attached."  (As read)

1listnum "WP List 3" \l 17416            So that would have been a list of your testimony from 2000 to 2006?

1listnum "WP List 3" \l 17417            Is that right?

1listnum "WP List 3" \l 17418            DR. SELWYN:  It would have been ‑‑ I presume it would have been from January 1, 2000 through the date of the interrogatory and the date of the interrogatory would have been some time probably in the middle part of 2006.

1listnum "WP List 3" \l 17419            MR. LOWE:  Fair enough.

1listnum "WP List 3" \l 17420            Then in the interrogatory 1.02, the third page of the package, it says:

                      "In any of these proceedings did Dr. Selwyn take the position that local exchange telecommunications services offered by an incumbent LEC were sufficiently competitive such that reduced regulatory oversight or deregulation was appropriate?"  (As read)

1listnum "WP List 3" \l 17421            response is:

                      "Subject to the rest objections above, and without waiving those objections, to the best of Dr. Selwyn's recollection, no."  (As read)

1listnum "WP List 3" \l 17422            Was that your response ‑‑

1listnum "WP List 3" \l 17423            DR. SELWYN:  Yes.

1listnum "WP List 3" \l 17424            MR. LOWE:  ‑‑ or was that the Attorney General's response?

1listnum "WP List 3" \l 17425            DR. SELWYN:  That's my response.

1listnum "WP List 3" \l 17426            MR. LOWE:  Thank you.

1listnum "WP List 3" \l 17427            Then in 1.03, the next page, a similar question referring to 2000 to 2006 testimony:

                      "Did Dr. Selwyn take the position that local toll telecommunications services offered by an incumbent LEC were sufficiently competitive such that reduced regulatory oversight or deregulation was appropriate?"  (As read)

1listnum "WP List 3" \l 17428            Again you said no.

1listnum "WP List 3" \l 17429            DR. SELWYN:  Yes.  When I read this the other day I was trying to recall that question at the time and actually I don't recall it.  So I'm not suggesting I didn't give that answer, but ‑‑

1listnum "WP List 3" \l 17430            MR. LOWE:  So you are saying now, to the best of your recollection you don't recall whether you ‑‑

1listnum "WP List 3" \l 17431            DR. SELWYN:  I don't recall the discussion of that interrog, but I'm sure I did see it.

1listnum "WP List 3" \l 17432            I want to make sure, just for purposes of clarification here, the reference to "local toll" has a very specific meeting and just to be sure that it's clear what we are talking about.

1listnum "WP List 3" \l 17433            In the context of the United States, local toll refers generally to intralata toll, that is the toll services that were reserved for the Bell operating companies at the time that the Bell system was broken up in 1984.

1listnum "WP List 3" \l 17434            So in that context my response is correct and I still believe it.

1listnum "WP List 3" \l 17435            MR. LOWE:  All right.

1listnum "WP List 3" \l 17436            Turning to the last sheet, 1.05, you were asked:

                      "In any of these proceedings 2000 to 2006 which involved requests by incumbent LECs to modify the terms of an alternative plan of regulation to eliminate or reduce any required rate reductions, permit rate increases or otherwise obtain greater pricing flexibility did Dr. Selwyn support any part of incumbent LEC proposals?"  (As read)

1listnum "WP List 3" \l 17437            Again you say:

                      "Subject to the objections above, and without waiving those objections, to the best of Dr. Selwyn's recollection, no."  (As read)

1listnum "WP List 3" \l 17438            Do you recall that?

1listnum "WP List 3" \l 17439            DR. SELWYN:  That was my response, but on reflection I do recall authoring some comments that were submitted to the FCC that I assisted in drafting by a group of clients known as the Ad Hoc Telecommunications Users Committee which consists of about 20 large national corporate telecom users who had actually proposed to the FCC an alternate plan that provided for a combination of downward pricing flexibility coupled with a no earnings cap or, in the alternative, a rate‑of‑return type of ‑‑ if I recall correctly, a rate‑of‑return type regime.  So there were variations.

1listnum "WP List 3" \l 17440            I think the answer to that is probably a little ‑‑ I have certainly supported price‑cap type regime's and other alternative regulation regimes where I disagreed with the parameters of the plan that were being proposed by the incumbent, but I have absolutely supported alternative forms of regulation.  So I would say that response was probably less than accurate.

1listnum "WP List 3" \l 17441            MR. LOWE:  All right.

1listnum "WP List 3" \l 17442            DR. SELWYN:  In fact, I think my testimony before this Commission in the price cap regime also was focusing more on the ‑‑ if I recall correctly, on the parameters of the plan rather than simply opposing it.  But of course that was before 2000 so that may ‑‑ it's possible ‑‑

1listnum "WP List 3" \l 17443            MR. LOWE:  Was that before 2000?

1listnum "WP List 3" \l 17444            You are talking about when you acted for the 20 large industrial users?

1listnum "WP List 3" \l 17445            DR. SELWYN:  No, I'm talking ‑‑

1listnum "WP List 3" \l 17446            MR. LOWE:  Or are you talking about price caps?

1listnum "WP List 3" \l 17447            DR. SELWYN:  No, that was after.

1listnum "WP List 3" \l 17448            But my testimony here ‑‑ it is also possible that the testimony that I'm referring to now with respect to price, to alternate regulation regimes, much of that would have been before 2000, but it's quite possible there was some after 2000.

1listnum "WP List 3" \l 17449            MR. LOWE:  But the general thrust of your response here is all of these proceedings from 2000 to 2006 you haven't been supportive of greater pricing flexibility on the part of incumbent LECs?

1listnum "WP List 3" \l 17450            You say, well maybe ‑‑

1listnum "WP List 3" \l 17451            DR. SELWYN:  I have supported downward pricing flexibility in that sense.

1listnum "WP List 3" \l 17452            MR. LOWE:  Reducing prices?

1listnum "WP List 3" \l 17453            DR. SELWYN:  Well, reducing prices, which might have been greater than what then resist existed, but lesser than what the incumbent was requesting.

1listnum "WP List 3" \l 17454            MR. LOWE:  All right.

1listnum "WP List 3" \l 17455            Would you say philosophically when we look over the course of your testimony in your career have you encouraged more regulation then at least the incumbent LEC would have requested?

1listnum "WP List 3" \l 17456            DR. SELWYN:  In response strictly to the way you framed that question, yes, I have encouraged more regulation than the incumbent had requested.  That is in no sense to suggest that I have always simply taken the position that regulation is the only solution.

1listnum "WP List 3" \l 17457            I have long argued and testified that competition is always preferable to regulation, but sometimes regulation is necessary in order to ensure that competition happens, and that competition should be encouraged where competition can succeed, such as at the retail level.  If it requires regulation at the wholesale level to achieve that outcome, then that regulation should be pursued.

1listnum "WP List 3" \l 17458            MR. LOWE:  So, then, philosophically you would say that regulation should be used to encourage competition, when you believe that competition is possible.

1listnum "WP List 3" \l 17459            DR. SELWYN:  The objective should be a competitive outcome.  The objective should be efficient competition.  If, in order to achieve that objective, regulation at a certain level is required, then such regulation is appropriate and should be adopted.

1listnum "WP List 3" \l 17460            MR. LOWE:  And you are still reluctant to allow greater pricing flexibility, even when you sit for an ILEC, as you did with MTS yesterday?

1listnum "WP List 3" \l 17461            DR. SELWYN:  That's correct.

1listnum "WP List 3" \l 17462            If we had effective regulation at the wholesale level, and could be reasonably assured that we would have entry and a sufficient level of competition at the retail level that would permit retail pricing flexibility, then I would support that.

1listnum "WP List 3" \l 17463            MR. LOWE:  Otherwise, keep on regulating.

1listnum "WP List 3" \l 17464            DR. SELWYN:  Regulate at the wholesale level, where facilities cannot be efficiently reproduced or duplicated or obtained from other sources in order to be able to deregulate at the retail level.

1listnum "WP List 3" \l 17465            MR. LOWE:  Thank you, sir.

1listnum "WP List 3" \l 17466            Turning to the opening statement of the company ‑‑ and this is more for the company witnesses, I believe ‑‑ your last bullet reads:

                      "Primus and Globility request that the Commission mandate the wholesale services described in their evidence so that the benefits of system‑wide competition can continue to be provided to Canadians."  (As read)

1listnum "WP List 3" \l 17467            Do you see that?

1listnum "WP List 3" \l 17468            MR. CHISLETT:  Yes.

1listnum "WP List 3" \l 17469            MR. LOWE:  When do Primus and Globility recommend that this proposal should be implemented by the Commission?

1listnum "WP List 3" \l 17470            I am assuming that a decision of the Commission is going to come out.  What is your recommendation if the Commission adopts your proposal?

1listnum "WP List 3" \l 17471            When would your proposal be implemented in its totality?

1listnum "WP List 3" \l 17472            The first quarter of `08 or the second quarter?

1listnum "WP List 3" \l 17473            MR. CHISLETT:  When the Commission makes the decision.  I think the expectation is that it will be sometime in the first or second quarter of next year.

1listnum "WP List 3" \l 17474            MR. LOWE:  So your proposal just comes into effect at that time.

1listnum "WP List 3" \l 17475            There is no phase‑in of your proposal or adjustment period?

1listnum "WP List 3" \l 17476            MR. CHISLETT:  As the Commission sees fit.  These are our recommendations to the Commission and ‑‑

1listnum "WP List 3" \l 17477            MR. LOWE:  But you could live with your proposal being implemented right away, and you would say that would be reasonable.

1listnum "WP List 3" \l 17478            MR. CHISLETT:  Largely, I think, our proposal is along the lines of the status quo, and I don't see challenges continuing with the status quo as being a difficulty for a period of time.

1listnum "WP List 3" \l 17479            MR. LOWE:  It's not entirely in line with the status quo, is it?

1listnum "WP List 3" \l 17480            MR. CHISLETT:  I am sure there are changes.  I am not sure what your concern is, but I am sure there are certainly changes to it.

1listnum "WP List 3" \l 17481            MR. LOWE:  So you would say, whatever changes there are relative to the status quo, it's de minimis and people should just live with it.

1listnum "WP List 3" \l 17482            MR. CHISLETT:  No, I can't, off the top of my head, identify ‑‑

1listnum "WP List 3" \l 17483            What we are saying, largely, is that the basket of services which the Commission considers essential and are mandatory today ‑‑ largely, those should continue.  There are a number of them which we think could probably be deregulated, certainly, looking at the Commission's list and filling out the forms.

1listnum "WP List 3" \l 17484            We think there is an importance to determine what the appropriate test should be for an essential facility going forward, and we think it is important that the Commission not try and make a bet as to what may come as far as new technologies.

1listnum "WP List 3" \l 17485            We have been talking about telephone and cable coming in for 20 years.  We think it's important that they look to see what evidence there is of a vigorous competitive marketplace and make the decision based on that.

1listnum "WP List 3" \l 17486            MR. LOWE:  When I talked to the witness for Yak, Stewart Thompson, who was formerly with MTS Allstream, he suggested that there might be some emergency Part VIIs that would arise toward the end of a transition period.

1listnum "WP List 3" \l 17487            Have you given any thought to that probability or possibility?

1listnum "WP List 3" \l 17488            MR. CHISLETT:  I guess it's possible.  I haven't given any thought to it.

1listnum "WP List 3" \l 17489            From our perspective, looking at our test, if there is a vigorous competitive supply out there for wholesale services, then we support the fact that the mandatory requirement for that should be removed.

1listnum "WP List 3" \l 17490            And we think there should be a phase‑out for that.

1listnum "WP List 3" \l 17491            MR. LOWE:  There was also some discussion about whether the transition period should reflect normal business horizons of four to five years.

1listnum "WP List 3" \l 17492            In other words, when a company invests in a business, they look out four or five years into the future, and that, I gather, was presented as a reasonable expectation of one of the inputs for a transition period.

1listnum "WP List 3" \l 17493            Is that anything that you have thought about?

1listnum "WP List 3" \l 17494            MR. CHISLETT:  Yes.  I think you have to look at what the different reasons, potentially, may be for a transition period.  Based on our test for an essential facility ‑‑ when there is evidence of a competing marketplace in the wholesale marketplace, and then to deregulate, I think that's one thing.  If somebody comes up with a different definition of what an essential facility would be, we may have some different concerns.

1listnum "WP List 3" \l 17495            Certainly, we have invested significantly in infrastructure under the current regime.  Certainly, with the co‑location regime, when the sunset clause was removed in co‑locations, it seemed to us that that was something that was reasonable to invest in.

1listnum "WP List 3" \l 17496            And certainly we would be concerned if a different definition for essential facility than what we were proposing was put in place.  We would be, certainly, suggesting that a longer transition period should be encouraged to permit us to get a return on the investment we have made.

1listnum "WP List 3" \l 17497            DR. SELWYN:  I should comment on this.

1listnum "WP List 3" \l 17498            I don't agree that, in the context of actual infrastructure construction, five years is the planning horizon, because I think that the planning horizon may well be longer than that in terms of recovery of investment.

1listnum "WP List 3" \l 17499            But let's even accept that as a given for the purpose of discussion.  Supposing that the recovery is five years and that we adopt what I think was referred to yesterday as the hard stop approach to transition ‑‑ shut all remnants of wholesale regulation down at the end of that five‑year period.  That might be helpful for investments that are being made today, literally, this minute.  But investments are, otherwise, things that occur on a continuing basis and, as you get closer and closer to that hard stop, with the risks of non‑recovery, in the event that the hypothesized arrival of robust competition in services that would be required to complement owned facilities doesn't show up, then it becomes more and more difficult for an entrant to justify such investment.

1listnum "WP List 3" \l 17500            In my view, any discussion of a hard stop would probably have the effect of putting a hard stop to most CLEC investment, because it would become very, very difficult at that point ‑‑ the risks associated with the uncertainty of the competitive market conditions of regulation in the future would begin to overwhelm the investment analysis.

1listnum "WP List 3" \l 17501            So even if we adopt a five‑year view, that doesn't help us going forward.

1listnum "WP List 3" \l 17502            MR. LOWE:  Mr. Chislett, I think the sunset was extended for an indefinite period of time, wasn't it?

1listnum "WP List 3" \l 17503            MR. CHISLETT:  That's correct.

1listnum "WP List 3" \l 17504            MR. LOWE:  So you would have thought that the indefinite sunset could be changed in the future?

1listnum "WP List 3" \l 17505            Or did you think it was kind of a "for live" proposition?

1listnum "WP List 3" \l 17506            MR. CHISLETT:  Certainly, when it was changed from a five‑year term to removing the sunset, it sounded like it was a reasonable expectation that it would be a long‑term policy going forward, in comparison to the five years beforehand.

1listnum "WP List 3" \l 17507            MR. LOWE:  Thank you, gentlemen.

1listnum "WP List 3" \l 17508            Thank you, Mr. Chairman.

1listnum "WP List 3" \l 17509            THE CHAIRPERSON:  Thank you, Mr. Lowe.

1listnum "WP List 3" \l 17510            Dr. Selwyn, did I hear you suggesting that after a five‑year transition there shouldn't be a hard stop, just now, in answer to Mr. Lowe?

1listnum "WP List 3" \l 17511            DR. SELWYN:  That would be my view, yes, Mr. Chairman.

1listnum "WP List 3" \l 17512            THE CHAIRPERSON:  Rather than a hard stop, what would you suggest?

1listnum "WP List 3" \l 17513            DR. SELWYN:  I think, first of all, that the notion of simply using time ‑‑ elapsed time ‑‑ as somehow driving policy would be an error, because there is no assurance that whatever it is that is being expected to occur over that transition will actually take place.

1listnum "WP List 3" \l 17514            If, in order to justify construction ‑‑

1listnum "WP List 3" \l 17515            Go back to the example that we were talking about earlier today.  I think it was at paragraph 19 where I described a CLEC that has a customer who needs 20 locations served, but he only can serve 4.

1listnum "WP List 3" \l 17516            If a CLEC is constructing facilities on the premise that it can continue to acquire wholesale facilities where it does not own its own, if that is the business model that is adopted, which is, in fact, consistent with the business model contemplated in the definition of a facilities‑based carrier by the Order‑in‑Council, then it has to count on the continued availability of those wholesale services.

1listnum "WP List 3" \l 17517            If it cannot count on that, then that will undermine its ability to invest in what otherwise might be an economically sound investment in facilities.

1listnum "WP List 3" \l 17518            So the hard stop, in my view, actually has precisely the opposite effect that its proponents would seem to suggest.  Rather than encourage investment, I think it would largely shut down a lot of investment.

1listnum "WP List 3" \l 17519            THE CHAIRPERSON:  Okay, but that doesn't answer my question.  I said:  What, in lieu of a hard stop, would you suggest?

1listnum "WP List 3" \l 17520            Assume, for argument's sake, that the Commission adopts the recommendation of TELUS and that there will be a phase‑out of up to five years.  TELUS said five years, with a hard stop, and, if necessary, if there was anything that drastically didn't develop as you expected, you could have an emergency hearing and have some minimal regulation in the area of the problem.

1listnum "WP List 3" \l 17521            That is grossly simplifying what they said, but that is essentially the thrust of it.

1listnum "WP List 3" \l 17522            You disagree with that?

1listnum "WP List 3" \l 17523            DR. SELWYN:  I strongly disagree with that, because over that five‑year period a lot of CLECs could have gone out of business as a result of the uncertainty and the risks associated with the hard stop.

1listnum "WP List 3" \l 17524            Re‑regulation at that point, even if it could be done instantly, at the very end of the fifth year, would be too little too late.

1listnum "WP List 3" \l 17525            If the competitors have already fallen off the cliff, then you are not going to be able to retrieve them by simply introducing regulation.

1listnum "WP List 3" \l 17526            What I think you need to do is look for the kind of evidence that the proponents of the hard stop, I suppose, would suggest you look for at the time you consider whether or not the transition has been effective; that is, look for evidence of actual price competition.

1listnum "WP List 3" \l 17527            When we see prices for wholesale facilities being set at huge multiples of economic cost, that is a prime indication that competition is not disciplining the incumbent's pricing.

1listnum "WP List 3" \l 17528            When we begin to see the incumbents respond not just in isolated situations, but across the board, to react to the development of competition, then we can have more confidence in a competitive wholesale market.

1listnum "WP List 3" \l 17529            But there is no evidence of a competitive wholesale market along the lines that I am describing.  To me, the only thing that really matters ‑‑ all of the websites and advertisements and so on about what Ottawa Hydro is doing or what other MEUs are doing, or whatever, doesn't matter if they are not providing price discipline, and there is no evidence that I have seen introduced in this proceeding that suggests that the putative competition is disciplining prices.

1listnum "WP List 3" \l 17530            In fact, the evidence is actually suggesting just the opposite, as we saw yesterday in the discussion with Dr. Crandall on the relationship between wireless prices and wireline prices.  There is no evidence of price discipline.

1listnum "WP List 3" \l 17531            That is what is relevant, not anything else.

1listnum "WP List 3" \l 17532            THE CHAIRPERSON:  Okay.  You are not going to answer my question, I guess.

1listnum "WP List 3" \l 17533            DR. SELWYN:  I am trying ‑‑

1listnum "WP List 3" \l 17534            THE CHAIRPERSON:  I am asking you the question, and you keep on telling me about conditions.

1listnum "WP List 3" \l 17535            I said:  What, in lieu of a hard stop ‑‑

1listnum "WP List 3" \l 17536            It is a precise question.  Could I have an answer?

1listnum "WP List 3" \l 17537            DR. SELWYN:  And my answer is:  Establish a set of monitoring procedures whereby you look at the pricing in the market and you see if the pricing is reflecting the development of competition.

1listnum "WP List 3" \l 17538            If it is, then you can begin to think about the deregulation of wholesale services.

1listnum "WP List 3" \l 17539            I am not suggesting that this be linked to any time or that it be linked to any head count.  It has to be linked to pricing discipline.

1listnum "WP List 3" \l 17540            MR. CHISLETT:  Let me try ‑‑ and I won't talk about the TELUS test because I think it is entirely unworkable.  Let me talk about our test and how I see it working, and I will try to give you some examples that way.

1listnum "WP List 3" \l 17541            One of the key things for us is for you not to ‑‑ we don't think it's your job to try to make bets as to what is going to happen in the future.  I think one of the TELUS witnesses yesterday said that we have done a poor job of trying to project technology and what is going to happen with technology.

1listnum "WP List 3" \l 17542            Our belief is that you have to look at what is there and look for evidence of being an effective substitute and vigorous competition in the wholesale market.

1listnum "WP List 3" \l 17543            Then one could say:  Okay, we can deregulate and look at a transition period.

1listnum "WP List 3" \l 17544            I want to give you some examples of how I see something like that might work.

1listnum "WP List 3" \l 17545            We talked a lot about CDN and CDNA services and things like that.  There is a CDN service which is a transport service, which is really used to interconnect to the telco points of presence.  Today, because of the primary use rule, basically, competitors can't effectively offer a substitute for the CDN transport service.

1listnum "WP List 3" \l 17546            If that rule were to be removed, I think it would be quite likely that in a number of exchanges, over the next few years, you would see evidence, by looking at your monitoring report ‑‑ you may need to add a few points, but I think you will see evidence that there is a competitive supply that develops.

1listnum "WP List 3" \l 17547            When that competitive supply gets to ‑‑ I don't know, maybe it's 70 percent of the central offices in an exchange that are interconnected and you have seen that competition there is sustainable, then I think it's fair to say, "Okay, we can look at deregulating," and put a transition period on it for someone to construct the remaining 30 percent of the central offices in the exchange.

1listnum "WP List 3" \l 17548            From our perspective, it is key, first, to see that there is evidence of a vigorous, sustainable, competitive supply, and then look and see:  Okay, now that we have that, what sort of time period is required for that to be developed for the rest of the area.

1listnum "WP List 3" \l 17549            DR. SELWYN:  Let me come at this slightly differently, and maybe get to the point you were asking me about, and I apologize for not getting there sooner.

1listnum "WP List 3" \l 17550            If prices for wholesale services are broadly set correctly at forward‑looking incremental costs, or on the basis of incremental costs, with a reasonable markup, then, in effect, what you have accomplished is a self‑correcting regulatory system without requiring that detailed judgments be made on a service‑by‑service basis.

1listnum "WP List 3" \l 17551            If competition develops ‑‑ if efficient competition develops that challenges the ILEC's own cost structure, then the ILEC will respond by developing similar efficiencies and reducing its own costs and prices.

1listnum "WP List 3" \l 17552            On the other hand, if competitors are unable to achieve the ILEC's efficiencies because they can't achieve the scale and scope of the ILEC's operation, then wholesale services continue to be available on an economic basis.  You don't need to decide when to shut down wholesale regulation if wholesale services are priced at a competitive level.

1listnum "WP List 3" \l 17553            In many respects that was the notion of the TELRIC pricing that was contemplated in the 1996 Telecom Act, which was contemplated by the FCC in its various orders, and was reinforced by the Supreme Court in the Verizon case that we were discussing yesterday, because defining wholesale services broadly, making them available at economic prices, creates a self‑adjusting regulatory mechanism.

1listnum "WP List 3" \l 17554            THE CHAIRPERSON:  I have one other question.  You were here yesterday when I had an exchange with Dr. Weisman and Dr. Crandall and I was trying to get my head around how we go about this, because we are starting with the assumption that we are going to have a mixed system, not entrant and facilities, but partially facilities‑owned or facilities on a leased basis.

1listnum "WP List 3" \l 17555            What would we use as a yardstick to look at any specific market, et cetera?

1listnum "WP List 3" \l 17556            The answer I got was basically ‑‑ and they didn't use these words, but this is how I interpret it.  This is all based on an ex ante approach.  You really should do an ex post approach.  Set a period, see what happens, and then, if the developments do not take place as expected, and as economic theory tells us they will take place, you can step in before the end of that period.

1listnum "WP List 3" \l 17557            I found that a bit of an unsatisfactory answer, also, based on a certain element of risk that we don't know whether we are willing to accept or not.

1listnum "WP List 3" \l 17558            As an expert in this area, having testified many times, what would have been your answer to the question that I put to Dr. Weisman and Dr. Crandall?

1listnum "WP List 3" \l 17559            DR. SELWYN:  I think there is an extremely high risk in an ex post approach, because the notion of ex post regulation implies that the threat of reaction by the regulator is sufficient to constrain the dominant firm, the incumbent firm, to conduct itself in a manner that does not diminish competition in downstream markets.

1listnum "WP List 3" \l 17560            Without that threat, and acting in its own economic self‑interest, the incumbent will seek to do just that.

1listnum "WP List 3" \l 17561            Experience with ex post regulation, anti‑trust enforcement, and things of that sort, has demonstrated time and time again that the threat and the penalties are just not sufficient to achieve the outcome in the approach they are recommending.

1listnum "WP List 3" \l 17562            By the time you engage in ex post regulation, the competitors could have all gone out of business, and reversal of that is not something that could then be achieved through ex post regulation.

1listnum "WP List 3" \l 17563            THE CHAIRPERSON:  But Dr. Weisman's principal point was that you are guaranteed to make a type 1 error if you use an ex post approach and you might have it in a type 2 error, you might not.  Therefore, from a societal interest, not company, you will foster innovation, investment, et cetera, by going this route.

1listnum "WP List 3" \l 17564            I gather you don't accept this.

1listnum "WP List 3" \l 17565            MR. SELWYN:  I think the risks of a type 1 error, quite frankly, are quite minimal; and the risks of a type 2 error are extreme.  And I certainly wouldn't suggest that they balance each other out.

1listnum "WP List 3" \l 17566            The risks to innovation, for example, of discouraging competition arise not just in the downstream retail telecom market, but they arise in any other segment that itself relies on telecom services.

1listnum "WP List 3" \l 17567            The Internet is the greatest example of this.  The innovation that was created in the Internet resulted from the availability of very low cost, highly competitive interexchange services that had developed in the U.S. in particular and worldwide, beginning in the late 1980s and the 1990s, that at least in the U.S. was stimulated by the break‑up of the Bell system.

1listnum "WP List 3" \l 17568            Re‑monopolization or the prospect of re‑monopolization can chill innovation.  And contrary to what we heard yesterday, the reality is that most economists I think would agree that monopolies themselves do not tend to innovate.  You need competition to spur firms to innovate.

1listnum "WP List 3" \l 17569            The risk of getting it wrong and discouraging entry I think is far greater than the risk of encouraging what I believe that the ILEC's experts have described as inefficient entry due to prices that are too low.  But if the price is set correctly to reflect forward looking economic cost, then the price is not too low and there is a minimal risk of this type 2 error.

1listnum "WP List 3" \l 17570            But the risk of discouraging competition is far, far greater.

1listnum "WP List 3" \l 17571            THE CHAIRPERSON:  Thank you very much.

1listnum "WP List 3" \l 17572            Commissioner Cram, do you have a question?

1listnum "WP List 3" \l 17573            COMMISSIONER CRAM:  Dr. Selwyn, you said the hard stop is bad.  What if we said there would be a review in five years?

1listnum "WP List 3" \l 17574            Would that be an equal disincentive to CLECs?

1listnum "WP List 3" \l 17575            MR. SELWYN:  Far be it from me to say that you shouldn't relook at things from time to time.  In that context, reviews are useful.

1listnum "WP List 3" \l 17576            But at the same time, the greatest threat to competitive investment is regulatory uncertainty.  This is what we saw happening in the U.S. where the protracted litigation that was initiated by the incumbents from around 2000 onward created such immense disruptions in the business models that had been adopted as a result of the Telecom Act that numerous companies found themselves unable to remain in business.

1listnum "WP List 3" \l 17577            That, to me, is a very significant risk.

1listnum "WP List 3" \l 17578            I think that you need to establish policies reflective of the OIC definition of a model in which the facilities‑based carrier is encouraged to build facilities when they are efficient and is enabled to use leased facilities at efficient prices on an ongoing basis, provide the certainty that that model will not be modified because some arbitrary trigger is achieved at some point in the future.  And then you will see investment.

1listnum "WP List 3" \l 17579            If you create an environment where entrants have to not only bet on technology and their ability to innovate and develop a business model but also have to consider the prospect of significant changes in the rules of the game, that is going to discourage investment.

1listnum "WP List 3" \l 17580            MR. CHISLETT:  Let me just clarify that, from our perspective, the access market, particularly the residential access market, whether there is a hard stop or not hard stop, doesn't make any difference.  It's just economically infeasible and impractical for someone to duplicate that.

1listnum "WP List 3" \l 17581            I think it's important to review on an occasional basis to see if maybe Wi‑Max does provide a solution and there is other competition there.  I think by looking at your Telecom Monitoring Reports you will be able to see that.  I think that is important to do that.

1listnum "WP List 3" \l 17582            But I want to make it very clear that for access, there is just no way.

1listnum "WP List 3" \l 17583            COMMISSIONER CRAM:  I had one question about that, and that was on your Appendix A, under the transition if the wholesale regime changed.

1listnum "WP List 3" \l 17584            It's exactly what you were saying, Mr. Chislett, that if there is a transition process to make access not essential, it looks like you would be out of the market immediately.

1listnum "WP List 3" \l 17585            MR. CHISLETT:  Right.  We do not see there is any ‑‑ absolutely.  There is no alternative.

1listnum "WP List 3" \l 17586            COMMISSIONER CRAM:  What if over five years the prices were raised to Phase 2 plus 20 and then Phase 2 plus 25 per cent?

1listnum "WP List 3" \l 17587            MR. CHISLETT:  Any increase of pricing beyond cost plus X per cent in my opinion will purely just be a transfer of wealth from competitors to the incumbents and restrict our ability to invest in facilities and innovate and grow the way we wanted it.

1listnum "WP List 3" \l 17588            COMMISSIONER CRAM:  Thank you.

1listnum "WP List 3" \l 17589            THE CHAIRPERSON:  Thank you, Madam Secretary; thank you, Mr. Schmidt.

1listnum "WP List 3" \l 17590            THE SECRETARY:  Thank you very much.

1listnum "WP List 3" \l 17591            THE CHAIRPERSON:  And thank you, panel.  I think we are finished with you.

1listnum "WP List 3" \l 17592            We will take a five‑minute break while you set up the next panel.

1listnum "WP List 3" \l 17593            THE SECRETARY:  Thank you.

1listnum "WP List 3" \l 17594            I am calling now Cybersurf, please, and Bell, The Companies.

‑‑‑ Upon recessing at 1120 / Suspension à 1120

‑‑‑ Upon resuming at 1125 / Reprise à 1125

1listnum "WP List 3" \l 17595            THE CHAIRMAN:  Okay, Madam Secretary, who is next?

1listnum "WP List 3" \l 17596            THE SECRETARY:  Please be seated.

1listnum "WP List 3" \l 17597            Mr. Tacit, please present your witness.

1listnum "WP List 3" \l 17598            MR. TACIT:  Thank you, Madam Secretary.

1listnum "WP List 3" \l 17599            Mr. Chair, Cybersurf's witness is Mr. Marcel Mercia, Chief Operations Officer of the company.

1listnum "WP List 3" \l 17600            Madam Secretary, may I ask you to have him affirmed.

1listnum "WP List 3" \l 17601            THE SECRETARY:  Just one moment, please.

1listnum "WP List 3" \l 17602            THE CHAIRPERSON:  I just realized we are missing a Commissioner; I'm sorry.

1listnum "WP List 3" \l 17603            I don't know what happened.  It is Commissioner Cram.  We will wait for her.

1listnum "WP List 3" \l 17604            MR. TACIT:  It's always good to have a dress rehearsal.

‑‑‑ Pause

1listnum "WP List 3" \l 17605            THE CHAIRPERSON:  She is here.  You can proceed.

1listnum "WP List 3" \l 17606            MR. TACIT:  So, we will start that again.

1listnum "WP List 3" \l 17607            Mr. Chair, Cybersurf's witness in this proceeding is Mr. Marcel Mercia, Chief Operations Officer of the company.

1listnum "WP List 3" \l 17608            Madam Secretary, may I ask that he be affirmed?

1listnum "WP List 3" \l 17609            THE SECRETARY:  Certainly.

AFFIRMED:  MARCEL MERCIA

1listnum "WP List 3" \l 17610            MR. TACIT:  Thank you, Madam Secretary.

EXAMINATION / INTERROGATOIRE

1listnum "WP List 3" \l 17611            MR. TACIT:  Mr. Mercia, were the evidence, supplementary evidence and two rounds of interrogatory responses filed on behalf of Cybersurf in this proceeding prepared under your direction?

1listnum "WP List 3" \l 17612            MR. MERCIA:  Yes.

1listnum "WP List 3" \l 17613            MR. TACIT:  Do any of those materials contain any errors or require any updates?

1listnum "WP List 3" \l 17614            MR. MERCIA:  To the best of my knowledge all the materials are up‑to‑date and correct, except for Bureau‑1, which was filed by Cybersurf in April and, since then, we have expanded our network for local phone service and for access‑dependant DSL VoIP product.

1listnum "WP List 3" \l 17615            MR. TACIT:  Mr. Mercia, are your qualifications as stated in the CV filed with the Commission on October 4 of this year in this proceeding?

1listnum "WP List 3" \l 17616            MR. MERCIA:  Yes.

1listnum "WP List 3" \l 17617            MR. TACIT:  Mr. Chairman, the witness is now available for cross‑examination.

1listnum "WP List 3" \l 17618            THE CHAIRPERSON:  Thank you.

1listnum "WP List 3" \l 17619            Mr. Daniels, I gather you are first?

1listnum "WP List 3" \l 17620            MR. DANIELS:  I am, Mr. Chairman. But, Mr. Chairman, while I have the microphone, there is one procedural issue that I want to raise outside of my cross‑examination of Cybersurf if I may.

1listnum "WP List 3" \l 17621            THE CHAIRPERSON:  Go ahead.

1listnum "WP List 3" \l 17622            MR. DANIELS:  Yesterday we had an exchange with Ms Song about a clarification that I had made on Friday.  She filed an exhibit after my clarification and she noted that I reserved the right to respond to that exhibit.

1listnum "WP List 3" \l 17623            What I propose, Mr. Chairman, is that we have reviewed their exhibit, we find that there is a few things in it that is not fully comprehensive and so we have filed our own exhibit.  I don't propose to get into a procedural area, we just filed our own exhibit, so I just ask that it be marked as an exhibit and then I will let the record speak for itself, the two exhibits can speak for themselves.

1listnum "WP List 3" \l 17624            THE CHAIRPERSON:  I assume, Ms Song, you have no objection to that?

1listnum "WP List 3" \l 17625            MS SONG:  No, Mr. Chairman, I have no objection to it.

1listnum "WP List 3" \l 17626            THE CHAIRPERSON:  Okay.

1listnum "WP List 3" \l 17627            MS SONG:  I would like to say, however, that I don't think that this response actually contradicts anything that was filed in our exhibit.  So it is another 10 pages that really don't strikeout or contradict anything in Exhibit 15, it merely actually sets out some of the texts of the interrogs that are actually referred to in our Exhibit 15.

1listnum "WP List 3" \l 17628            But I don't want this procedural point to obscure the real substance of the issue of our point, which was that the CDN decision and the evidence on the record of this proceeding did not support Mr. Jonathan Daniels' statement on October 26 to the MTS panel.

1listnum "WP List 3" \l 17629            Thank you.

1listnum "WP List 3" \l 17630            THE CHAIRPERSON:  Okay, thank you. So then will you admit it as an exhibit?

1listnum "WP List 3" \l 17631            THE SECRETARY:  Yes.

1listnum "WP List 3" \l 17632            THE CHAIRPERSON:  Then, let us proceed, Mr. Daniels.

1listnum "WP List 3" \l 17633            THE SECRETARY:  It will be The Companies, Exhibit 23.

                      EXHIBIT COMPANIES‑23:  Response to Exhibit 15 filed by Ms Song to clarification made on Friday, October 26

1listnum "WP List 3" \l 17634            THE CHAIRPERSON:  Thank you.

EXAMINATION / INTERROGATOIRE

1listnum "WP List 3" \l 17635            MR. DANIELS:  Thank you, Mr. Chair.

1listnum "WP List 3" \l 17636            I am sorry about putting you through that, Mr. Mercia.  Especially, he is the last witness sitting here ready to go, and I am doing a procedural thing.

1listnum "WP List 3" \l 17637            I would like to begin my cross‑examination with your opening statement.  Again, I hope all the panel has another blue duotang folder, but this one is for Cybersurf, and I am looking at tab A, which has Cybersurf's opening statement.

1listnum "WP List 3" \l 17638            I would like to begin by looking at the last bullet point on page 4 of your opening statement.  You say in the first sentence there:

                      "ECTA has demonstrated that the steppingstone approach to the creation of both competing networks and increasing retail competition works." (As Read)

1listnum "WP List 3" \l 17639            Do you see where I am?

1listnum "WP List 3" \l 17640            MR. MERCIA:  Yes.

1listnum "WP List 3" \l 17641            MR. DANIELS:  Okay.  First, can you tell me, what is ECTA?

1listnum "WP List 3" \l 17642            MR. MERCIA:  ECTA is a body that monitors regulatory policy in the European Union.

1listnum "WP List 3" \l 17643            MR. DANIELS:  Is it fair to say that it stands for, I believe, the European Competitive Telecommunications Association?

1listnum "WP List 3" \l 17644            MR. MERCIA:  Yes.

1listnum "WP List 3" \l 17645            MR. DANIELS:  So it is a SILEC body?

1listnum "WP List 3" \l 17646            MR. MERCIA:  Yes.

1listnum "WP List 3" \l 17647            MR. DANIELS:  It is a SILEC, okay.  A SILEC lobby group, can we agree on that?

1listnum "WP List 3" \l 17648            MR. MERCIA:  I don't know if I would go that far, but okay.

1listnum "WP List 3" \l 17649            MR. DANIELS:  All right, well it is a SILEC body representative of all the SILECs ‑‑

1listnum "WP List 3" \l 17650            MR. MERCIA:  Okay, I will take your testimony on that.

1listnum "WP List 3" \l 17651            MR. DANIELS:  No, I am going for your testimony.

1listnum "WP List 3" \l 17652            MR. MERCIA:  Okay.

1listnum "WP List 3" \l 17653            MR. DANIELS:  I am going for your testimony.

1listnum "WP List 3" \l 17654            But anyway, so they have made the statement.  And then you go on to say ‑‑ I am talking about the steppingstone, and I am jumping down to the second last line on that same bullet on that same page:

                      "Cybersurf's proposal for a wholesale services regime is designed to promote the attainment of superior performance of the Canadian telecommunications sector and economy as a whole through a similar ladder of investment." (As Read)

1listnum "WP List 3" \l 17655            So I take it your proposal is based on the steppingstone or ladder of investment concept, is that correct?

1listnum "WP List 3" \l 17656            MR. MERCIA:  Yes.

1listnum "WP List 3" \l 17657            MR. DANIELS:  And I would first like to clarify, just to make sure that we all have an understanding of the ladder of investment definition.  I have taken one that can be found in tab B, which is from Appendix 4 of The Companies' initial evidence, this is Gilbert and Tobin, their submission looking at international.  And if you can turn to page 18 there.  They provided definition of the ladder of investment in paragraph 8.4 at the top.

                      "The ladder of investment principle depends upon the creation of regulatory runs for entrants to climb towards EFB competition.  These runs are wholesale services that provide entry points for entrants.  The wholesale services overlap and they are substitutes for each other, although services higher up the ladder involve the entrant using more alternative infrastructure if its own services at the bottom of the run are regulated on terms and encourage market entry for that regulation.  But that regulation should also provide an incentive for entrants rather than "standing" on run to "keep climbing up the ladder" by progressively deploying more facilities." (As Read)

1listnum "WP List 3" \l 17658            So is that what you mean by the ladder of investment?  That is what you are talking about there?

1listnum "WP List 3" \l 17659            MR. MERCIA:  I mean, it is a characterization.  I would say more that, as you have heard from some of the competitors, MTS Allstream, Primus, typically we will go into a market and we will try to obtain a critical mass and then we will move towards building network facilities.  In other cases, if we can't do that without building facilities first, we will measure if we think there is an economic model for us to do that like we did with TPIA and then we will do the build, we will do the intersection and from there we, you know, as we have done, is we have gone to the Commission and asked for better access arrangements for cable.

1listnum "WP List 3" \l 17660            So this characterization, I think so.  However, this one goes as far as talking about resale, that is not part of the ‑‑

1listnum "WP List 3" \l 17661            MR. DANIELS:  That is not your proposal?

1listnum "WP List 3" \l 17662            MR. MERCIA:  No.

1listnum "WP List 3" \l 17663            MR. DANIELS:  No, okay.  So, in a way, what you are saying is, to the extent that the Europeans are looking at it and you referred to ECTA and they start it at resale, your proposal is we can remove that rung, you are focused on the other rung, which is the access getting ‑‑

1listnum "WP List 3" \l 17664            MR. MERCIA:  Yes.

1listnum "WP List 3" \l 17665            MR. DANIELS:  Okay.  Now, how long has Cybersurf been in operation?

1listnum "WP List 3" \l 17666            MR. MERCIA:  We have been in operation since 1993 and we became public in 1996.

1listnum "WP List 3" \l 17667            MR. DANIELS:  And during that time has Cybersurf built any access facilities in Canada?  And, to be clear, I am talking about physical layer.

1listnum "WP List 3" \l 17668            MR. MERCIA:  You mean have we ever actually put fibre or copper?

1listnum "WP List 3" \l 17669            MR. DANIELS:  Yes.

1listnum "WP List 3" \l 17670            MR. MERCIA:  Okay.  In our evidence we say we have engaged with certain providers and we have caused fibre builds, particularly for TPIA or for certain buildings, certain business opportunities that we have had.  But if we have ever gone and actually dug and run fibre, no.

1listnum "WP List 3" \l 17671            MR. DANIELS:  What about backbone facilities, have you built anything there?

1listnum "WP List 3" \l 17672            MR. MERCIA:  You mean actually running fibre?

1listnum "WP List 3" \l 17673            MR. DANIELS:  Yes.

1listnum "WP List 3" \l 17674            MR. MERCIA:  No.

1listnum "WP List 3" \l 17675            MR. DANIELS:  No.  And, as I understand it, Cybersurf is not a Canadian carrier and, by that, I am referring to the legal term in the Act, as an owner of transmission facilities.  Is that correct?

1listnum "WP List 3" \l 17676            MR. MERCIA:  I am not sure about that.  On a legal basis ‑‑

1listnum "WP List 3" \l 17677            MR. TACIT:  Mr. Chair, he is asking for a legal opinion from the witness.

1listnum "WP List 3" \l 17678            MR. DANIELS:  Actually, I am just asking for a clarification in terms of whether they actually own any facilities anywhere, which is a legal term.  And I assume, if they do, they would put it on ‑‑

1listnum "WP List 3" \l 17679            MR. MERCIA:  Well, we have transmission facilities for TPIA.  We have switches and we have ‑‑

1listnum "WP List 3" \l 17680            MR. DANIELS:  Okay so, to be fair, I don't want to get into ‑‑

1listnum "WP List 3" \l 17681            THE CHAIRPERSON:  Okay, as him the same in an unlegal way.

1listnum "WP List 3" \l 17682            MR. DANIELS:  Can I ask you factually, and maybe you could take an undertaking to confirm, that you are not registered as a Canadian carrier within the CRTC's right‑of‑sight, as required if you were?  How is that?

1listnum "WP List 3" \l 17683            MR. MERCIA:  Sure.

1listnum "WP List 3" \l 17684            MR. DANIELS:  Okay.  So generally, you haven't built any facilities yourselves and yet you are an advocate of the steppingstone.  So we are just trying to figure out here what exactly you are building in the market.  What steppingstone are you going to move up to?

1listnum "WP List 3" \l 17685            MR. MERCIA:  Okay.  Right now, we have been doing the TPIA.  You will see we filed Part 7 for access to pack a cable to allow us to do more network layer, operation of the cable network.  We have asked for a hub site intersection.  Just before this proceeding started we felt we had a critical mass in Ottawa, Mississauga to start doing co‑location, but it was because of this proceeding that we put that on hold, similar to what Primus just testified.

1listnum "WP List 3" \l 17686            MR. DANIELS:  Okay, so I understand, you are going to do co‑location of something that, you know, Primus already did, Call‑Net does and so on.  But I am focused on the physical layer, on the facility.  What steppingstone to building the physical facility, is there any steppingstone that you intend to do?

1listnum "WP List 3" \l 17687            MR. MERCIA:  Well, I am sort of hung‑up on what you mean by physical facility.  I mean, if you are talking about running copper or fibre ‑‑

1listnum "WP List 3" \l 17688            MR. DANIELS:  Yes.

1listnum "WP List 3" \l 17689            MR. MERCIA:  ‑‑ no, we typically don't engage in that, we are not big enough to engage in that.

1listnum "WP List 3" \l 17690            MR. DANIELS:  Okay, so you are not going to step up to that?

1listnum "WP List 3" \l 17691            MR. MERCIA:  Not presently, no.

1listnum "WP List 3" \l 17692            MR. DANIELS:  All right.

1listnum "WP List 3" \l 17693            MR. MERCIA:  Our revenues are under $20 million a year, Mr. Daniels.

1listnum "WP List 3" \l 17694            MR. DANIELS:  Right, okay.  So I think that we have just clarified that.

1listnum "WP List 3" \l 17695            Now, I am going to go on and ask you about