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ARCHIVED - Transcript, Hearing 11 July 2011

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Volume 6, 19 July 2011

TRANSCRIPTION OF PROCEEDINGS BEFORE THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION

SUBJECT:

Review of billing practices for wholesale residential high speed access services. Notice of Consultation CRTC 2011-77, 2011-77-1 and 2011-77-2

HELD AT:

Outaouais Room

Conference Centre

140 Promenade du Portage

Gatineau, Quebec

19 July 2011


Transcription

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.


Canadian Radio-television and Telecommunications Commission

Transcription

Review of billing practices for wholesale residential high speed access services. Notice of Consultation CRTC 2011-77, 2011-77-1 and 2011-77-2

BEFORE:

Konrad von FinckensteinChairperson

Len KatzCommissioner

Tom PentefountasCommissioner

Timothy DentonCommissioner

Candice MolnarCommissioner

Michel MorinCommissioner

Marc PatroneCommissioner

ALSO PRESENT:

Lynda RoySecretary

Crystal HulleyLegal Counsel

James WilsonLegal Counsel

Tom VilmansenHearing Manager and Manager, Costing Methods and Tariffs

HELD AT:

Outaouais Room

Conference Centre

140 Promenade du Portage

Gatineau, Quebec

19 July 2011


- iv -

TABLE OF CONTENTS

PAGE / PARA

APPEARING ITEMS

PHASE II

ORAL REBUTTAL

APPEARING INDIVIDUALLY

7. Vaxination Informatique1179 / 7189

APPEARING TOGETHER

8. Jatinder Bhullar, World Broadband Foundation (Munly Leong), Claude Hénault1220 / 7423

APPEARING INDIVIDUALLY

9. MTS Allstream Inc. 1239 / 7540

10. Andrew Moore (Consumer)1292 / 7870

11. PIAC/CAC (Public Interest Advocacy Centre and the Consumers’ Association of Canada)1304 / 7947

12. CIPPIC-OpenMedia.ca (Samuelson-Glushko Canadian Internet Policy & Public Interest Clinic)1320 / 8044

APPEARING TOGETHER

13. Primus Telecommunications Canada Inc., Distributel Communications Limited1332 / 8104


- v -

UNDERTAKINGS

PAGE / PARA

Undertaking1259 / 7653


Gatineau, Québec

--- Upon resuming on Tuesday, July 19, 2011 at 0903

7184 THE CHAIRPERSON: Ah-ha! We found the secretary. Excuse us. Excuse us.

7185 Allons-y, Madame la Secrétaire. Bonjour.

7186 THE SECRETARY: Good morning. Bonjour.

7187 We will start the day with the rebuttal of Vaxination Informatique. Appearing for Vaxination is Mr. Jean-François Mezei.

7188 Monsieur Mezei, vous disposez de 12 minutes.

ORAL REBUTTAL

7189 M. MEZEI : Merci. Mon nom est Jean-François Mezei, Vaxination Informatique.

7190 I will present in English. I can answer questions in French.

7191 We heard a lot yesterday -- I should go to page 1, I'm sorry. I apologize for this small delay.

7192 Also, I would like to take this opportunity -- I've heard that it's Mr. Bibic's birthday today. I would like to wish him a happy birthday.

7193 I think we need to look at a big picture first. We've discussed whether usage or capacity is better. The real goal here is not to identify a small congestion event in a small area in one CO. The goal is for the incumbent to get paid so that he gets enough money to upgrade.

7194 Also, the incumbent, it's its responsibility to manage its network to fix congestion events here and there that are localized. As long as it gets the revenues to do this, it should be happy.

7195 95th percentile, as proposed by CNOC, is more automated, it's more flexible. You don't have to call someone to upgrade your speed all the time. You just use and you get billed right away.

7196 MTS does have a point, it's a bit more to set up. There's some set-up costs for the software, which they say they don't have, but we all know that they actually do provide 95th percentile for their transit business.

7197 So the idea of the 95th percentile being complex to implement, I think that's debatable. I know there's some open-source software called MRTG which some very large carriers use and also very large peering exchanges. They use that and it's free. So, you know, I think there's room for debate there.

7198 You have to also look in terms of complexity and this ties into the usage-based billing as well. We don't pay local phone service. It's not metered because at the end of the day the telephone companies would not make enough money to pay for the cost of operating the billing system.

7199 So in the case of Bell's original UBB, basically I think a large part of their costs were the billing costs, not the actual network costs, and I think we have to be careful here not to choose an overly complex solution that ends up -- where the ISPs end up paying for Bell's administrative costs instead of paying for the running of the network.

7200 This is where capacity-based is much more efficient. The MTS solution is even more efficient because you just buy a fixed speed and there's no -- it's easy to administer basically in that sense compared to the UBB or AVP, which are basically the same.

7201 For cable, the cable companies have spent a lot of time arguing that they are very different. They focus on their coax segment and how congested it is.

7202 The coax segment is capable of very high capacity. They have made a business decision not to allocate many 6-megahertz channels because they want to protect their TV revenues basically. And that's, you know, their business decision, it's not a technological problem. If they wanted to, they could.

7203 I also find interesting that Bell complains all the time about its backbone aggregation network, whereas the cable companies never talk about that, they only talk about their coax. Yet, they are really basically two networks. It's just the last mile that uses a different piece of copper basically. One is a coax, the other is a twisted pair.

7204 The other thing too is for the cable companies it's to their advantage to make it look like there's a shortage of bandwidth on their coax because then they can charge those horrendous UBB rates, the same thing as gas companies raise the prices when there appears to be a shortage of that, demand and supply theories.

7205 Also, it's interesting that -- we've heard Bell and cable saying that UBB revenues are not really that significant. Yet, when you listen to their financial -- their teleconference from the CEOs for financial analysts they like to brag about how much revenue this will bring and raise ARPU, et cetera, et cetera.

7206 Node splits. The cable companies complain about that, but again this is a business decision because they don't want to allocate more channels to provide more bandwidth for the data portion because they need to preserve their TV channels.

7207 Also, they have two other services that are similar to data, video on demand and switched digital video. Basically they have limited capacity per node, so the more customers use this, the more often this gets fully used up and then they have to split a node on this or allocate more channels, but allocating more channels means you withdraw some channels. Again, that's a business decision, it's not a technological decision.

7208 There have been a couple of comments on how to increase cable's -- TPIA's presence in the market.

7209 I would like to mention that since Bell has tried so hard to make its GAS product less appealing, in the last year we have seen a tremendous growth in TPIA adoption, despite the costs at the end of the day. Because GAS is still 5 megabits, cable is so much more appealing.

7210 I think you can ask CNOC. One of their members, Teksavvy, I've heard that at one point they signed up 10,000 customers on cable in one month.

7211 So it is growing right now and I think that once you guys get a new tariff in with the aggregation and stuff, maybe it will actually grow more. We might be at a stepping stone for where cable becomes interesting now.

7212 For interim rates, I spoke with my ISP and they're not going to offer them for the FTTN basically because of the risk involved with the retroactive billing. They don't want that liability of having potentially a bill of unknown quantity six months down the road, so they decided not to offer it.

7213 I would suggest to the Commission that you guys issue a letter very quickly on this either way so that ISPs who are waiting to see what staff can move or decide not to move on this.

7214 For Bell, Bell has mentioned about some of the older customers that are still on ATM. If you were to go into capacity-based billing for those customers, they could adopt the same model as MTS or the same model in place now with AHSSPI from Bell.

7215 While the newer customers, the ones on the IP Ethernet, they could go 95th percentile. So, you know, there might be also a way to do this. It would not involve any change for existing ATM customers because that's how they work right away. It might be just an adjustment in the AHSSPI rates.

7216 Also, back in the days -- and I'm not sure, you probably want to ask Bell this -- there were many ISPs who wanted to go Ethernet but it was not available at the CO where they connect because Bell only had older ATM equipment there.

7217 Bell has argued that they could provide capacity-based but it would be extremely expensive, and this is something that hasn't been explained.

7218 There are different levels of capacity-based.

7219 One is where the network will guarantee your throughput. They allocate you 1 gigabit and you use 1 gigabit all you want all day because they have actually provisioned the network to give it to you.

7220 The affordable rates, which is what we have and what MTS now has, they don't guarantee the throughput, they just basically promise you a good experience, if I could put it that way.

7221 So they don't actually provision in their network a full 1 gigabit. They will look at how much on average the customers are using and they will provision accordingly and they increase it as things progress.

7222 And that ends up costing a lot less because statistically I might be using 1 gigabit for one minute and then the guy next door will be using 1 gigabit the next minute, but they don't have to provision 2, they only provision 1 in their backbone for that. And that really greatly reduces the rate.

7223 So Bell was being a little -- exaggerating a bit when it went and said that it would cost too much to go capacity-based because they were thinking committed full provisioning with no -- I forget the word, I'm sorry.

7224 For legacy service, you have to realize that not everyone uses the 42.something gigabytes that Bell has included in the rate. So someone who uses only 30 or 20 ends up paying for 42 and so Bell makes more money this way.

7225 So if Bell were to go full AVP on the legacy, the revenues would be reduced for Bell. So it has an incentive to want to keep this.

7226 The Commission might have an incentive to have it fair and move it to whatever billing method that you choose.

7227 With respect to the famous 17 percent of customers who use 30 percent of bandwidth, you know, there's nothing wrong with this as long as you pay for that 29 percent. And the word "29 percent," we can't verify, especially us normal people because all we see is hashtags on Bell's submissions.

7228 If they pay for 29 percent, I assume that Bell's retail pays for 31 percent, but it's not regulated, we can't verify this. But as long as you pay for what you use, there's no problem with using more than another ISP.

7229 There has been mention of multiple pipes. I would like to remind the commissioners that when an ISP buys a pipe into the Internet, that transit provider provides connectivity to the whole world, not to Quebec and Ontario.

7230 They have a bit more pipes than Bell does, you know. And also, some of the pipes, they actually have to pay, whereas for Bell, it owns all of its pipes within its territory.

7231 So the 95th percentile which the transit providers use to bill ISPs, they also use that to purchase capacity from other transit providers to whom they connect around the world.

7232 In terms of the different peaks that Bell has brought up, you know, different peaks at different times and different places, it's a non-issue, it's not an argument.

7233 An ISP buys capacity from Bell and Bell delivers that capacity. And yes, Bell will have different peaks here and there, depending on users and stuff. That's their business. We pay for that capacity and Bell should deliver it. It's that simple. I think this whole process has been made much more complicated than it really is at that level.

7234 A couple more notes here. I have a minute or two left.

7235 There has been mention about partnering. Commissioner Molnar asked me about this. There is no easy answer to this.

7236 One of the reasons is that Bell has a retail arm which competes against ISPs, and introduction of competition, by default, will lower profit margins for its retail. So at the corporate level, Bell doesn't really want to see its profit margins eroded even though they're very high and very comfortable in a monopoly type of level.

7237 So I don't have an answer for you on how to really make it work. It's not easy but this is something that, you know, if you find a way to do this or steer towards that, you should.

7238 Bell has argued also in terms of 95th percentile that once you have reached that level they will incite their customers to use all of it. Well, there's nothing wrong with that because you're paying for that. This is the level of capacity that you're paying for.

7239 I don't think that ISPs will go out and tell your customers: Use the Internet up until that point because we have spare capacity.

7240 But there have been examples in the past.

7241 There was a small ISP, which didn't survive, called iStop and they had free unmetered access at night, but the way to do that, they had -- someone had to log off their PPPoE session after midnight and then do their transfers overnight and then log back off and log back in, in order for the billing system to record this as an off-peak session. Very complicated.

7242 It's been done and, you know, it didn't put any load on the networks because at night the networks are so lightly used that it doesn't matter. Because at the end of the day the cost to Bell or to cable is to provide the peak. So once you have provisioned your routers to have enough capacity to feed that peak, anything below that, as they say, is not a problem.

7243 So if you pay for a certain level, 500 megabits, and you use 500 megabits all the time, that's what you paid for. Now, it doesn't mean -- depending on how much you pay, it doesn't mean that Bell has to guarantee you the 500 megabits at all times. There might be some events of congestion where you drop down to 450 or 400 or whatever and back up to 500.

7244 That's the nature of a tariff. If you want an affordable Internet, you have to live with a certain amount of congestion.

7245 Oh! A good one. Bell Canada yesterday made big news about going cost-based. They announced they were willing to drop their AVP rate from 19.5 cents down to 17.5 cents -- a whopping reduction.

7246 I would like to remind you that if you buy 50 gigs at that 17.5 cents, it comes out to $7.00. Bell Canada at the retail level sells 40 gigs for $5.00. So, you know, Bell wants to make $7.00 out of wholesalers for 40 gigs when they sell their own customers at five bucks. So that 17 cents, naaa, you know, I'm not sure -- I'm not sure it's very good.

7247 In closing, the MTS model is a fixed capacity. It's probably simpler and more easy to implement right away. And it doesn't drive -- neither this nor 95th percentile actually really drive ISPs to tell the customers to use more.

7248 What it does do is it gives the ISPs the flexibility they need to do retail billing in different ways, and that really is the crux of the matter, is if we go into usage-based, like Bell does, it provides a strong incentive -- although not black and white, but it's a very deep level of grey -- a strong incentive for the ISPs to go with a UBB model at the retail level because their costs are directly related to usage.

7249 If you go to capacity-based, they already are capacity-based for their Internet feeds, so they have the flexibility of doing different billing methods, and in the end this is how market will decide.

7250 If you have ISPs that bill a certain way to retail, another ISP that bills another way, the market can decide. If everyone has the same billing method, the market can't decide.

--- Pause

7251 MR. MEZEI: I should have been better organized for this. I'm trying to look for my conclusion here.

7252 THE CHAIRPERSON: Didn't you just make the conclusion?

7253 MR. MEZEI: Yes. Yes, I did. I did.

--- Laughter

7254 THE CHAIRPERSON: Okay. A couple of questions.

7255 Bell yesterday -- and I appreciate your point about the 17 cents resulting in a rate higher than retail. If that's the case, obviously, you know, we will do our analysis of the costing and decide what is a proper cost. From what you suggest, it's not. I have no idea but the experts will go at it.

7256 But Bell's case yesterday, I thought was relatively persuasive, using the analogy that was advanced by Mr. Engelhart that really if you don't use a volume-based method, you don't pick up the expense on what was called Elm Street here yesterday, you only pick up Main Street, et cetera.

7257 And they said that's fine but then you have to change our whole costing methodology because the costing methodology is based on existing traffic patterns and how we lay out, et cetera.

7258 If you move to an MTS model, you encourage maximization. Yes, we can live with it, but it really drives us to re-cost everything because the traffic pattern will be different. That sounds very persuasive, you know.

7259 You disagree with it. Why?

7260 MR. MEZEI: I disagree because when you go capacity-based you don't pay just for the highway, you pay for the whole deal.

7261 Imagine if the Ministry of Transport in Ontario had toll booths on the highway that collected enough money to cover all of its expenses to pave all the roads in Ontario. So highway users would pay for rural roads basically through their tolls.

7262 And that's what is really -- what should be done and what is done elsewhere, is that when you get on the highway, which is the MTS model, you pay for the whole deal. So the small streets are paid, are covered as part of the cost that you pay to get on the highway.

7263 THE CHAIRPERSON: I understand that. We are looking -- there is no perfect model. We are looking for the least imperfect model. That is what really this boils down to. I understand that.

7264 But I thought the point that Bell made yesterday, saying that our existing costing is based on our existing traffic pattern and that really if you change the billing method the way you suggest, that will cause us to change the costing and we will really have to examine it and we have to develop a new methodology, et cetera, and we're getting into a huge costing exercise, which I don't think anybody has the stomach for.

7265 I'm asking you whether that is a legitimate presentation by Bell or whether you see a flaw in it.

7266 MR. MEZEI: Well, the present billing method at Bell is basically equivalent to what MTS has because we pay a fixed fee for AHSSPI and a fixed fee for the access line, and that's how we're billed today. That's how ISPs are billed today.

7267 Bell's problem with the current billing system is that because it's fixed that way, the proportion of AHSSPI versus access fee is not correct. Access fee should be lower and the AHSSPI should be higher, because AHSSPI, being capacity based, the more an ISP needs the more it needs to buy. So as usage patterns change, people download more movies, the capacity component will grow more. So if you have the revenues mostly in the capacity area, those will grow and the access line doesn't really change.

7268 Now, Bell really wants -- I'm going to call it UBB although it's aggregated, it wants a usage-based. I don't know why they are so insistent on it, because network provisioning, the network planning, purchases of equipment is all done capacity. Current billing is done basically by capacity, although AHSSPI it can be argued that it doesn't cover all the capacity cost.

7269 So there is nothing wrong with the current structure, it's just a question of adapting it. Bell wants usage because -- I will be honest with you, I think it's a question of protecting its retail. It knows that UBB is not popular, contrary to what they have said. I think that what happened in January and February with over 500,000 signatures from OpenMedia, I think that's more customers than there is in GAS.

7270 So a lot of people are not happy with this and if Bell has an easy way for competitors to offer non-UBB it risks losing revenues or it may have to withdraw its UBB from retail. So I think this is the real reason.

7271 THE CHAIRPERSON: But isn't Bell under tremendous market pressures anyway because it has caps and their caps are relatively low compared to the cable companies, et cetera. As you see, they already react to it, like in Québec the cap is 60, whereas in Ontario it's 20. Why? Because obviously Vidéotron is capped at 60, et cetera.

7272 So I'm not so sure when you say they are doing this to protect the retail market, I mean the retail market is under a lot of pressure from competitors other than ISPs.

7273 MR. MEZEI: Well, from competitor, no "s".

7274 THE CHAIRPERSON: Okay, fine.

7275 MR. MEZEI: And it's a duopoly situation, they just matched each other's prices.

7276 But when you introduce real competition who can offer something else than UBB, then if it becomes successful it will drive the prices down and Bell, for instance -- if you look at TekSavvy, they have an unlimited and I think they have one at 200 or 300 gig limit, well, that's a lot more than what Bell offers in Ontario at 25 gigs, isn't it?

7277 So the competitive pressure may force Bell to increase it's gig rates or it may force Bell to offer unlimited, and that's something it doesn't want to do because it doesn't want competition. It sees an opportunity here to force the small ISPs to follow in a mirror image of its retail operation.

7278 THE CHAIRPERSON: Well, you have said that twice now. In your opening presentation you said this is not black and white, it's a deep grey.

7279 MR. MEZEI: Yes.

7280 THE CHAIRPERSON: I'm sorry, I don't get it, because there are no caps. With unlimited supply you pay according to -- if you adopt the Bell model you pay according to how much you use, et cetera. You as the ISP take the risk on whether you can balance in an unlimited your small competitors, your grandmothers with a high user, et cetera, but why do you say no, that's not true, it actually forces them to adopt a Bell billing method?

7281 MR. MEZEI: It's not forces them, but it's a strong motivator.

7282 The answer is quite simple, because you don't know what your bill is going to be next month. It depends on what your users do. You can't control what your users do.

7283 So the ISPs, if they can't predict what their costs are going to be next month, they have to make sure that their own retail matches what Bell will charge, whereas when you go into capacity-based model you put a constraint on how much your users can use, because the pipe is only so big. And there is no -- the variable costs are much more predictable.

7284 In the case of MTS it's not variable because you get a fixed fee per month, so you know exactly how much it's going to cost you to run your ISP business.

7285 95th percentile is a bit more variable, but over a year the ISPs get enough experience that they know, they can see the trend, they know where their costs are going.

7286 So it is a lot more predictable than the AVP model on a month-to-month basis. So it gives the ISPs the flexibility to really work more on averages for their whole customer base in terms of consumption of capacity requirement, whereas with AVP they really have to follow what Bell bills them by the gigabyte.

7287 THE CHAIRPERSON: You are passing on the risk to Bell.

7288 MR. MEZEI: No, because in capacity-based you buy capacity and Bell gives you capacity and that's how their network works.

7289 Internally, you know, the Bell regulatory guy wants to push volume-based, but internally at Bell it's all capacity-based. They don't measure number of bytes transferred, they will look -- you know, the little red lights that light up on their big board to solve congestion, it's not number of bytes, it's the speed. When a link utilization goes above a certain speed they say, "Okay, we are near capacity." It's by speed, capacity. That's how they work.

7290 THE CHAIRPERSON: Okay.

7291 MR. MEZEI: You know, really you have to -- from what I have seen of the Bell presentation, they put a lot of icing on the cake to make their AVP look good and they went to great lengths to make capacity-based look bad, but at the end of the day networks around the world work capacity-based, they don't work usage-based at the network level.

7292 Bell is the only one who wants to do this at the wholesale or at the network level. You know, Bell doesn't do usage-based with banks, it doesn't do usage based with its Internet transit business.

7293 THE CHAIRPERSON: Don't compare customers to competitors.

7294 MR. MEZEI: Okay.

7295 THE CHAIRPERSON: Okay.

7296 Candice, you have some questions for Mr. Mezei?

7297 COMMISSIONER MOLNAR: I do. I'm just going to continue what the Chair was talking about with the notion of essentially if you use -- just a minute, I just need to sort my thoughts here.

7298 But the capacity-based system and using the full capacity of the system, you know, you pay for it and so you can use it, one of the issues -- and I think what I heard now and then from Bell is kind of the fear that it becomes essentially a dedicated network.

7299 If you are going to use that capacity 7/24, although the argument is that you have paid for that capacity, it is a shared network and so you haven't paid for a virtual private network, you have paid for use of a shared network. So what is the response to that?

7300 MR. MEZEI: Your analogy is correct. This is a valid question.

7301 You know, the concept of ISPs using their link all the time at that level is a nice bit of propaganda -- I would have to say that word -- because in real life you don't use your link and 100 percent all the time. For one thing, in the MTS model where you have a fixed top speed, you don't want to be there all the time, because for one thing the minute you are there you get phone calls from your customers because the performance degrades. Once a capacity of a link comes near its maximum capacity, the latency of packets, and you get congestion, small bursts of congestion and customers call in to complain about poor performance.

7302 So ISPs don't want to be at that level all the time, it has to be just small peaks basically and that's how they call these services burstable, because it's not expected that you will be at capacity all the time.

7303 So there is an incentive for the ISPs to manage their network in such a way that they always have some spare capacity at the top. So they will never use constantly a link at that point.

7304 So while the question is valid in real life I don't think that it's a valid concern, because the type of use the Internet makes, ISPs make, it doesn't really affect -- it doesn't behave that way.

7305 Now, if you were NASA for instance and you have a space shuttle transmitting heaps of data, that link will be used all the time because the data is transmitted constantly, you know, every 1/60 of a second they will send data over.

7306 But Internet is very different because the usage is very varied and yet you have a large user base. Some people spend 10 minutes reading a web page and another person watches a movie. At the end of the day it sort of averages out, but it is still very much bursty in nature. So you don't use the traffic all the time.

7307 This is how it works today. You know, it's no different, this is how it works today. It works, it's just a question of shifting the pricing from the access down to the AHSSPI level essentially so that Bell gets more revenues to pay for capacity increases. So it works today.

7308 COMMISSIONER MOLNAR: I think the issue with it works today is potential as to how things will be different in the future.

7309 I mean, we had the ISPs come before us in our last hearing talking about moving into video and wanting to move into video, and so on, so it's not the traffic today and it isn't the traffic patterns today, it's the traffic patterns of tomorrow that are at issue.

7310 So if we set this up today and traffic patterns change significantly, and it changes the shared experience of users, what do we do about that?

7311 MR. MEZEI: You know, there are some services that are sold as burstable, let's say you get a 1 gigabyte link, the burstable, the 1 gigabyte, but they can say your average must be a 500 megabits for instance. So you can have sort of sustained up to 500, but above that has to be just bursty temporary spikes.

7312 It could be something like that where you can't abuse the link essentially, because that's what it's about, isn't it, you don't want the link to be abused.

7313 There are ways to code this into a tariff. AHSSPI, I should note, I went through it with the Bell tariff, it doesn't have any notion of how much you can use or whether it's burstable or not. The only one that you go is the Ethernet Access Service, the EAS, which is the first small jump between the ISP and AHSSPI, this one is coded as being best effort. Best effort means Bell will give you what it has and you can't complain if the speed is below or above.

7314 You know, that's how affordable telecommunications happened, because we share the links and we all agree that because it's shared there are periods where you don't get your full speed, you know. If everyone agrees to this, then you can have affordable rates. If everyone wants their dedicated one, then yes, the rates are going to be very high.

7315 So the sharing aspect is not the end of the world. I mean the Internet is shared, the whole Internet is shared. It's based on that. And yes, there are periods where there is congestion on Internet and you connect to a site and there might be a link that's congestion. You don't complain, it's life, you know.

7316 If an ISP wants a higher solution, it wants to provide -- for some businesses they provide guaranteed latency and stuff, then they buy a dedicated link and pay, you know, the price for a dedicated capacity.

7317 But for the normal GAS service, I don't think it's such a big issue if there is -- I mean as long as the congestion doesn't affect the Bell retail customers, and as long as the ISPs pay for their fair share I think this is fine. It just has to be made clear in a tariff that the AHSSPI -- or whatever it might be called, hopefully you will have a more pronounceable name -- just make it clear in the tariff that it's not dedicated capacity, that it's burstable or average, whatever message you want. Maybe CNOC or others, or Bell, can propose a way to codify this in text.

7318 But the concern is a valid one, but it's very easy to solve because it's done all over the world already.

7319 So, you know, it's not a show stopper and to Bell that seemed to be the big argument, but to me and to the ISPs it's not a show stopper.

7320 COMMISSIONER MOLNAR: Okay.

7321 Page 7 of your presentation you talk about Bell's legacy service.

7322 MR. MEZEI: Yes.

7323 COMMISSIONER MOLNAR: Are you suggesting that Bell should move away from its existing flat rates?

7324 MR. MEZEI: Well, this whole past two years has been all about Bell wanting to get off these flat rates ASAP. I mean they have worked hard with this UBB, now AVP. You know, it's like the end of the world, we need to change our tariffs.

7325 COMMISSIONER MOLNAR: I know they want to, I'm just trying to understand what you are saying here.

7326 MR. MEZEI: What I'm saying here is that by moving the legacy system to AVP Bell's revenues for 5 megabit service will go down. So the ISP costs will go down, because on average the users use less than 42 gigs. So you withdraw basically $8.00 worth of AVP that's part of the current $20 --

7327 COMMISSIONER MOLNAR: Yes...?

7328 MR. MEZEI: -- so the ISPs paying about $12 for the access and then it will pay AVP rates that are less than $8.00, because people use less than 42 gigs on average. So Bell stands to lose revenue so it's to their advantage to keep that rate.

7329 You know, it's sort of ironic that Bell has spent so much time trying to get off this rate and now they want to keep that rate, but I think this is the real reason, because to an ISP once you switch the billing method it's a lot easier to have all your packages on the same. If you have one speed at a different billing method, another speed at a different billing method it gets overly complex, you know.

7330 Even for Bell's administrative side, because of the complexity of those credits which apply or don't apply, et cetera, et cetera, the risks of error is greater. So if you put everything in the same method then it's a lot simpler for Bell, a lot cheaper in terms of billing costs and simpler for the ISPs, you know.

7331 And yes, Bell will make a bit less revenue, but then that will be incentive for people to upgrade their speeds, because Bell will want people to upgrade speeds.

7332 COMMISSIONER MOLNAR: Okay.

7333 Speaking of simpler and easier to implement, you used those terms to describe the MTS proposal and yet we heard in the last little bit a lot of companies come forward and suggest it can be complex, issues such as redundancy, issues such as buying a port, you know, buying a gig port and wanting -- or only flowing through 500 megabits, or something to that effect, are issues and it would create confusion, it would create issues, and yet you don't seem to think those issues exist.

7334 MR. MEZEI: The redundancy argument was an interesting one. Some of the carriers cannot provide it, some do.

7335 In the case of Bell there is a certain level of redundancy. It's not very smart, but they use round robin so if you have 5 AHSSPI links, for instance the first person coming in will come in on number 1, the second customer number 2, 3, 4, 5 and then it comes back to 1, so they sort of spread the load. If one link goes down when people will reconnect they will get onto the other ones.

7336 Some other ISPs have fixed mapping, certain users from a certain region will go onto a specific link. So redundancy in those is more difficult.

7337 At the end of the day if you look at the current situation, or if you go to TN 7181, which is the real UBB rates, you still have to buy AHSSPI and then you are tagged on an extra UBB rate on top of it.

7338 So if you go to the AVP model it's the same, people will still have to buy those ports, the 1 gigabyte port, they still have to buy those links to connect to Bell, it's just that the pricing will be a little lower because it doesn't include the transport throughout the network. But they still have to manage all those links, they still have to buy those ports and measure the speeds. The ISPs still have to measure how much of their AHSSPI links they use and order more when they need more capacity.

7339 So whether it's AVP or capacity-based this remains, this problem remains, and it's called network management. This is what I as a customer, as a retail customer, this is what I pay my ISP to do. It's his job to manage his network and buy enough capacity from Bell or whoever to give me the service I want.

7340 So this is daily life, this is what ISPs live and eat. They do that. Adding AVP just adds more complexity to it, whereas if you go to the MTS model, this is something they already do.

7341 Now, with 95th percentile there are ways where it gives you added flexibilities. It's more of a -- I'm not going to call it Cadillac because it's really so used widespread around the world that it's not really a Cadillac, you know, but it's like a heavy-duty pick-up truck that's very versatile, whereas the MTS model is more of a basic model of a transportation, you know, but it works and for short-term it's easy to implement, because even Bell already has it, it's called AHSSPI, you know, they just have to change the number on it, longer-term maybe move towards 95 percentile.

7342 But to your question, it's not an issue, they do this every day.

7343 COMMISSIONER MOLNAR: Those are my questions.

7344 THE CHAIRPERSON: Thank you.

7345 Before I pass you on, could I ask you, in the interest of time, to be very precise in your answers --

7346 MR. MEZEI: Okay.

7347 THE CHAIRPERSON: -- because we are way over time already and you are only the first presenter.

7348 Len, you had a question?

7349 COMMISSIONER KATZ: Yes, I do. Thank you and good morning.

7350 On page 5 of your remarks this morning you talk about the distinction between cable and DSL and you sum up by saying:

"With the aggregation of POIs, and perhaps better pricing as a result of this proceeding growth in TPIA would continue."

7351 What do you mean by "better pricing"?

7352 MR. MEZEI: Some of the complaints I have heard from IPSs are with regards to the start-up costs with the TPIA which are higher than with GAS, because you have to buy the ports within the cable network for the interconnection and in the past, you know, if you wanted to deploy in Rogers, that was 31 points of interconnect and so that's 31 links you have to buy, 31 ports --

7353 COMMISSIONER KATZ: I understand the POI part of it, we resolved that.

7354 MR. MEZEI: Yes.

7355 COMMISSIONER KATZ: The issue is better pricing.

7356 MR. MEZEI: Well, we have to see how it comes out, but the better pricing I think it related to that aspect, sort of the better formulation of the prices to make it easier to start up, and start up small, too, because a lot of ISPs are small ISPs and when you start up you have a very high cost of starting up to get those initial links.

7357 Initially you will only have a few customers on it and you have to ramp up your customers very, very quickly to get your link to be profitable. That's the challenge for the small ISPs.

7358 COMMISSIONER KATZ: Okay. Last question.

7359 The MTS model you touched upon a minute ago, we heard yesterday, I think it was Bell who said it, the MTS model destroys speed as a price differentiator because what may happen is that the independent ISPs would then price, I guess arbitrage, based on the speeds and that would reduce the entire differentiation that's out there.

7360 Can you comment on that at all?

7361 MR. MEZEI: Yes, of course I can comment.

7362 One of the aspects here that's not realized is that when an ISP sets a profile of a user at 25 megabits instead of 5 megabits it may not represent an actual cost because it's just a byte in the DSLAM, but it will be costly in terms of capacity-based.

7363 So when you provision a customer -- when you provision many customers at 25 megabits you have to buy a lot more AHSSPI, or whatever it is going to be called, in terms of capacity.

7364 So there is definitely a price difference, it's just being shifted from the DSLAM to the network, the capacity-based aspect of it.

7365 This is far more representative of the actual cost to the incumbent than an artificial price difference at the DSLAM level, because that really matches. You can give someone a 25 megabit profile and if it's a grandmother who doesn't use it much she's not going to be a big load on the network, but if you have a bandwidth hog and you give him 25 megabits, he is going to make use of it and that's going to be a big load.

7366 The differentiator there is not the speed on the copper link, because there is no congestion there, the differentiator is the speed on the network itself and that is covered by capacity based.

7367 COMMISSIONER KATZ: Thank you.

7368 THE CHAIRPERSON: Okay.

7369 Mr. Bibic, I understand it's your birthday, congratulations first of all.

7370 MR. BIBIC: Thank you.

7371 THE CHAIRPERSON: Mr. Mezei gave away the secret.

7372 MR. BIBIC: Thank you, Jean-François.

7373 I don't intend to repeat anything I said yesterday. There is one new issue that came up in Monsieur Mezei's presentation that I would like to cover and it's the insurance plan, if I may.

7374 So the point is at retail we do offer for $5.00 an extra 40 gigs to an end user, to our retail subscriber. That does translate, if a user uses all 40 gigs, to 12 1/2 cents per gig, and our RVP rate, wholesale rate, is now 17.8 cents, which is what we proposed yesterday.

7375 So I think Monsieur Mezei's point was that 17.8 wholesale rate is higher than a 12 1/2 cent retail rate, but what is being lost here is that there is breakage in our insurance plan, because as a retail subscriber you are paying $5.00 regardless of how much you use. If you are using only half of the 40 gigs, now your retail price becomes $.25.

7376 So the point is that not all retail subscribers who buy the insurance plan are using right up to the 40 gigs and we can file in confidence numbers to prove this because our average excess revenue per gig at retail is much higher than 17.8 cents.

7377 That's the point I wanted to make. So, again, it shows how it could be misleading to simplistically say $5.00, 40 gigs because the real world doesn't work like that. Users don't always go up to the total amount. There is breakage or a go over, rather.

7378 Thank you.

7379 THE CHAIRPERSON: Okay. Go ahead, Tom.

7380 CONSEILLER PENTEFOUNTAS : Monsieur Mezei, bonjour.

7381 Ai-je bien compris, suite à une question de Madame la Commissaire Molnar, que vous avantagez les clients de détail de Bell dans le cas de congestion?

7382 Un moment donné, vous avez dit : "As long as the retail Bell client is not impacted by congestion." Est-ce qu'on peut conclure qu'on doit avantager le client de détail de Bell?

7383 M. MEZEI : Mon opinion? Non. Par contre, depuis que je suis impliqué ici, dans le CRTC, un des gros arguments de Bell, c'est qu'ils ne veulent pas que les petits ISP influencent négativement ses propres clients. C'est une des préconditions de Bell dans ses négociations, on pourrait dire.

7384 CONSEILLER PENTEFOUNTAS : Mais dans le cas de congestion, soit qu'on coupe la capacité de l'ISP ou du fournisseur indépendant ou qu'on coupe la capacité du client de détail de Bell. Ai-je raison de sortir ce constat?

7385 M. MEZEI : Bien, écoutez, dans une situation où on a un service GAS qui est capacity-based, la congestion se fait dans le lien entre l'ISP et Bell avant de rentrer dans le réseau shared de Bell.

7386 CONSEILLER PENTEFOUNTAS : O.K.

7387 M. MEZEI : Parce que si j'achète 200 mégabits de capacité, comme ISP, je ne peux pas le dépasser. Alors, quand mes usagers...

7388 CONSEILLER PENTEFOUNTAS : On s'entend, d'abord, que c'est un réseau partagé?

7389 M. MEZEI : Oui.

7390 CONSEILLER PENTEFOUNTAS : O.K.

7391 M. MEZEI : O.K. Et la seule raison que j'ai dit ça, c'est que je sais que Bell a un concern pour dire qu'ils ne veulent pas que le service GAS impacte à ses usagers, et dans cette option-là, un service capacity-based permet de shifter la congestion entre l'ISP et Bell au lieu de l'avoir dans le réseau de Bell.

7392 CONSEILLER PENTEFOUNTAS : Oui. Mais ça vous préoccupe également? Vous avez fait mention de ça.

7393 M. MEZEI : Oui.

7394 CONSEILLER PENTEFOUNTAS : Alors, c'est préoccupant? On s'entend là-dessus.

7395 M. MEZEI : Bien, non. Écoutez, ce n'est pas une préoccupation. C'est juste un concern qu'il faut regarder parce que c'est un des arguments de Bell.

7396 COMMISSIONER PENTEFOUNTAS: How do we constitute what a burst or abuse of the link would be or the system would be?

7397 At one point you were talking about, you know, at some point we have to make sure that there isn't abuse or that the bursts aren't too extreme. I mean, how do we constitute -- what constitutes a burst and how do we control that?

7398 MR. MEZEI: And this is all about 95th percentile billing. This is how it defines what a burst is.

7399 A burst, you know, you are allowed basically 5 percent of the month you are allowed to go above a certain limit and below that you pay. That's how it is defined and that's how industry has defined it.

7400 So the 95th percentile actually does this very well and that's why it has been adopted.

7401 COMMISSIONER PENTEFOUNTAS: Okay. Wouldn't you have fewer problems under the best effort scenario that you described under a volume based as opposed to a peak capacity based?

7402 Aren't you setting yourself up for more potential problems given a best effort clause?

7403 MR. MEZEI: No, because the Internet itself is best effort and ISPs work in best effort.

7404 You know, so far AHSSPI has worked well. Bell, you know for all the time that we spend here, Bell does a good job of managing its network. I will grant that to Mr. Bibic. It's his birthday gift.

7405 COMMISSIONER PENTEFOUNTAS: You are too generous.

--- Laughter

7406 MR. MEZEI: So they do a good job of doing this.

7407 It's just a question. The fact is you can get a lot lower rates when there is no commitment for capacity. It comes down to that.

7408 COMMISSIONER PENTEFOUNTAS: Okay, fine. Thank you.

7409 THE CHAIRPERSON: Did I see another flag up there, somebody? You are next so you are not -- CNOC?

7410 MR. TACIT: Yes. Thank you, Mr. Chair.

7411 So I just want to address two points that follow partly on one of your questions and partly on Commissioner Molnar's questions.

7412 I think it's important here when we talk about the traffic of the future, to recognize that to some extent -- to a great extent that's going to happen whether we like it or not. To the extent that there are machine-to-machine interactions, to the extent that there is more over-the-top video, these are the trends of the future.

7413 So the real issue is are we going to constrain what consumers want and reduce the supply, the available supply of that through artificial pricing model and inability of other competitors to differentiate their services?

7414 Are we just going to try to protect Bell's IPTV business or are we going to allow consumers to have what they really want?

7415 And if it takes a little bit of a reworking of some Phase II costing studies to get there, surely that should be no more of an impediment than the fact that incumbents may have to bill manually for a little bit and then modify their billing systems to cope with this.

7416 Thank you.

7417 THE CHAIRPERSON: Okay. Thank you very much. Those are our questions for you.

7418 Let's move on right to the next panel because I want to see whether we can't get slightly back on schedule.

7419 THE SECRETARY: Yes. I will now invite the next panel up. It is Messrs. Bhullar, Leong, and Hénault.

--- Pause

7420 THE SECRETARY: Okay. These three gentlemen are going to be appearing as a panel. We will hear each presentation followed by questions from the Members.

7421 We will start with Mr. Bhullar. He has requested -- I will let you know when you have two minutes left. You may now proceed. You have six minutes.

7422 Can you please turn your mic on? Just press it.

ORAL REBUTTAL

7423 MR. BHULLAR: Good morning, Mr. Chairman and good morning, Commissioners.

7424 After yesterday I think we are having a refreshing day this morning.

7425 What I find is I have done a detailed analysis, a little bit, and I have documented it in my submission.

7426 What I noted yesterday was that there was a duality hypothesis from Bell and supported by the cablecos. What I was getting lost on was why was there a big discrepancy between 19 cents, 17.8 cents and the $39 per megabit.

7427 What I discovered is that all Bell is trying to do in all of that is convert all the existing capped rates and make them chargeable while at the same time keep the cap rate. So there is no free traffic left unbundled into the capped rates, say it is 40 gigabytes, 120 gigabytes spending on the rate that you have.

7428 So the net effect is that the 35 percent interim relief he gave it actually basically translates into a retail rate -- equivalent of retail rate. So there is no change. That's why nobody is complaining big time because not much happened.

7429 So that's my observation from yesterday of why we are having all these costing and pricing debates.

7430 The second question was the congestion caused by the ISP customers.

7431 I flagged it yesterday that it could be a grandma that just tips it over, the 600 megabytes versus everybody else on a 600 megabyte link. The link is sitting at 598 and the grandma dials in and suddenly you know there is a flag -- congestion. But many of the customers at that time will be paying UBB or extra charges. Many won't do and the grandma will pass -- Bell, right.

7432 So the linkages of a specific customer to congestion cannot be established at any instance in time. So it's a Hocus Pocus concept in traffic engineering to say, oh, you know, I have a UBB and these extra charges somehow it's going to reduce congestion.

7433 It tries to change behaviour but it doesn't instantaneously reduce congestion, because the customer at the end doesn't know that what I did at one a.m. caused congestion, because that's the only way to change behaviour was in what you pay. There is no element there.

7434 I disagree with Vaxination in terms of this capacity stuff. All IP networks are designed with 95 percent. We saw lots and lots of data there.

7435 95 percent is the way that the usage is measured everywhere. This is how they routers are billed to each other based on the Internet. You know, like the interfaces are made that way. So the capacity -- and trying to complicate it just doesn't make good sense -- make any sense.

7436 In the meantime Vaxination said you know I want to be free, available to do 95 percent. Yes, a co-op student can do it, handle a 100 high speed customers for Bell. It's just a matter of thinking outside the box. It's not a big idea product.

7437 So I support 95 percent as a method.

7438 I also noted there was a large amount of pricing elasticity between when the UBB came out and the AVP, and now a son of AVP. And we do not know where we are going to end up at the end of the day.

7439 So I think there is a credibility issue here in terms of what cost, what prices and what's going on out there, right.

7440 So I believe that questions are not getting answered directly saying, "You know, are you running the network with a profit?" Like that was not answered yesterday.

7441 THE SECRETARY: Mr. Bhullar, you have two minutes left.

7442 MR. BHULLAR: Thank you.

7443 So I suggest action -- that we ask the telcos what was the impact of 35 percent reduction on -- like they would have done it straight like that, called it an impact of their profitability for the service.

7444 And we should follow up as Commissioner Molnar asked yesterday for them to say: How much augmentation are you forecasting from this so-called congestion?

7445 I also looked at the cable channels and costed them, that for IPTV for about $5.53 they are using another 300 gigabytes of transfer which is about 1.84 cents per gigabyte.

7446 When I looked at Netflix and the other services that Commissioner Molnar mentioned and I tried to write them all, either the Bell Network or the Rogers Network as it exists today for a retail customer, I am looking at 120 bucks from both of them to get -- $120 a month when I look at their pricing strategies which is the same as their IPTV or other packaged services without getting phone and everything else.

7447 So that's what is planned to be billed. We need to face it. They don't want the third guy over there disturbing the peace. It's as simple as that.

7448 What I do want to emphasize that if there is a price to be discounted it again is not rocket science to know that Bell has 2 million customers at 10 megabits per second or 12 megabits per second. What was the actual they paid -- the customers paid -- and link 35 percent as an adjustment in retroactivity or otherwise, quarterly or six months.

7449 I can do it for free. It's of benefit to Canadians. So I wrap it up there and I really suggest that.

7450 I welcome more questions because I don't have time. So thank you.

7451 MR. LEONG: Okay. Thank you, Chairman and Commissioners.

7452 Thank you, and good morning to the Chairman and Commissioners.

7453 To begin with, I would like to rebut Mr. Bibic's assertion that 95th percentile is wanted by the ISPs just to game the the "midnight madness" system.

7454 I have a traffic management graph on page 2 as well as a quote from Alistair Wyse, CTO of the U.K. ISP, PlusNet, who implements the unlimited off-peak scheme to:

"...ensure a great customer experience during peak busy hours between 8pm and 10pm. Conversely, by managing peer-to-peer file sharing during peak hours, and encouraging consumers to share files at night for free PlusNet is able to get better utilization of its network bandwidth. Shifting file sharing to off-peak hours when there is unused bandwidth capacity has a dramatic effect; it lets PlusNet keep its costs down by deferring expensive bandwidth capacity upgrades."

7455 For the record the reference to this quote seems to have fallen off the page, but I have upgraded -- I have sent an updated version of the document to Lynda just now.

7456 Anyhow, while I would like to see Mr. Bibic's graphs I don't believe it is possible to draw definitive conclusion as there may be more examples that show the technique is used to save expenditure, not incent it.

7457 Many parties here have agreed that peak traffic is more immediate and expensive to augment while any means to mitigate that and offset congestion should be rewarded, not monetized.

7458 The size of the peak cap and what happens to service when thresholds are hit are also extremely important. In cases where 20 to 40 gigabytes are used, it is clear that this is a plan for the light peak user designed to be utilized mostly during off peak.

7459 A large enough peak cap like in Teksavvy's case will result in little need for off hours use as they have stated. In PlusNet's case this has not 'gamed the system' after midnight as the graphs show.

7460 Next, I would like to clarify more about the "underlying cost structure" which the Chairman asked me about in Phase I.

7461 Australia does have a similar and long history of high cost and usage caps, but the Australian model has caps going up and competition increasing while the Canadian model has caps going down and competition potentially disappearing.

7462 However, the key difference in the growth of Australian ISPs to be able to challenge and supplant incumbents and start owning their own infrastructure is the lack of any mandated one-cost-fits-all billing model as proposed at this hearing.

7463 Telstra still sold and leased wholesale to TPG, iiNet and others at both 95th percentile at a lower speed ADSL1 first and then ADSL2 and also at usage rates, often designing plans and network management around all billing options available while they were growing prior to the regulatory reform in 2006 and 2007.

7464 BuddeComm also estimates that in early 2011 competition in Australia had increased to around 450 ISPs providing services ranging from dial-up through to DSL, fibre and wireless.

7465 Canadian ISP's are forced to lease the network at this time and, for example, are restricted from the CO and that is the difference. If there was regulated access to allow third parties to invest in their own DSLAM's, POIs, et cetera, regulated access could also help Canada avoid situations like Distributel's six month wait.

7466 iiNet's rise to the number two position in Australia, displacing the incumbent Optus was characterized by two factors:

7467  - They were the first provider in 2007 to provide naked DSL access, and their continual investment in adding faster DSLAMs than the incumbent Telstra, while TPG rose to number three with consistently higher usage caps than competitors.

7468  - Telstra however sat still collecting record profits while under-investing and slashing jobs.

7469 In some cases, Australian third parties have access to international links not controlled by the incumbents, Telstra or Optus.

7470 For example, TPG is owned by Soul which in turn owns one of the largest non-Telstra networks in Australia, now owning one of the international transit lines leading out of Australia after their buyout of PIPE Networks. The cost savings may have influenced their ability to offer unlimited for the first time in Australia's history.

7471 Today, Australia implements the result that the Commission seems to desire, having all parties, incumbents or third parties become true partners in the network. There may yet be a bright future for Canada's third party ISPs.

7472 Thank you.

7473 THE SECRETARY: Just for the record, this was Mr. Munly Leong for World Broadband Foundation.

7474 Mr. Leong, you mentioned the only change was a footnote in the presentation?

7475 MR. LEONG: It's a reference. Yeah, it is in there.

7476 THE SECRETARY: So we will, I guess --

7477 MR. LEONG: Yeah, this is the --

7478 THE SECRETARY: -- for the record.

7479 MR. LEONG: -- and distribution, yeah.

7480 THE SECRETARY: All right.

7481 We will now hear Mr. Claude Hénault.

7482 Monsieur Hénault, vous avez six minutes.

7483 MR. HÉNAULT: Good morning, Mr. Chairman, Commissioners and everyone that is in the hall.

7484 I have always believed that what matters at hearings like this is not what is said but what is heard by the people who do the deciding.

7485 More than a decade ago, when the Internet was not the known quantity that it is today and expertise was a lot harder to come by, the predecessors of this CRTC were convinced by ISP representatives with enormous chutzpah that usage-based billing at the retail level was a valid concept.

7486 Like any orthodoxy, once installed it becomes an assumed truth. And it takes a lot of voices and a lot of experience over time before such an orthodoxy is challenged by those who previously validated it.

7487 Maybe I am an eternal optimist, but I think that last week I detected signs of a growing CRTC recognition that volume measurements like UBB retail, or Bell Canada's clone proposal of Aggregate Volume Pricing, are invalid concepts for pricing Internet usage.

7488 I went to some effort last Thursday to illustrate that UBB at the retail level is a hefty charge for volume of a service that has already been priced by speed and costs little or nothing to extend over time particularly in comparison with other cost factors.

7489 I tend to think of UBB as a misnomer, more properly called IMBB, or "Irrelevant Measurement Based Billing".

--- Laughter

7490 MR. HÉNAULT: Irrelevant because pricing by volume of physical products makes sense, while pricing a digital product the same way is intuitively right, but in actuality dead wrong.

7491 It has been somewhat amusing to watch in Phase I of this hearing a succession of wholesale ISP representatives try to make this point without treading on any toes. Volume pricing may be okay for retail but has no place in wholesale, I heard them say.

7492 I think I also heard the committee listening to what they meant to say: Volume billing is just wrong, everywhere. Instead, measure on the basis of speed and of peak capacity which is the fundamental consideration around which networks get built and costed.

7493 In an exchange with the Chairman after my earlier presentation, I heard him say something that gives me hope for the big picture, as well as this exercise in wholesale pricing. He said he favoured economic Internet traffic management practices:

"...based on the fact that those who cause a cost pay for it. Now, you say usage-based billing doesn't do the trick. Everyone else here at this hearing has agreed it doesn't and obviously we're looking for alternatives."

7494 That gives every indication of being a significant evolution from last February when the Chairman called UBB "a legitimate principle for pricing Internet services".

7495 My sincere approval of the new direction, if that is indeed what it is.

7496 Other changes: Last February the Chairman endorsed the view that "those who use the Internet heavily pay for their excess use", but last Thursday he said it should be that "those who cause a cost pay for it."

7497 I agree with the evolution away from considering usage per se to be a cost and instead toward considering which factors really cause costs.

7498 Simply, and the most obviously, new network clients cause costs whether as individual residences or new housing developments. Conversely, old clients, even heavy users, have long been factored into network design, and have long ago paid off any capital costs associated with their signing on.

7499 As an example, I will note that over the 13 years I've been with Videotron, I have paid about $10,000 in residential Internet connection fees. And that's the Internet alone because I have never had and never wanted cable TV service.

7500 Heavy users are usually Internet pioneers as well, and they have paid and continue to pay their dues.

7501 The argument made by some, that ordinary users are subsidizing the heavy users, doesn't stand up. So the move to consider what causes costs is a good one. But it isn't in the policy definition of what causes costs that everything turns. Residential users are not the only potential source of costs or even the main ones.

7502 Consider the networks themselves. If the network of an ISP is so built that it is not capable of meeting the peak aggregate demand of its clientele, then it is the network and not the users that cause the costs.

7503 So any allocation of costs must be very carefully designed to avoid creating situations where it is more profitable to penalty charge users for their use than it is to upgrade the network.

7504 The Chairman said last Thursday:

"...we both agree that if you're an ISP or a telco or a cable company you should meet the demands. You should see it. It should be in your self-interest to expand rather than trying to discipline use or trying to penalize heavy users."

7505 I think there is new guidance here that for some reason has gone unremarked in both the technical and mainstream publications that I read. If I am reading the entrails right, these indices might be useful in getting various proponents in this room to cut their cloth a little differently.

7506 As for me, my primary interest lies in seeing the lessons learned here applied at the retail level.

7507 Yes, I heard what the Chairman said at the start of these hearings. I can even quote him:

"Lastly, let me repeat that this hearing only deals with wholesale rates. We believe that resale rates, i.e. the prices charged by ISPs to consumers, are best set by the market. The issue has not and will not be part of the Commission's consideration. We are not considering retail rates."

7508 Okay, it's not the rates. But how about some evolution on the retail bit caps issue like a proposal to ditch these caps entirely or make them very, very large? That would be a helpful step toward a more competitive Canadian Internet and by inference a more competitive Canadian economy.

7509 Thank you.

7510 THE CHAIRPERSON: Thank you.

7511 On that last point, we don't deal with caps on retail. We're leaving it up to the provider whether it be an ISP, a telco or a cable company to decide.

7512 You have heard some of them don't have it. Others do have it, et cetera. And they will have to justify that to their customers.

7513 Are you saying we should step in here and actually enter the retail market and say no caps, period?

7514 MR. HÉNAULT: I think it might be interesting if you did an evaluation, anyway, of the costs that are associated with caps to see whether this is indeed a measurement that captures a true pricing factor or whether it is just a method of improving the bottom line in a way that does not have an impact on the capacity of networks provided.

7515 THE CHAIRPERSON: But how do we square that with the explicit policy direction that we have not to interfere, not to regulate unless there is market failure? I don't see a market failure here.

7516 MR. HÉNAULT: Well, if you don't see a market failure here then I guess my plea is --

7517 THE CHAIRPERSON: No, but I mean, market failure basically means that the market does not have -- that there is behaviour here that is anticompetitive and goes on -- and requires intervention for the public good. I don't see that here.

7518 I mean, as you just said, some have caps large, some have small. Surely that's the competitive market, consumers having the choice which way they want to go.

7519 MR. HÉNAULT: Again, we do have in theory a duopoly and I understand that in western Canada it's really quite fiercely competitive. I think there are other areas in the country where it's not.

7520 I think that my thesis is that usage-based billing is an extraneous factor as opposed to a true factor that should be considered in pricing and that therefore maybe it requires reconsideration whether this particular element of the structure should be looked at. That's something that of course the Commission will either agree with me or say, "Sorry, it's just not our business".

7521 THE CHAIRPERSON: It certainly is not part of the scope of this hearing. Even if we wanted to, we couldn't do it right now.

7522 Marc, do you have any questions?

7523 COMMISSIONER PATRONE: No, I do not, Mr. Chairman. Thank you.

7524 THE CHAIRPERSON: Tim?

7525 COMMISSIONER DENTON: No, Mr. Chairman.

7526 THE CHAIRPERSON: Michel?

7527 COMMISSIONER MORIN: No, Mr. Chairman.

7528 THE CHAIRPERSON: Okay. Okay, thank you very much.

7529 Let's take a five-minute break and we'll start with MTS.

--- Recessed at 1016

--- Resumed at 1028

7530 THE SECRETARY: Please take your seats.

7531 THE CHAIRPERSON: Okay, before we start, our Secretary General wants to take a picture of the panel with himself for whatever reason, so we will do this right now.

7532 COMMISSIONER PENTEFOUNTAS: Well, you can sit on my lap if you want.

7533 MALE SPEAKER: No, no, no.

--- Laughter

7534 MR. ROBERT MORIN: Everybody smile now.

7535 Merci, thank you.

7536 THE CHAIRPERSON: Great, thanks.

7537 Okay, Madame le Secrétaire, allons y.

7538 THE SECRETARY: Okay. We will now proceed with the rebuttal of MTS Allstream Inc.

7539 I would ask that you please reintroduce your panel for the record, after which you have 12 minutes.

ORAL REBUTTAL

7540 MS GRIFFIN-MUIR: Thank you, good morning. I am here with Mike Strople, our Vice-President, Technology Development and Pauline Jessome, Senior Regulatory Analyst. And I am Teresa Griffin-Muir, Vice-President, Regulatory Affairs.

7541 Let us not lose sight of why we are here. We are here to ensure that investment and innovation in the Canadian broadband infrastructure continues to be efficient and functions in a manner that will provide Canadian consumers and businesses with choice and state of the art services.

7542 We are also here because Canadians from across the country have correctly sensed that the price and structure of wholesale services mandated by the Commission will have a direct effect on the quality and price of the broadband access that Canadians receive from all providers.

7543 In the Matching Speeds decision, the Commission determined that competition drives innovation and therefore mandated that ISPs should have access to higher speed broadband service. This proceeding was initiated to determine the price and structure of these wholesale tariffs.

7544 In our tariff the highest speed access we offer on our network, 32 megabits, is available to competitors at a fixed rate because there is no cost difference in the access component. This fulfils the matching speed directive because a competitor has the ability to offer any access speed it wants up to our maximum. For MTS Allstream there is a single AHSSPI charge set on the basis of the overall forward-looking cost of provisioning the shared network, including augmentation of all nodes and links over a 10-year period.

7545 By the same token, our tariff allows competitors to fully manage their lease capacity in the transport network and, therefore, allows efficient competitors to build scale and bring choice to Canadians.

7546 MR. STROPLE: As Bell itself stated in the Internet Traffic Management Practices proceeding, networks are planned and designed around a daily or monthly peak capacity at each link in a shared transport network.

7547 I will now explain how network capacity is provisioned to avoid congestion using the diagram entitled Manitoba FTTN Network at Attachment 1. The diagram depicts the residential services that traverse our network; namely IPTV, retail Internet and wholesale DSL services.

7548 THE CHAIRPERSON: Sorry, which diagram are you referring to now?

7549 MR. STROPLE: Page 1 attached, Manitoba FTTN Network.

7550 THE CHAIRPERSON: Okay.

7551 MR. STROPLE: For the sake of simplicity, we have not depicted our voice and business service which of course also traverse the same transport network. Looking at the left-hand side of the diagram at house number 1 the yellow line depicts an MTS retail Internet customer.

7552 Similar to Bell, our access facilities are one to one and are depicted at A to B in the diagram. This traffic passes through a DSLAM then hits our transport network, which is reflected at B to C in the diagram. This traffic is then routed to aggregation routers in the serving central office. From there, the traffic is transported to the core router in Winnipeg from where it is routed to the public Internet.

7553 Like Bell, because different types of traffic traverse the same shared network, certain types of traffic must be prioritized. In general terms, voice and IPTV traffic have priority over traffic destined for the Internet.

7554 Aggregated DSL access traffic has exactly the same priority treatment in MTS Allstream's network as traffic generated from MTS Allstream's own retail Internet access services.

7555 Bell claims that what is wrong with MTS Allstream's proposal is that there is no correlation between the peaks at the AHSSPI and the peaks in the various nodes.

7556 What Bell is missing is that all of the Phase II costs of the FTTN services submitted by MTS Allstream, and presumably by Bell, are based on aggregate peak capacity provisioning. These costs, by definition, include the cost to augment the nodes over that timeframe.

7557 Given that the aggregate Phase II costs are in the usage-sensitive component of the tariff, the question then becomes how these costs should be reflected in the price of the wholesale service. This question is of course only valid if Bell's proposed volume-based charge is actually founded on the said forecast Phase II costs.

7558 Yesterday Bell, in an attempt to demonstrate the shortcomings of the 95th percentile billing models and the MTS Allstream tariff, use Figure 4 of its own submission to purportedly show that an ISP's usage as measured at the AHSSPI in two scenarios could be lower in one scenario than another and yet still cause congestion on a link in their network.

7559 However, this depiction and explanation are too simplistic. It only talks about a single competitor's service and that competitor's peak at different times over different links. It ignores the facts that the links in both scenarios have capacity to serve not only the wholesale customer, but Bell's retail customers as well.

7560 Therefore, it is at least equally plausible, if not more so, that at the given time of 1:00 a.m. the traffic over the link in the lower half of Figure 4 is below the peak capacity. This would mean that the additional traffic generated by the ISP having the midnight madness sale --

7561 THE CHAIRPERSON: Can you just stop? Can we look at -- I want to see that figure so I understand what you are saying.

7562 You are referring to Bell's --

7563 MR. STROPLE: Figure 4.

7564 THE CHAIRPERSON: -- Figure 4? Okay.

7565 MR. STROPLE: Page 4 of 5.

7566 THE CHAIRPERSON: Yes. Sorry, go over this again so we understand. Can you start this paragraph 13 again so I understand?

7567 MR. STROPLE: Sure. However, the depiction and explanation are too simplistic. It only talks about a single competitor's service and that competitor's peak at different times over the links.

7568 It ignores the fact that the links in both scenarios have capacity to serve not only that wholesale customer, but Bell's retail customers as well.

7569 Therefore, it is at least equally plausible, if not more so, that given the 1:00 a.m. time the total traffic over the link in the lower half of Figure 4 is below the peak capacity.

7570 This would mean that the addition traffic generated by the ISP having the midnight madness sale would not exceed the link capacity, would not generate the additional costs and would not cause Bell to have to go and augment the link.

7571 THE CHAIRPERSON: Okay.

7572 MR. STROPLE: Seen in this light, Bell's Figure 4 actually shows that a volume-based approach does not necessarily address Bell's problem. Bell's proposed legacy and FTTN tariffs are not rationally connected to peak period provisioning, which is what is reflective of the true costs of investments.

7573 The tariffs do not provide to competitors the ability to manage their traffic and it proposes charges for the same network element more than once.

7574 Finally, the level of charges precludes and economic case for choice in the interest of competition.

7575 CNOC's proposal is vague and difficult to understand. However, it seems to be a float model without any minimum commitment.

7576 While CNOC refers to carriers, including MTS Allstream, offering 95th percentile billing on point to point transit arrangements, such network services are vastly different from transport over a shared aggregation network, which is the network component in the FTTN tariff at issue in this proceeding.

7577 As we pointed out earlier, such a proposal would require us to modify our billing and operating systems, as we do not currently measure individual customers' traffic.

7578 MS GRIFFIN-MUIR: A legitimate goal of the incumbent in establishing a wholesale tariff is to ensure that all services transported over its shared network recover the costs of provisioning to the projected peak in the network.

7579 From the perspective of the competitor having paid for the capacity, they should be afforded control and flexibility to manage that capacity.

7580 Key to achieving these goals, is transparency of the tariff. And when we speak of transparency we mean reflecting provisioning costs in tariff elements that correspond to the way the network is provisioned (i.e. the fixed access costs and the access charge and the usage-sensitive transport costs in the transport charge); basing the wholesale rate on the way that incumbents provision network components, (i.e. establishing the wholesale charge for capacity on the basis of peak capacity expressed in bits per second); and charge once and only once for any underlying cost element, and be perfectly clear about which element is being recovered from which charge.

7581 At the end of the day the most efficient way to structure wholesale tariffs is to make them reflective of the way that the incumbent carrier, be it an incumbent telco or cableco, provision its network.

7582 Therefore, symmetry in this context means that the wholesale tariff should maximize efficiencies for incumbents, telco or cableco architecture, which in turn will result in the most cost-effective tariff for competitors using each of these architectures even though the structure of the tariff itself may not be identical.

7583 MTS tariffs transparently reflect the underlying architecture of an ILEC network and strikes an appropriate balance between the twin objectives of ensuring that the ILEC recovers all its costs of provisioning the network, as it does for itself, and giving competitors a price and structure that enables them to provide choice in the downstream retail market.

7584 THE CHAIRPERSON: You were undoubtedly here yesterday, you were listening to this long discussion we had, which is called urban planning, so Main Street, Elm Street, Maple Street, et cetera. And the whole idea that if you measure only at the AHSSPI you do not take into account Elm and Maple.

7585 Now you say in paragraph 4:

"For MTS Allstream there is a single AHSSPI charge set on the basis of the overall forward-looking cost of provisioning the shared network, including augmentation of all nodes and links over the 10-year period."

7586 So basically, when you cost out you are costing not only Main Street but also the effect of Elm Street and Maple Street, if I understand that correctly?

7587 MS GRIFFIN-MUIR: That is correct.

7588 Actually, when all the incumbents do the Phase II costing we start, as we said last week, with the aggregate cost of the whole service, which would include the Main and Elm, and then we in this case take all the usage-sensitive. And where we measure capacity, we place the cost there. So we would capture the cost of Main and Elm, et cetera.

7589 THE CHAIRPERSON: So you make certain supposition that if there is so much more access on Main Street, that means so much on Maple, and you build that all in?

7590 MS GRIFFIN-MUIR: Right, and it would take into account, Mike can explain further, that where we think the demand will be and where we think we would have to provision the nodes.

7591 THE CHAIRPERSON: Taking into account historical traffic assumptions, et cetera?

7592 MS GRIFFIN-MUIR: Right, and forecasting. I mean, Phase II looks forward actually, we are projecting forward.

7593 THE CHAIRPERSON: Yes.

7594 MS GRIFFIN-MUIR: So based on historical and expected growth, this would be our expectation of the cost of augmentation of the network.

7595 THE CHAIRPERSON: Now, you have obviously a smaller network and you are regionally located in one province where Bell is in two, et cetera. Is there a significant sort of methodological or inherent difference why Bell couldn't do what you are doing?

7596 MS GRIFFIN-MUIR: Well, I think from a costing perspective if Bell is saying, and I mean the Commission has the costs, but when we look at even Bell's interrogatory responses and their undertakings of yesterday, they are saying they use Phase II costing to derive the cost of their FTTN. Where we are not sure because --

7597 THE CHAIRPERSON: But I heard Mr. Bibic say yesterday, if we adopted an MTS model, this really would mean they would have to change their costing methodology because it would change -- at least I understood it -- it would change traffic patterns and, you know, it is based on -- and it just wouldn't work on using the existing costing methodology.

7598 MS GRIFFIN-MUIR: Well, no. We would disagree with that. I mean, that is what I understood him to say as well. But it is not clear to me how the cost would actually change. Because when Bell does their Phase II costing, and they have said this on the record, they do look at all the costs associated, including augmenting Main and Elm, et cetera.

7599 I guess what he is alleging is somehow this will change whether he has to augment the nodes in one area or another based on traffic usage. Somehow he is predicting that there would be more usage under one method than another.

7600 It doesn't seem obvious to me. In fact, I would think maybe there wouldn't be. But you would think overall -- I mean, the cost does not change.

7601 THE CHAIRPERSON: Mr. Bibic, maybe you will want to comment on this because it seems to me MTS's model is -- the only difference I see is that they have fewer ISP customers than you. You have the bulk of them, et cetera.

7602 But other than that, what Ms Griffin-Muir just said why couldn't you do the same thing as MTS or, alternatively, why couldn't the Commission adopt the MTS model and say, Bell use it and do exactly the same thing MTS does?

7603 MR. DANIELS: Jonathan Daniels, for Bell.

7604 In the last statement that Ms Griffin-Muir, that there would be no more usage for one model than the other, it comes back to exactly that is the point.

7605 So under the way we cost right now, we base it on how the network is used today, what it costs to augment the network based on the average overall peak usage assumption for the network today, wholesale/retail altogether.

7606 And yes, we do believe there will be more usage under the MTS model, significantly more usage which can't be put into our cost model until you start making assumptions as to what is actually going to happen, how much more is it going to be? We don't have any records. It is a bunch of guesswork that goes with it. That is our point.

7607 THE CHAIRPERSON: You are telling me that Bell is generically different from MTS and I am trying to figure out why. The only difference that I see is you are larger and you have more ISP customers than they. But other than that, I do not see any generic difference between you as an ILEC and MTS as an ILEC. If I am wrong, please tell me. This is why we are having this hearing.

7608 MR. DANIELS: I think that, when we say we are generically different, in terms of actually -- MTS is making some assumptions in how they go about doing it, I don't know how they do it, I don't know what assumptions come up.

7609 But fundamentally, the fact that they don't have any ISPs or virtually any ISP traffic on their network means that it is an artificial exercise. Where, for us, it is real. It has a real impact on our network. That is the difference if you ask me.

7610 So, yes, we have way more points of interconnection, we have a more robust service and so on and so forth. I totally agree to that.

7611 But fundamentally, when we are talking about costing here for MTS, they don't have any customers so this is an artificial exercise. If they get it right, if they get it wrong, it doesn't matter. They don't have anyone on their network. We have people on our network, 30 per cent of our network is driven by wholesale usage.

7612 THE CHAIRPERSON: Because they have such a small wholesale market they can afford to be wrong, you can't. That is what you are saying?

7613 MR. DANIELS: Yes. First of all, geographically only three cities. But more importantly, amount of users.

7614 THE CHAIRPERSON: For the record, how much -- those two figures that Bell quoted at the beginning, it is 17 and 30, what is the equivalent for MTS?

7615 MS GRIFFIN-MUIR: Twenty-nine, 17 per cent and 29 per cent of the usage.

7616 THE CHAIRPERSON: That sounds to me pretty similar.

7617 MS GRIFFIN-MUIR: Sorry? I thought you were asking Bell, how much Bell had.

7618 THE CHAIRPERSON: No, I asked what the MTS figures are.

7619 MS GRIFFIN-MUIR: Oh, sorry.

--- Laughter

7620 THE CHAIRPERSON: The equivalent MTS figures.

7621 MS GRIFFIN-MUIR: Actually, not sure.

7622 So it is about 1 per cent and 2 per cent of the volume.

7623 However, I will say in terms of costing, Phase II is always forward-looking. I have to assume, and actually Bell has put on the record of this proceeding, they use Phase II to determine the overall cost. Yesterday we were told by Bell that their 17.8 cents AVP is based on cost methodology. I leave that to the Commission to determine. It seems rather high to us.

7624 All Bell is saying is because we have a higher volume of ISPs we have a higher risk. We are not actually disputing that. Those are their underlying assumptions.

7625 All we are saying is we put all our usage that covers all those costs that Bell talks about in one charge at the AHSSPI. We are not talking just looking at traffic measurement at the AHSSPI.

7626 THE CHAIRPERSON: Bell, if I understand it correctly, basically you are not willing to make the assumption that the ISP traffic will behave like the Bell traffic and, therefore, that the same assumption apply for both in terms of costing?

7627 That must be the key difference that you say we have 30 per cent of the wholesale market here and we don't know how that wholesale market will -- what traffic pattern it will generate and how they will be different from ours and that is why we can't adopt it, can't cost it in or why?

7628 MR. BIBIC: This is the point of yesterday, Mr. Chairman. If we change our costing assumptions to reflect what we really do think is going to happen under MTS model, Primus model, 95th percentile model, you will see the wholesale rates get to a level that is going to make the Commission uncomfortable. It will either be higher than retail or shave those margins. That is the essential point that we are making.

7629 Of course, MTS is costing-based on -- and Ms Muir's words were on historical and expected growth. We are costing, as Mr. Daniels said, based on historical as well and with projections, but if we change those projections to accommodate what would happen, then there is going to be a costing dilemma.

7630 That was the whole point of -- one of the points of yesterday.

7631 THE CHAIRPERSON: In preparation for this hearing and knowing that the MTS model is one of the models that is being advocated -- certainly by MTS, et cetera -- have you not made some calculations, some testing on what an adoption of the MTS model would mean for Bell?

7632 MR. DANIELS: In terms of -- we can cost using our existing model, but if we start getting into let's take a guess as to how the cost will grow and what the assumptions will be, we don't have a basis, we don't have a basis for doing that. We didn't know how to do that because we figured any sort of assumption we make could just be challenged as oh, that's not valid there, that's not valid there.

7633 We use our actual -- when we cost today and put it in our Phase II model, it's based on not expected, it's based on the actual cost experienced in our market, of what we experience today in terms of the usage, what one usage causes.

7634 THE CHAIRPERSON: But Phase II costing is forward-looking. You can't tell me you're just going on historical experience. You must make an assumption for the future.

7635 MR. DANIELS: Yes. What Phase II costing does and how we do it is we look at one increment, using the latest cost to do everything but in terms of what the actual pattern, you know, at the peak, what does it cost to actually replace, how many -- how is our network structured, how much is the average at the peak, how is that cost a unit, how big that network is, everything like that is based on what it is in fact today.

7636 And we take that and we work it out to the increment, what would it be to add an extra router or so on and so forth, assuming that based on this extra usage that we see today.

7637 The notion is that when you actually work it all out, you work out what that extra incremental unit is, as the volume happens, it will just -- it will take care of itself because the patterns will stay the same.

7638 THE CHAIRPERSON: You are telling me, in preparation for this hearing you have not made a scenario of what would happen if we are stuck with the MTS model?

7639 MR. DANIELS: We have not. I don't have -- we haven't run that scenario because we honestly --

7640 THE CHAIRPERSON: Can you do that?

7641 MR. DANIELS: We will see what we can do.

7642 MS GRIFFIN-MUIR: Can I just clarify something?

7643 THE CHAIRPERSON: Yes.

7644 MS GRIFFIN-MUIR: In our model, as an ISP increases its usage, which would be the case for Bell as well, they would actually have to purchase more capacity, because they do purchase capacity at the AHSSPI. I mean that's actually --

7645 So if in fact the ISP, as Bell is predicting, using this peak-capacity approach as opposed to volume-based, starts generating more peak-capacity traffic on the network or not peak, they still have to buy more AHSSPI speed.

7646 So I am just having a little trouble reconciling what Mr. Daniels is saying.

7647 And also, Bell's network is architected the same as ours more or less, so they do have a port where the ISP has to select a speed at the AHSSPI anyway. That's part of the tariff.

7648 So the ISP can't exceed that capacity once it gets to that point in the network, and if it does, their customers' traffic will have latency jitter, it will be degraded.

7649 So I am having just a bit of trouble reconciling those things.

7650 THE CHAIRPERSON: Do you want to reconcile, Mr. Daniels?

7651 MR. DANIELS: First of all, we will undertake to make an assumption and to do it, as per your request.

7652 But in terms of the statement that Ms Muir just made, she said, as the ISP will grow more, it will order a bigger AHSSPI, so therefore you will be covered off on usage.

7653 Our whole point is that's not -- it's all about using more of that AHSSPI without growing the speed. That's our whole point, is that the expectation is that the ISP will send more traffic to us without ordering a bigger AHSSPI because that's the whole notion of moving its usage to midnight madness because it's paying for the usage.

--- Undertaking

7654 MR. STROPLE: Maybe just to talk for one minute about the costing of that AHSSPI, and let's, for instance, talk about a gig and maybe go back to the street analogy.

7655 If we talk about a gig AHSSPI, then we provision that gig on Main Street and we provision proportional -- or rather, we cost out what it would cost to provision a gig on Main Street and we cost out what it would cost to provision a proportionality on Maple and Elm and all the subtending streets.

7656 We don't actually build that right away. We wait and we see where that capacity shows up, and as that capacity shows up, then we provision to match that capacity.

7657 The model is imperfect but it attempts to match -- we have the cost over here and as we build it, it should in the long term match the cost.

7658 It assumes some semi-stable distribution, as is kind of shown in the top part of Bell's Figure 4.

7659 To the extent that the actual usage gets skewed, like in the bottom part of Figure 4, that is problematic if you consider the first part, but it probably, if it happens from time to time, does not likely trigger an expansion on the link going to area A.

7660 It would be problematic if it periodically rotated around and, you know, that 400 went from A to B to C to D, because then you would end up having to augment all of those links over time.

7661 So there is a scenario where that would be problematic, but the larger this is and over larger numbers of users, it tends to work out statistically.

7662 THE CHAIRPERSON: Okay, thank you.

7663 There's a flag up there. Okay, Mr. Bibic and Mr. Condon.

7664 MR. BIBIC: So, Mr. Chairman, the bottom half of our Figure 4 from yesterday where the link gets red and kind of exceeds the capacity, we do -- and Commissioner Molnar asked us for information on this and we undertook to file it and we will -- we do have to relieve congestion on links at all times of the day, not just during that period of the day in our network, call it 6:00 p.m. to 11:00 p.m. or 5:00 p.m. to 10:00 p.m., kind of that period of time when the Internet is most heavily used, we do have to augment capacity on links at all times of the day and we will show that. So this scenario does occur.

7665 Mr. Cohen also indicated on our rebuttal argument that it could very well be that our links get congested at times other than the peak period that an ISP is experiencing and his users may be the cause of that, and that is not reflected in the rate today.

7666 It's the same points as yesterday. I think I just heard MTS say yes, that could happen. I'm saying it does.

7667 MR. STROPLE: Maybe just a little more.

7668 Yes, it could happen. I guess one thing to point out is the link shown in red there at 400 megabits. If you look at the top it shows it at 250 in use and 400 later. I would suggest to you that that link is in fact much larger than 400 megabits because, remember, that link is carrying not only the competitor traffic but also the residential traffic.

7669 So it would be true that link would need to be augmented if in fact the competitor traffic and the other traffic were peaking at the same time, which is a possibility, but it's also entirely possible that that link, the overall capacity of that link would not be exceeded despite the fact that the competitor's traffic went from 250 at 8:00 p.m. to 400 at 1:00 a.m.

7670 THE CHAIRPERSON: But this is a problem that you face whether you have a wholesale business or not?

7671 MR. STROPLE: Correct. Absolutely correct.

7672 THE CHAIRPERSON: Surely it's inherent in the network and the statistical probability of use?

7673 MR. STROPLE: Correct. We don't provision a completely non-blocking network. We use statistical multiplexing to figure out how to get a network that is effectively non-blocking.

7674 MR. BIBIC: Mr. Chairman, I agree with that and our chart shows that scenario as well. If you look at the bottom, if you look at the last link, the one that is labelled 100 megabits per second --

7675 THE CHAIRPERSON: Yes.

7676 MR. BIBIC: -- we still have usage now at 1:00 a.m. because of midnight madness or whatever and that is below -- on the top half of the page, if you look at that same link, it's 200. So there is still usage there that otherwise may not have occurred because of midnight madness and it is well within the capacity of that link.

7677 So we show both scenarios, one where midnight madness causes usage that doesn't cause a problem and one where it does. We are showing both and this was meant to be indicative. That's all. I mean we are showing both scenarios.

7678 THE CHAIRPERSON: The gentleman in the back.

7679 MR. BHULLAR: Good morning, Mr. Chairman.

7680 I think we are missing -- like I am hearing Allstream -- MTS Allstream said 1 percent of the customers are, you know, generating about 2 percent. Bell says 17 percent generating about 39 percent. To me it's like a 2:1 ratio.

7681 So the question is: Is the ISP customer profile different because there are more high-speed users that are actually migrating to competitor ISPs versus what Bell has in its own portfolio?

7682 Like, you know, so many are slow speed, mixed speed and high speed. So generally, the 17 percent ISP customers are actually higher speed versus the average profile that Bell has.

7683 So they are required to -- they are expected to generate more traffic and they are actually paying a rate which is different on average if it was to be taken as retail, different than what a Bell average rate will be across all customers.

7684 THE CHAIRPERSON: Okay, thank you.

7685 CNOC?

7686 MR. TACIT: Thank you, Mr. Chair.

7687 With regards to these figures of 17, 29, in 1 and 2, it would actually be interesting to see what those figures would be if they were capacity- and not volume-based because they might show some very different pictures.

7688 The other thing is I cannot believe that incumbents are not capable of doing network forecasting or forecasting for Phase II, which is what they have done, you know, since the early -- or late 1970s, I should say.

7689 It seems to me that what might actually happen if accurate forecasting were used or more realistic forecasting, because of course forecasts are always a little bit inaccurate, but if more accurate forecasting was used, it might actually show that as you use an incumbent's network more efficiently, the price per megabit per second will drop, and that is perhaps part of the resistance that the Commission is meeting here in terms of getting more accurate forecasts.

7690 I agree, I don't think we need to do anything to Phase II. It's already based on capacity-peak costing. But the parties, the incumbents should be required to provide forecasts that actually reflect what consumer demand is going to be going forward, and it shouldn't be that hard to do.

7691 There are, as we said yesterday, other international examples in the U.K. and Belgium of exactly this.

7692 And the other reference point that the Commission has is the tariffed Ethernet services.

7693 Even using the rates that were approved in 2007, which by now, I would think, should be lower, frankly, in terms of cost efficiencies, there is that reference point as well.

7694 So I cannot believe that there isn't a way to solve this problem.

7695 THE CHAIRPERSON: Michel, I believe you have some questions.

7696 COMMISSIONER MORIN: No, Mr. Chair.

7697 THE CHAIRPERSON: Okay.

7698 Len?

7699 COMMISSIONER KATZ: Just one or two.

7700 Can someone at Allstream explain Attachment 2 to us this morning? I think it attempts to convert usage into speed.

7701 MS GRIFFIN-MUIR: That's right. It's just basically going back to -- it's an update of what we did last week, essentially expressing -- what we were saying is, to the conversation we just had, that we cost out to take into account overall provisioning to the peak, so all the costs associated with that.

7702 I guess what we were suggesting last week was that when you express it in a per gigabyte, the AHSSPI should be relatively the same. So we were -- we just expressed it again on the basis of Bell's updated AVP charge that they filed yesterday.

7703 So we're just comparing the Bell tariff, so all the components of the Bell tariff with all the components of the MTS Allstream tariff, and then expressing those in terms of what the actual dollar amounts are at the AHSSPI, plus in Bell's case the AVP per gigabyte, and then converting these proposed tariff rates into 100 percent volume base per gigabyte charge in the lower half of the chart.

7704 So I guess the main question or point we have for Bell is their AHSSPI charge actually -- which goes with both tariffs, their AVP tariff and their legacy tariff -- seems to include usage charges as well as their AVP charge, so making their overall per gigabyte charge quite expensive.

7705 In the case of 100 megabits, granted, under the same assumptions that Commissioner Morin used, it's $24.55 -- cents, yes, I always want to say dollars, sorry about that -- 24.55 cents, and at 1000-megabit interface it would be 19.5 cents.

7706 So that's essentially what we were doing here.

7707 COMMISSIONER KATZ: And you are saying that your rates would be 6.8 cents or 5 cents at a 1000-megabit speed?

7708 MS GRIFFIN-MUIR: That's correct. Under those same assumptions, yes.

7709 All we are pointing out is our usage is all in the AHSSPI, and they kind of have a dual usage charge, if you will.

7710 COMMISSIONER KATZ: Is part of that because they are double-counting?

7711 MS GRIFFIN-MUIR: That would be our assertion, yes, that if they were going to count 100 percent volume-based rates in their AVP charge, then the AHSSPI should really just be a pure port charge.

7712 COMMISSIONER KATZ: Okay.

7713 Bell, can you comment on why there is a discrepancy and whether the suggestion that there might be counting twice for the same usage is in fact the case or not?

7714 MR. DANIELS: Mr. Chair -- Vice-Chairman, I should say, the reference here that I heard from MTS was that all the components of the Bell tariff and all the components of the MTS tariff are being compared here. I assert that's not the case.

7715 If you actually look in terms of the extra things that Bell includes in its tariff, such as network conditioning and the pot splitter, we did this exact analysis if you look at what we filed in our undertaking yesterday.

7716 And if you look and do a comparison you will see that what we filed in response to the Bell undertaking yesterday, number 6 I believe it is --

7717 MR. BIBIC: Seven.

7718 MR. DANIELS: -- sorry, 7, there was a confidential version and a public version. The only difference is that the confidential version has -- we put in our cost for the network conditioning as well as the pot splitter on top of the MTS costs, and when you do that, you actually see a comparable service and a comparable price that are -- we actually end up using -- these assumptions end up in our comparable rates.

7719 MS GRIFFIN-MUIR: Well, not being able to see the confidential version, I can't really comment. I'm not sure whether the AVP charge is included in our tariff too, but I will say we have taken into account the cost of line conditioning and pot splitters in our tariff. So I'm just a little confused why Bell feels compelled to add that back.

7720 But I can't -- they did file even our rates in confidence.

7721 MR. DANIELS: In your documents, as I understand it, you suggested that pot splitters are not installed and that when you order a line it is what it is and there's no network conditioning associated with it. So that's in your response earlier.

7722 COMMISSIONER KATZ: Mr. Daniels, I think it was yesterday, you had said that one of the issues with regard to the MTS model is it destroys the notion of differentiating price based on speed. Is that still your position?

7723 MR. BIBIC: Yes.

7724 COMMISSIONER KATZ: Can you explain why you think it would be destroyed?

7725 MR. BIBIC: Well, if you look at legacy -- I'll answer it this way. If you look at legacy speeds and you look at the MTS legacy rates, it seems to us that small ISPs couldn't possibly compete with the wholesale prices MTS has in its incumbent territory for GAS, and I think that therefore it's no surprise that they only have 1 percent of network users being wholesale end users or 1 percent of customers and 2 percent end users, whatever those numbers were -- 1 percent users, 2 percent traffic. So that's one thing.

7726 Now, if you look at low-speed FTTN, so FTTN at the lower speeds, the small ISP has to pay for a 32-megabit-per-second service. So if you are going to have to pay for that, there is no ability, I think, for a small ISP to cost-effectively offer lower speed tiers. That's one point.

7727 I'm going to get to your specific question on the elimination of the tiers altogether in a second.

7728 And then if you look at the high-speed FTTN, so our 25-meg or MTS' 32-meg service, we actually have equivalent prices if you look at Undertaking number 7, Appendix 1 to Undertaking 7 that we filed yesterday, and that's based on our current prices, not based on prices that we would have to adjust at wholesale if we assumed full utilization of that pipe.

7729 Now, in terms of obliterating kind of the speed tiers, I think it's pretty evident to me that if you are an ISP and you get access to a 32-meg service, regardless of what that incumbent who is giving you access has in the retail marketplace in terms of speed tiers, that, you know, the ISP will now do whatever it wishes up to 32 megabits per second, creating far larger arbitrage in the retail market.

7730 I think you understood the point that we were making yesterday and we think it would be a perverse outcome, like I said yesterday, that we can't offer a speed at retail unless we make it available at wholesale, but now suddenly the wholesale ISP can offer a speed that we don't offer and create more arbitrage than is currently the case.

7731 COMMISSIONER KATZ: But the reality is if they offer more high-speed services, they are going to need to buy more facilities because they are going to be using up their pipe that much faster.

7732 So there is a cost associated with providing -- or becoming an arbitrager, as you call it, and trying to destroy the marketplace that already is in place today, if I can call it that, that's based on speed. If every single customer there has the faster speed, they would run out of capacity pretty quickly.

7733 MR. DANIELS: Vice-Chairman, the key point about when we are talking about this aspect, it has everything to do with the fact that they only have -- on an access basis, they pay one rate, which is the 32 megs.

7734 So to the extent that we have on our FTTN in the retail market, 7, 10, 16, 25, their proposal is that there is one rate, which is just you pay for the 32 in their proposal. So if it would be applied to ours, you would pay for the 25, have that one rate and the ISP would be able to choose any speed it wants, offering different prices and somehow being able to compete with us at the lower end, and if it can compete with us at the lower end, what will it do to us at the higher end.

7735 So that's the impact we are talking about. It's not focused on the AHSSPI purchased, it's focused on the fact that part of the MTS model, not what Primus is talking about, but part of the MTS model is that there would only be one speed for FTTN.

7736 COMMISSIONER KATZ: One of the reasons we are here is because there has been a finding that competition isn't sufficient in this country and so we want to find a way of creating more competition.

7737 The fact that we all have hopefully come together and agreed on cost-based rates and making sure there is no disincentive to investment to the incumbents, whether it's cablecos or telcos, is one of the paramount principles that we are all prepared, I think, to buy into.

7738 The issue only is how do you allow for more competition, which will not be as what you are looking for, which is a "me too" competition.

7739 You are saying that the folks that are coming into this market should be selling the same services that you are selling at the same speeds that you are selling, which is just a "me too" service. It doesn't change the dynamics that we are facing in this country, that we are all looking to get out of.

7740 MR. BIBIC: Mr. Vice-Chairman, with all due respect, that was last year's hearing. The Commission did find last year that there needed to be wholesale access to FTTN networks in order to continue to foster competition -- with that I agree with you -- but the Commission said that the way it would be done is through speed matching.

7741 This hearing is not to inquire about changing the speed matching decision and if the Commission does that, that is out of scope and we all know where we are going to end up.

7742 THE CHAIRPERSON: Whoa, whoa.

7743 MR. BIBIC: Well, we will. We will have to end up in court because --

7744 THE CHAIRPERSON: Whoa, whoa, whoa, whoa. Who said anything about redoing the speed matching decision?

7745 MR. BIBIC: Vice Chairman Katz just suggested that we are here to examine how we will foster more competition and without "me too" services. "Me too" services in that context of his question meant speed matching.

7746 THE CHAIRPERSON: You are reading that into his question.

7747 COMMISSIONER KATZ: Yes. You are reading a lot into that, but the reality is if you are telling me that every single time an independent ISP is going to come up with a new product that is different than yours you are going to object when you have the capability of offering the same service, if you so chose, with or without their introduction of that service, then there is a problem.

7748 MR. BIBIC: No, I'm not suggesting that. I'm saying we have a speed matching decision and those are the rules. Within the context of speed matching, if ISPs want to offer unlimited services, different caps than us, different prices than ours, different services, whether it's security, surveillance and all the things that are listed in CNOC's presentation from February, I have no issues with that; none.

7749 The only point I'm making here is that the rule is that incumbents have to offer the same speed tiers to small ISPs. We are fine with that. But to design a pricing model for access and volume-based billing that allows small ISPs to now have access to different speeds than we offer I think is going beyond the scope of this hearing.

7750 That is the only point I'm making.

7751 COMMISSIONER KATZ: You could offer those speeds as well. If they wanted to offer, I don't know, a 31 megabit speed and yours is a 32, if you want to offer a 31 you could offer it as well.

7752 MR. BIBIC: The rule is, if we offer a speed tier at retail we must make it available at wholesale. Completely in alignment with you to that extent.

7753 COMMISSIONER KATZ: But you are saying beyond that, if the MTS model was one that was selected, they could not design a product that would be at a different speed level to yours?

7754 MR. BIBIC: That was the discussion we had last year in the context of ADSL-CO, which was a discussion then -- a different point in the network, but the discussion then in ADSL-CO was MTS Allstream in particular wanted access to that fibre that we have at the central office for one access rate, then able to offer any service they want, all the way up to 100 megabits per second, completely therefore obliterating the speed matching notion and the incentives to invest.

7755 I mean we had this debate last year.

7756 THE CHAIRPERSON: You are losing me here.

7757 We had that debate and we made the decision that whatever speed you sell you have to offer it to the ISPs.

7758 How is the MTS proposal violating this? I don't get it.

7759 MR. BIBIC: Okay. So let me go back at it another way, maybe going back to what Shaw said yesterday.

7760 The key thing about speed matching is that at wholesale it's a different access price depending on the tier. As the speeds go up the wholesale price goes up. It kind of minimizes the risk of a huge regulatory arbitrage, because we need to price at retail on the basis of speed tiers to get people slotted where they are most comfortable.

7761 If you provide one wholesale access price, call it $20, and now they can offer any speed whatsoever at that $20, you have created a huge arbitrage. Our retail price may be -- I'm making this up -- $100 for 100 megabit service, now you are going to give them that at $20 at wholesale.

7762 MS GRIFFIN-MUIR: I think what --

7763 THE CHAIRPERSON: But is MTS offering that? That's what I don't get

7764 MS GRIFFIN-MUIR: No. Actually I just want to clarify.

7765 I think all that Mr. Bibic objects to in our tariff is the fact that when we provision it we provision it up to our maximum speed, which was our interpretation, but also our choice. That's in our legacy care of, too.

7766 Essentially what we did is that at whatever time you ordered the service, whatever our maximum speed is, we give you a port that allows you to offer that. If you choose to choke that down as the ISP and offer a lower speed than our maximum, which in this case is 32 megabits per second, you can.

7767 I think that's all -- in the case of Bell the difference is you can't, the ISP customer has to buy a specific speed at the access.

7768 I'm not suggesting Bell change that, I'm just wondering why Bell is suggesting it's not in line with the matching speeds.

7769 THE CHAIRPERSON: Okay. That's my point, I don't understand how your proposal is outside the matching speed decision.

7770 MR. BIBIC: Okay.

7771 THE CHAIRPERSON: I mean you chose to do it that way, you could choose and sell it at different speeds if you wanted to.

7772 MR. BIBIC: Okay. We may be getting somewhere, Mr. Chairman.

7773 So MTS just said it's their choice to do it this way. After seven days of hearings I had understood that MTS was suggesting -- or others, or perhaps Commissioner Morin was suggesting -- that that model should be -- let's consider the merits of adopting that model in Bell territory.

7774 MS GRIFFIN-MUIR: Actually, what I was saying --

7775 MR. BIBIC: I took that as therefore we have to follow the same model.

7776 MS GRIFFIN-MUIR: No. What I was saying was there is no cost difference at different speeds. I think we are agreed on that.

7777 MR. BIBIC: No. No. No.

--- Laughter

7778 MS GRIFFIN-MUIR: I never suggested that you had to change your access. I'm just saying if there is a fixed cost associated with access, that should be reflected in the access rate. That's all we suggested.

7779 I'm not entirely sure how our proposal violates the matching speed decision, which is what you said.

7780 THE CHAIRPERSON: Okay, Mr. Bibic, back to you.

7781 MR. BIBIC: All I'm saying is this, any wholesale access rate that is imposed should follow speed matching in that what we have to provide at wholesale are services at the same speeds that we have at retail and with the access rate going up as speeds go up, based on justifiable cost for that.

7782 We spoke about this last Monday, in fact Commissioner Molnar specifically asked Mr. Daniels some questions on that.

7783 THE CHAIRPERSON: Yes.

7784 MR. BIBIC: Our access rates, as you know, go up with speeds. So any model that -- I'm putting aside the actual prices, et cetera, any model that moves away from that to me is a model that moves away from speed matching.

7785 THE CHAIRPERSON: But you just heard MTS saying that they choose to go with their maximum speed and offer it at the same access price whether you buy the maximum or cheaper one. I don't see how that violates the matching speed decision. Because that is their choice. It's their business choice to do it that way, but I don't see how it is in violation of the --

7786 MR. BIBIC: I have no application suggesting that they are violating the speed matching. what I'm saying is that that model should not be applied.

7787 THE CHAIRPERSON: To you. To you, okay.

7788 MR. BIBIC: It's not our choice.

7789 THE CHAIRPERSON: Okay. fine.

7790 MR. BIBIC: We want to --

7791 THE CHAIRPERSON: That's the part of the MTS model that you find unacceptable.

7792 MR. BIBIC: Correct.

7793 THE CHAIRPERSON: Okay.

7794 Let's do a variation on the MTS model for which they say that you cost out the augmentation of all nodes over a 10-year period -- that's the way they do it -- but you do it for the various speeds. Then presumably you can do that.

7795 MR. DANIELS: In terms of usage, our usage costs don't differ from one speed to another other than the difference between our FTTN and legacy. So we use the same -- so in terms of usage we don't change it from one speed to another, it's the exact same 17.8 cost-based rate for all -- you know, which is the amalgamation of the two, legacy and FTTN costs.

7796 THE CHAIRPERSON: Len, are you still --

7797 COMMISSIONER KATZ: Yes. No, just a couple of --

7798 THE CHAIRPERSON: CNOC. Let's hear from CNOC and then from cable.

7799 MR. TACIT: Yes. Thank you very much, Mr. Chair. Chris Tacit, for CNOC.

7800 So I just want to bring us back to the basic premise that this is a cost-based methodology and to the extent that there are no cost differences -- if this Commission can choose to restructure the service, the wholesale services and strip out the usage from the access and put it into a usage charge -- in fact that's why we are here, we are here to do that whether you do it Bell's way, which is volume, or whether you do it as we have proposed, which is 95th percentile, or whether you do it the MTSA way, which is to put it all in the AHSSPI, we are engaged in that exercise.

7801 Logically, therefore, it follows that if you were to strip out all of the usage out of the access to the extent that there are ranges of speeds for which there are no differences in the non-traffic sensitive costs that are left, there should be no difference in the price offered to the wholesale customer. It is just a logical extension of that.

7802 To say that this Commission is somehow bound by speed matching never to be able to restructure rates and follow the logical consequences of that, cannot be a reasonable outcome.

7803 So if Bell was to say to us: Well, you know, the 15 megabit service does have some additional non-traffic component that is different, that is additional to what we offer up to 15 megabits per second, I would say: Okay, if you can prove that to the Commission then when you go between 15 and 25 there should be a different wholesale rate than when you go from 7 to 15.

7804 But it's no more complicated than that really at the end of the day. If you follow cost-plus pricing and strip out usage and speed sensitivity out of the access rate, then it really becomes irrelevant and all that this interpretation that Bell is taking of the speed matching decision becomes is a straightjacket for competitors not to be able to offer speed differentiation and I can't imagine that's the result that consumers want or this Commission wants.

7805 THE CHAIRPERSON: Okay.

7806 Bell...? I'm sorry, Rogers or somebody from the cable companies.

7807 MR. BÉLAND: Yes. Dennis Béland for Quebecor Media.

7808 I would like to just make a comment, and I won't refer at all to the issues of scope or the pertinence of the previous speed matching decision, although Bell may very well have valid points in that regard.

7809 I would just like to point out the nature of the arbitrage opportunity that would be created if the Commission were to attempt to impose some sort of average access cost independent of speed, ignoring the true cost differences that are associated with the different speeds.

7810 As we made clear in our rebuttal presentation yesterday, and as I believe Shaw made clear and Bell has made clear, there are definite cost differences to our network in being able to offer different speeds and that is completely independent of the usage.

7811 So if we were in a world -- and let's just throw out some figures -- one speed cost $40 in terms of access and another speed cost $80 in terms of access and the Commission were to look at the cost studies and say let's go with an average, it's $60, and that's what we are going to order the underlying carrier to charge, what you have now created is an arbitrage opportunity where the wholesaler will then go and sell exclusively high-speed services for $60 --

7812 THE CHAIRPERSON: Sure. Sure.

7813 MR. BÉLAND: -- ignoring that the cost is $80, and you see the nature of the pure arbitrage opportunity that would be created.

7814 THE CHAIRPERSON: Okay. Let me just get back to Bell for one second so I understand it.

7815 Your objection to the MTS model was what you perceived as an imposed averaging -- using the term of Mr. Béland -- but the MTS model allowing you to charge different at different speeds provided they are cost-based, is that acceptable to you?

7816 MR. DANIELS: What's acceptable to us --

7817 THE CHAIRPERSON: Is it doable or can you live with it, whatever words you want to use?

7818 MR. DANIELS: What's acceptable to us is in terms of that if we offer a retail speed we will match it for wholesale. It's not acceptable for us that the ISP be able to offer different speeds than what we offer in the retail market, because we don't consider it speed matching.

7819 We are not suggesting MTS has to change in terms of their offer, but in terms of applying it to us. However, the rates that we filed, they are all cost-based.

7820 If we have a difference in access it's only because there is a difference in costs, like cable described, like Mr. Béland described.

7821 THE CHAIRPERSON: What am I missing here? I thought yesterday you made an impassioned plea that you have to charge the usage fees because you couldn't impute the augmentation that the various speeds would produce if you were selling it at wholesale.

7822 Is that now gone?

7823 MR. BIBIC: No, no. The debate in the last 10 minutes has been all -- you see, this hearing is to determine ultimately what the access price is --

7824 THE CHAIRPERSON: Yes.

7825 MR. BIBIC: -- and what usage model will be adopted.

7826 So all we have been debating now is the access pricing and the point we are making is that the wholesale service that we provide should match the retail speeds that we offer -- the wholesale access cost should move up with speed based on justifiable costs -- so that's the access issue.

7827 And on the usage issue, to us, the far more appropriate model is the revised volume proposal or the cable model, if you will, not the MTS model for usage, not --

7828 THE CHAIRPERSON: Why not? Why not?

7829 MR. BIBIC: Well, then, we are back to the issue of yesterday. The MTS model says: Here is the pipe, have at it and you pay regardless of what you use.

7830 I heard a number of ISPs yesterday saying they don't like that model and they prefer either the 95th percentile or even the Primus model, but they said the MTS model is you get this size of pipe, you pay us and there you go, have at it. That is just like 95th percentile --

7831 THE CHAIRPERSON: But you heard them say that when they do their access, I thought they were trying to say that they anticipate what usage it's going to be put to and so they build that into the price rather than charging it separately.

7832 My whole question is, if MTS can do it, why can't you?

--- Pause

7833 MR. BIBIC: So we shouldn't confuse the AHSSPI charges with the access charges.

7834 So MTS has an access charge, we have an access charge, I think what MTS is saying is that AHSSPI charge is a good proxy for usage charges. We are saying no. The reason we say no is the discussion from yesterday, adopting that model or the Primus one of 95th percentile will simply encourage -- and there's nothing wrong with that, people will want to use the pipe that they have bought to the maximum capacity since they are paying for it and that's going to cause congestion in the links and increased costs that aren't being reflected in the rates. That's the whole discussion we had yesterday.

7835 THE CHAIRPERSON: Okay.

7836 Over there. Sorry, the one behind you. Jean-François.

7837 MR. MEZEI: Jean-François Mezei.

7838 Just very quickly, I don't know why Bell raised this issue of the matching speed.

7839 Essentially, as long as an ISP has the flexibility to choose a speed profile in the DSLAM, any speed profile that Bell doesn't put restrictions on it, then the ISP can choose any speed that matches the Bell offering and therefore there is no need for Bell in that case to offer specific speeds, they can offer access at the DSLAM with no speed restrictions.

7840 I think that would meet the letter and the spirit of matching speeds. I don't think there needs to be any more discussion on this and I really don't understand why Bell brought this up.

7841 Thank you.

7842 THE CHAIRPERSON: Okay.

7843 Bell, Mr. Condon, and then CNOC.

7844 MR. CONDON: Carl Condon, Bell Canada.

7845 Mr. Chairman, the DSLAMs themselves are limited in the number of profiles we can put in them. We can't put an infinite number of profiles in them. That's one of the reasons we have speed tiers.

7846 THE CHAIRPERSON: Okay.

7847 I'm sorry, I always mispronounce your name. Mr. Bhullar.

7848 MR. BHULLAR: Mr. Chairman, I think this is probably one of the innovations that you can encourage in the eastern marketplace to have Bell provide cost-effectively, say, a 25 meg service to the ISPs and let them then decide. Because it's not reverse speed matching, I assume that is part of speed matching model, it is only that they are required to provide one way to the ISPs given speeds that they offer in the retail.

7849 It is not a restriction that the ISPs on the other side don't have a flexibility to restrict their customers to whatever speed and whatever in betweens they want to create, as long as it makes sense to them and then they buy the right amount of bandwidth at the end of the day.

7850 This will create a fantastic, like a super savvy kind of a company that can have a marketing edge.

7851 Thank you.

7852 THE CHAIRPERSON: CNOC, last word and then we will move on.

7853 MR. TACIT: Yes, sir.

7854 So I guess what I would like to say are two very small things. One is that an incumbent's arbitrage and network's destruction is a wholesaler's market forces and a consumers choice.

7855 The second thing is, when we talk about this flattening of the peak there are two aspects to it and we have only talked about one of them.

7856 We have talked about how the usage under that peak gets used, filled in so to speak, but what we haven't talked about is also the fact that the peak itself will be lower because that is the whole point of charging by peak capacity, it incents the wholesale customer to actually use a lower peak in order to pay less.

7857 Bill has one thing that he would like to add.

7858 MR. SANDIFORD: We just heard Mr. Condon say with regards to the DSLAMs that they are limited in profiles. We were wondering if we could ask Bell to somehow provide more information of that.

7859 We run several DSLAMs in our network as well, I know Mobility, Primus runs similar type DSLAMs and so do various others and we have no limits on profiles whatsoever, that comment catches me totally off guard that there are limits to the number of profiles in DSLAMs.

7860 THE CHAIRPERSON: Okay.

7861 MTS, any last words?

7862 MS GRIFFIN-MUIR: Well, there has been so much that has happened.

--- Laughter

7863 MS GRIFFIN-MUIR: The only comment I would make is -- in terms of the usage-based costs, the only comment I would make other than the quantum of the rate, I just think no matter how we actually come to our rate the Phase II costing methodology takes into account the entire capacity costs.

7864 I think all Bell is saying is maybe they would have different assumptions under different pricing scenarios and perhaps they are right, they will limit usage within AVP charge, especially a significant AVP charge, but also it is more cost-effective, because they don't allow the competitor to take advantage of any of the scale and scope that comes with the fact that the network investment is made and the per-unit cost as you increase your volume should come down actually.

7865 THE CHAIRPERSON: Okay. Thank you very much.

7866 Let's go on with the next intervenor, Madam Secretary.

7867 THE SECRETARY: Yes.

7868 The next intervenor is Mr. Moore.

7869 Mr. Moore, please come and take your place.

--- Pause

ORAL REBUTTAL

7870 MR. MOORE: Good morning, Mr. Commissioners.

7871 We have heard a lot of arguments for and against any type of volume-based pricing from both sides and over the course of last week we have heard a lot also of arguments against any volume-based pricing from Bell Canada. There were a few comments that were made that I would like to revise. For me, those comments by Bell Canada raised a few red flags.

7872 First, I want to begin by answering a question asked to my by Commissioner Michel Morin.

7873 I did research the prevalence of 95th billing on the global market, unfortunately I did not get any replies from wholesalers around the world in time because of the time constraint of my research.

7874 I was, however, able to contact a few Tier-1 network providers. Those are network providers which provide basically end points to many parts of the world, basically a network that connects the whole world together. They handle most of the Internet traffic around the world.

7875 I'm thinking of Tata Communications which I was able to contact; Level 3, TeliaSonera, Tinet and AT&T. Their sales representatives all said that if negotiated they are able to offer 95th percentile billing.

7876 What I don't understand is on a network of that scope if they are able to offer 95th percentile billing, why is Bell under -- I'm sorry, but compared to Tier 1 networks, their networks are really small. Why they are not able to offer 95th billing to third party ISPs, that's beyond me.

7877 On a smaller scope, if we look at private Internet providers, there is one in Montreal that I was able to also contact which is called Fibrenoire. They offer multiple types of billing systems, one of them being 95th percentile, the other one being metered billing or volume-based billing like Bell wants to offer.

7878 Most customers actually opt for metered billing which is pretty close to what the MTS model is. Basically, you pay for a link speed and you get that speed as long as you are paying it.

7879 When I asked how many customers are using the metered billing system or the volume-based billing, they told me that not a lot of them are using it and I quote their sales representative:

"It is too limiting for normal use. It is best employed when customers need timely exchange of small amount of data at low cost."

7880 During their presentation on July 11th Bell Canada repeatedly compared AVP to 95th percentile as an EITMP. Yeah, here is a quote from actually Mr. Little:

"95th percentile is inferior to AVP as an ITMP."

7881 Would just like to point out that 95th percentile is not an EITMP. It is a natural fair billing method.

7882 EITMPs are engineered to actually discourage use by adding artificial costs to the actual use which is why I believe that EITMPs should not be employed for wholesale services.

7883 I also want to refer to the new information that was brought by Bell Canada this week to their Schedule 5 in their response this week, the chart, if you want to open it or flip to it, their daily 95th percentile peak throughput versus daily usage.

7884 From my point of view, that chart only demonstrates that ISPs will be overcompensating Bell most of the time. So I really don't understand why Bell Canada is so against 95th billing when most of the time they will be overcompensated for what the ISPs are actually using. They will be paying for their part of the use on the network.

7885 Now, back to my document.

7886 We have heard also Mr. Little say that smaller ISPs would not be able to control unexpected temporary spikes in traffic demands which will cause their 95th percentile fees to increase greatly.

7887 The whole reason why 95th percentile actually removes that 5 percent on the top is for unexpected peaks. If it really becomes an issue or if the Commission really thinks that this is an issue, the Commission could allow negotiation from the third party providers to negotiate at a lower peak, for example 90th percentile instead of 95th per ISP. But, of course, choosing a lower percentile would mean higher fees per megabit per second.

7888 So that's something that could be left to Bell Canada and the independents to negotiate.

7889 Also, we heard Mr. Little and actually Bibic also this week mentioned that 95th percentile is not measuring all the various different points where congestion happens in the shared network. I would like to point out that neither does AVP or the revised volume pricing proposal put forward by Bell Canada.

7890 However, it does measure all bits and bytes that pass at the POI, independent of the incumbent -- between the independent and the incumbent. And it doesn't matter where along the delta congestion happens because, at the end of the day, it's -- unless Bell Canada's network has a high amount of packet lost, all bits and bytes are going to be counted at the end and they will be compensated.

7891 It's up to Bell Canada afterwards to basically get all the revenue they are going to get from that 95th percentile or whatever billing method they use and redistribute it on where nodes be provisioned or augmented. That's up to Bell Canada to actually calculate that and decide where they want to place their resources.

7892 Finally, I would like to point out to the Commission that Bell did admit last week that AVP model was designed to discourage usage and modify what is left. I quote:

"It's not just about driving down usage ... but then there ought to be monetization of that."

7893 And that for me as a consumer, that's a big problem because it basically means that every single time I'm going to use the Internet or any other time, depending on my work or depending on what I want to do, I'm going to get charged for something that really doesn't have necessarily a cost to Bell depending on the time of the day that I am using.

7894 So as a consumer I'm threatened by that. It's extremely transparent.

7895 The excess bytes -- I mean, for me, it's just a question that Bell is going to make more money and for that it's extremely transparent, the excess first.

7896 The excess bytes can be bought and be carried in the next month which is not really the case anymore since we are revised billing. And the rates are still not linked to costs. I don't believe that the 17.5 cent figure brought forward by Bell Canada is actually truthful. The independents are still left to gamble what the expected usage will be and unfortunately it's the house that will always win, Bell Canada.

7897 At the risk of repeating myself, I need again to remind you that the end-user does not consume bits and bytes. They consume network capacity. That's measured in bits per second. Any model that isn't based on capacity is, from my point of view, artificially inflating the costs of running a network.

7898 This really only has one effect, discourage the independents and end-users from using the network they are funding. I don't think that Canada can afford to do that if they want to stay competitive in today's global economy.

7899 95th percentile or even the MTS model allows independents to fairly -- pay fairly for the use of Bell's network without penalizing the Canadian consumer. That's an important point.

7900 In my opinion this is the model with or without commit. I personally prefer the version with the commit because it actually shares more the risk between Bell Canada and the independents that the Commission should adopt.

7901 Thank you.

7902 THE CHAIRPERSON: Thank you very much. It was a very clear and concise presentation.

7903 Tim, do you have any questions?

7904 COMMISSIONER DENTON: Yes, I do, just a very brief one.

7905 When you say that:

"...the end-user does not consume bits. They consume network capacity."

7906 Right?

7907 MR. MOORE: Yeah.

7908 COMMISSIONER DENTON: In a sense are you speaking metaphorically? Because it seems to me, yes, and you are saying the appropriate way to measure what they consume is not in bits and bytes.

7909 MR. MOORE: No, I'm really saying that they do not consume bits and bytes.

7910 Basically, it's like saying that drivers consume oxygen. It's just a by-product of what you are actually using.

7911 They are not consuming bits and bytes. They are really consuming capacity.

7912 COMMISSIONER DENTON: Got it. Thank you.

7913 MR. MOORE: You're welcome.

7914 THE CHAIRPERSON: Candice?

7915 COMMISSIONER MOLNAR: Your last sentence says that you prefer commits?

7916 MR. MOORE: Yes.

7917 COMMISSIONER MOLNAR: Could you just expand as to why you view that they are useful in this?

7918 MR. MOORE: Well, because it allows Bell Canada to actually -- basically able to expect what the usage will be in the month. It doesn't penalize the independents for committing to something that they are not using.

7919 However, it does give Bell Canada some advance warning, or even whatever incumbent it is some advance warning of what the actual usage is going to be during the month. And that's something that's important in the model.

7920 COMMISSIONER MOLNAR: So what about the models put forward by MTS and Primus which is it, you know, a real commit?

7921 MR. MOORE: Yes, well, the MTS model is also properly -- the only problem with the MTS model is that the incumbents -- sorry, the independents are going to end up based on a tier that are put forward by MTS. Most of them are going to end up paying more for what they are actually using.

7922 We have heard the arguments from the independents saying, "Well, if we buy a link for redundancy and we don't use that link at all, we are going to have to pay for it". That's a big problem with the MTS model versus 95th percentile with commit.

7923 It's not necessarily a problem. That's my issue with the MTS model.

7924 COMMISSIONER MOLNAR: Redundancy?

7925 MR. MOORE: Well, the redundancy part which is important when you build a network.

7926 COMMISSIONER MOLNAR: Right, okay. Thank you.

7927 MR. MOORE: You're welcome.

7928 THE CHAIRPERSON: You are quitting MTS and the Primus model.

7929 I thought it was a differentiation that just came out in my exchange with Mr. Bibic, that there is an averaging involved in MTS which is not in the Primus model.

7930 MR. MOORE: Unfortunately, I am not familiar with the Primus model. I haven't had the time to actually revise it. So I can't answer on that.

7931 THE CHAIRPERSON: They will be up shortly so we can listen to them.

7932 Thank you.

7933 MR. MOORE: You're welcome.

7934 THE CHAIRPERSON: Okay, with PIAC before we take a break.

7935 THE SECRETARY: With PIAC before we take a break?

7936 THE CHAIRPERSON: CNOC, do you have to -- you want to comment on something?

7937 MR. TACIT: Just very briefly, on the spikes above the 95th percentile which he raised, the reason that we are with Bell on 95th percentile despite those spikes is because of the statistical nature of the model, the carriers get overcompensated when you aggregate all of the traffic of different users on the network, wholesale users.

7938 And so it ends up being fair for everybody. I just wanted to make that clear.

7939 THE CHAIRPERSON: Okay, thank you.

7940 PIAC, can you --

7941 MR. MOORE: Yeah, I just want to add something actually on overcompensation.

7942 I think if you look at Schedule 5 of Bell Canada it's very clear that most of the time Bell Canada is going to be overcompensated for what the ISPs are actually using.

7943 THE CHAIRPERSON: Yeah, you made that point. I understand. I did take it in when you pointed it out on Schedule 5.

7944 Okay, thanks very much, Mr. Moore.

7945 PIAC, you want to come forward?

--- Pause

7946 THE SECRETARY: Just for the record we have Mr. John Lawford and Jean-François Léger on the panel for PIAC.

ORAL REBUTTAL

7947 MR. LAWFORD: Good morning or good afternoon, I guess.

7948 We are before the Commission in this proceeding as advocates for Canadian residential Internet service consumers. We are also here because of the comparatively poor performance of Canada's retail Internet services marketplace and delivering competitive prices and speeds to Canadian consumers.

7949 When the Commission late last year approved wholesale UBB rates which were widely received to pose a threat to competition, Canadians in unprecedented numbers turned to the Commission to complain. Realizing the scope of the public's opposition, the government requested the Commission to reconsider its decision and, hence, the current proceeding.

7950 The Commission now has gotten a second chance and the Commission, however, should not be mistaken. Canadians expect a more responsible wholesale Internet services marketplace and expect more competition.

7951 At the hearing last week some Members of the Panel expressed doubt when we questioned the performance of Canada's retail Internet services marketplace. Their perception appeared to be that Canada's marketplace is doing reasonably well in delivering high quality retail Internet services at competitive retail prices.

7952 Canadians and the Commission have much to be concerned about regarding the reality of market forces under the current regulatory regime to protect consumers' interests. As it sets wholesale policy, the Commission needs to be sensitive to the impact the existing effective duopoly has had on the performance of Canada's retail Internet services marketplace.

7953 The Wall Communications Price Comparisons Report, which we mentioned in our last appearance, only compares prices in Canada with five other jurisdictions and shows Canada to be no better than average and, in a number of respects, trailing the sample often along with the U.S. in areas such as pricing and speed.

7954 More importantly, however, in the OECD's very recent 2011 Communications Outlook, Canada placed 25th out of 33 countries, 26 of 33 and 23rd of 28 for prices in the three main service speed ranges that the OECD measured.

7955 For the lowest speed services category which is below 2.5 megabits per second, we placed 11th out of 24.

7956 Moreover, these figures, 2011 figures, showed little improvement over the 2009 figures. This must change.

7957 Canadian individuals and businesses buy from, compete with and supply other OECD member nations. Canada needs to do better than to be an "also ran" in the slowest speeds Internet services category and a laggard in all other speed categories if Canada is to compete successfully with these economies.

7958 Parties have already commented that Canadians display very high Internet service usage levels. While some may argue that this is a sign that the Canadian retail marketplace works well, Canadians' high usage is in fact a sign of the importance of this technology to Canadians.

7959 Those high usage figures underscore that Canadian consumers, residential and small business users, depend upon the Internet and its access for a wide range of purposes.

7960 During the hearing we saw examples of an increasing number of Canadians who earn a living from small business that need high performance Internet services in their day-to-day operations or that have or are developing services that call for access to fast and cost-effective Internet and connections.

7961 The Commission has already recognized that an independent ISP sector is necessary if the interests of consumers are going to be adequately protected. The question for the Commission is therefore how to achieve this.

7962 Decisive action by the Commission is needed to motivate incumbents, to deploy wholesale services that provide independent ISPs with the abilities to develop and sell retail services that offer these ISPs a reasonable opportunity to succeed in the marketplace.

7963 As retail services evolve, wholesale services should not only keep pace but promote further competition.

7964 The Commission took a much needed positive step by mandating matching speeds in 2010-632. In that Decision, however, it followed many months of process before the Commission and the proceedings such as that which led to TRP 2010-632 and this one are very costly and an inefficient way to engage in wholesale services development.

7965 On a number of occasions during this hearing whether during interventions by Mr. Engelhart, Mr. Messier or Mr. Shaw, the cableco representatives were very forthright in their admissions that the development and the deployment of wholesale Internet services has not been a high priority for the cablecos and their performance in the wholesale marketplace bears this out.

7966 The Commission must take a decisive regulatory action. When it decided there was not enough competition to protect the interests of retail wireless consumers, the government did not hesitate to set rules for the issuance of spectrum that has actively promoted the establishment of additional competition in the marketplace.

7967 The government did this over the strenuous objections of the incumbents. The Commission must now decide what it needs to do in relation to wholesale Internet services provided by the incumbents.

7968 The Commission should display a similar degree of initiative. When it selects billing arrangements for the wholesale Internet services, the Commission should focus first on ensuring that consumers enjoy the benefits of competition that includes a healthy independent ISP sector. It can do this by providing independent ISPs to the greatest extent possible flexibility in the design and marketing of services.

7969 The current marketplace in which independent ISPs hold the market share of residential retail Internet service that is significantly below 10 percent and in which the shares distributed amongst many hundreds of small service providers, is not conducive to the development of a strong competition to the incumbents.

7970 With respect to pricing:

7971 We submit that most parties appear to recognize that cost-based pricing would be more competitively equitable than attempts to establish market-based pricing.

7972 Pricing based on capacity supplied combined with a measurement of such capacity at a single point in a network such as the MTS Allstream model appears to offer the greatest promise of control by wholesale customers of their traffic and to promote flexibility in the design of the competitor's retail service offerings.

7973 In comparison, while we consider that the move of the Bell Companies to a cost-based rate is an improvement, the MTS model continues to appear to offer to consumers a greater likelihood of flexibility and innovation from independent ISPs. This, of course, provided that service under MTS Allstream's proposal is costed and rated in a manner that does not render independent ISPs uncompetitive.

7974 In particular, costs incurred by incumbents to deploy services other than wholesale Internet such as IPTV should not be recovered from the incumbents' wholesale Internet customers.

7975 In their presentations the ILECs described the varying degrees of distinctiveness in their respective networks between facilities used to deliver Internet service to end-customers and those used to deliver IPTV.

7976 Parties have disagreed over the notion of what is a shared network.

7977 To sum up, the Commission should set rates that reflect the most efficient network architecture for the delivery of competitors' services in question and should apply it for the setting of rates for those competitor services.

7978 These are our rebuttal comments and we welcome your questions.

7979 THE CHAIRPERSON: Thank you.

7980 You say we must take decisive regulatory action in order to cure the imbalance between telcos and cable companies in terms of wholesale.

7981 What exactly do you have in mind?

7982 MR. LAWFORD: Decisive regulatory action in this context means considering all options.

7983 For example, when you look at the MTS option, it seems to be the objection of Bell that they are going to have costs which are not reflected in the MTS model. But we are asking you to look through those objections and get down to the real problem at heart.

7984 If that can be done and that kind of vision is being applied to the problem then we think a lot of the pseudo issues are going to fall away.

7985 THE CHAIRPERSON: Yeah, but in terms of cable companies you don't have a specific regulatory action that you advocate?

7986 MR. LÉGER: We have had great difficulty with the cable companies and I think we addressed this last week, in the sense that their share of the marketplace -- the wholesale marketplace over the years has been very, very low so that the Commission to our great pleasure, I should say, has taken some decisive steps in the -- or took decisive steps in the TRP 2010-632 Decision with respect to the POIs.

7987 We have a sense that we are seeing some progress but we are also of the view that the Commission needs to keep close track of how the cable companies performed in a wholesale marketplace.

7988 So at the end of the day it's our sense that neither -- well, none of the incumbents really have any desire -- and I'm not putting this in a negative sense but their commercial interests are clearly inconsistent with the success of the ISPs and of the independent ISPs.

7989 The cable companies have been particularly successful at keeping those customers off their networks but our sense is that in the long term the Commission needs to be focused on keeping track of that and taking some ongoing action.

7990 THE CHAIRPERSON: Okay, thank you.

7991 Len, do you have any questions?

7992 COMMISSIONER KATZ: Just one and it's along the same lines.

7993 Our monitoring report which I'm sure you are familiar with, in the last year indicated the market share between -- for broadband services between the cable companies and the ILECs is spreading. If I remember the numbers correctly cable is in the 57-58 percent range and the ILECs are into the 38-39 and I guess independent ISPs are south of 10 percent.

7994 Everything that I keep hearing now, and I, to some extent, sympathize with some of the comments I have heard from Bell, that people want to buy more DSL service and don't seem to want to buy TPIA service. And you have identified the concern expressed here as you say by Mr. Engelhart and Mr. Messier and it may not be Mr. Shaw, maybe Mr. Brazeau, but anyways that they are not really interested in this marketplace.

7995 So let's say we are successful in creating a wholesale regime that works. The likelihood is what will happen is the ILEC market share, and I will use Bell as an example -- will go from the high 30s to the low 30s or somewhat south of that, while the cable industry stays where it is.

7996 Are you not concerned that maybe we are creating a situation that may border on dominance when the cable market share stays as high as it is and the phone companies' -- Bell Canada in this case -- market share drops down to a point where there is almost a two to one share or market share?

7997 Is that a concern to you from the perspective of consumers?

7998 MR. LAWFORD: I think that the concern is a little overstated. At the moment what we are looking to do, Commissioner Katz, is to increase the third option if you will.

7999 I don't see the Bell Canada Internet services as disappearing through this or the other ILECS, DSL-based ILECs. It's going to take quite some time.

8000 And that's not the goal. The goal is to increase, you know, conditions for the third party Internet ISPs to really be able to price and market their services.

8001 And I think you do see and you heard it from the CNOC members that they are going -- and from Distributel -- that they are going as much as they can into TPIA where it's possible and that recent changes -- and it's been quite recent -- that make TPIA more attractive, have made certain markets -- you know they like to use TPIA in certain places.

8002 So I don't think necessarily we are going to see that now.

8003 Sure, there is a risk. But, again, I'm coming back to my first point. The risk is smaller to destroying the DSL than it is to increasing more third parties.

8004 COMMISSIONER KATZ: And there is nothing you believe that this Commission needs to do in order to create a more competitive wholesale regime?

8005 MR. LÉGER: Yes, we have indicated that we are looking clearly for more competition.

8006 I think what you are asking is: Is there anything that the Commission can do to create a more competitive wholesale regime and particularly on the cable side?

8007 COMMISSIONER KATZ: There you go.

8008 MR. LÉGER: We are not network engineers so we are a little reluctant to propose specific technical solutions. But we have had a sense over the years that cable companies and the incumbent telephone companies, and some have pointed this out, are driven primarily by their retail, I guess, objectives.

8009 I know we had a bit of a chat the last time we appeared before you, Mr. Katz, with respect to the things that the Commission could do, create. We called them incentives. I guess they are more on the negative side of the word, but that the Commission could look at to encourage both the cable companies and the telephone companies to take this market a bit more seriously. And we reiterate that.

8010 We are -- I think we are advocates, to some extent, in providing some accountability on the Carriers' part to generate -- to promote this market. In our view there are clearly no market forces to stimulate either the telcos or the cablecos to promote this market segment.

8011 And so putting some accountability on their organizations, in particular their wholesale organizations if they exist, and if they don't they should exist, may help promote the development of that area of the carriers.

8012 THE CHAIRPERSON: Okay. If there are no other questions let's take a five-minute break.

8013 Okay, thank you.

--- Recessed at 1201

--- Resumed at 1219

8014 THE SECRETARY: Please take your seats. A l'ordre, s'il vous plait.

8015 Mr. Chairman --

8016 THE CHAIRPERSON: Before we start with CIPPIC, Bell, I wonder whether you could give me a clarification? I think there is confusion in my mind. You don't like the MTS model, I understand that.

8017 I didn't understand quite your objection to model of MTS. Was it the fact that they have one single AHSSPI charge rather than three different ones or was it the fact that they offer on the access side everything up to -- and you weren't able to differentiate on the access side?

8018 MR. BIBIC: It is both, so can I take each one by one?

8019 THE CHAIRPERSON: Yes.

8020 MR. BIBIC: So starting, one -- and I am glad you asked because I don't think we did a very good job the last go around. So starting with access. Again, just made up numbers. If the incumbent offers three tiers in the market; one at $40 retail, one at $60 retail, one at $80 retail. Self-evident, price goes up as speed goes up.

8021 But there is only one wholesale access rate, call it $20. And then the ISP can offer any one of those speeds. It is going to create a huge regulatory arbitrage between that wholesale access rate and all of these speeds, but particularly the higher speeds at $60 and $80 retail.

8022 So the issue that I have is with MTS having, as I understand it, one wholesale access rate for all speeds. It creates a huge regulatory arbitrage which I do not believe is in keeping with speed matching and with proper costing. If we can establish that higher speeds do create higher costs, we should have the ability to have different wholesale prices. That is one.

8023 THE CHAIRPERSON: Let me stop you right there. On that one, Ms Griffin-Muir said that that was their option, but they didn't advocate it for everybody. So your problem is her option being imposed upon you.

8024 MR. BIBIC: Correct.

8025 THE CHAIRPERSON: You have no problem with you being able to do it at different -- if she wants to do it that way, that is her problem?

8026 MR. BIBIC: Exactly.

8027 THE CHAIRPERSON: Okay, thank you.

8028 Now, on the AHSSPI side?

8029 MR. BIBIC: On the AHSSPI side the main issue is the one that we discussed at length yesterday. It is the notion that you get the pipe at the AHSSPI at the price regardless of what essentially you are using. It is kind of like, you know, with the alternative Primus model in a way.

8030 And then it is going to create, of course, the incentive on the ISP to efficiently use what they have paid for and therefore drive up the traffic. Again, I am not saying there is anything wrong with it. All I am saying is that we should have the ability to recover those costs. And the model, as it exists today, does not allow us to do that.

8031 Now, you asked Mr. Daniels, well okay if you were to make some assumptions about how much more traffic would be created by those models and how much more costs would be created in your aggregation network, could you give us a sense of what a wholesale rate might be? And we will try to do that for you.

8032 THE CHAIRPERSON: Would that be the same one for all the speeds or will the AHSSPI be different for different speeds?

8033 MR. BIBIC: Well, I think -- Jonathan correct me, but I think MTS's model has one rate --

8034 THE CHAIRPERSON: One, and that is why I wanted to --

8035 MR. BIBIC: -- well, it has one rate for legacy AHSSPI and one rate for FTTN I think.

8036 THE CHAIRPERSON: Right, and that is why I wanted to -- do you have an objection to that being one rate or not?

8037 MR. DANIELS: We have one rate and for us, to make it even simpler, we have blended the legacy and the FTTN from a usage perspective. MTS is proposing that they would actually require the ISP to have separate interfaces to separate that --

8038 THE CHAIRPERSON: You will come back with just an estimate of what that blended rate that you have right now would look like if you rolled into it the AVP, you know, on the basis of assumption of how your wholesale customers -- ISP customers would be using it?

8039 MR. BIBIC: Could you give is one more second to confer?

8040 THE CHAIRPERSON: Yes, sure.

--- Pause

8041 MR. BIBIC: So after that, Mr. Chairman, actually I have nothing more to add other than yes, yes.

8042 THE CHAIRPERSON: Thank you.

8043 Then let's go on CIPPIC-Open Media.

ORAL REBUTTAL

8044 MR. ISRAEL: Good afternoon. Mr. Chairman, Commissioners, I want to thank you for giving us a chance to offer our rebuttal comments. We will try to keep matters brief and to the point.

8045 Our panel remains unchanged from our last visit. My name is Tamir Israel, I am Staff Lawyer with CIPPIC and with me again is Steve Anderson, Executive Director of OpenMedia.ca.

8046 Steve will start off today by providing responses to some of your questions to us from our previous visit. And then I will offer some points on rebuttal. We will keep it, again, brief and to the point.

8047 Steve.

8048 MR. ANDERSON: Thanks again for having us.

8049 In our presentation last week we advocated for a pricing regime that enables competition and encourages innovative use of the Internet through independent ISP pricing model autonomy.

8050 To get there, we argued that the Commission should focus on ensuring a wholesale regime that is cost-based, fact-based and transparency-based.

8051 The Commission asked us to elaborate on some key facts that we put forward during our presentation and we have submitted evidence and I will briefly review some of the key points now.

8052 One of the areas the Commission asked us to examine further is the international comparison between Canada and countries like the UK, Sweden and Japan where open-access policies play a critical role in ensuring wholesale market autonomy.

8053 As promised, we have submitted the International Comparison section of OpenMedia.ca's Casting an Open Internet report for the record. As you will see from the report, many of our global counterparts are shifting towards open-access policies.

8054 One of the key findings of the report was "unbundling, when effectively implemented, served at a critical juncture in telecommunications regulation by significantly opening up competition. In Canada, unbundling was formally adopted, but has not facilitated as much competitive entry into the market as it has in countries like the UK, Japan and Sweden."

8055 Looking specifically at Japan and the UK is instructive. Japan; the regulator forced the incumbent NTT to unbundle its last mile infrastructure for new entrants and lease out its dark fibre at low regulated rates.

8056 By the late 2000s NTT's infrastructure was open to independent ISPs allowing for fierce service-based competition and the development of a thriving broadband market.

8057 The government reportedly sees no evidence that these policies affected growth or diminished NTT's incentives to invest in infrastructure.

8058 In the UK, functional separation has spurred widespread broadband use across the country, lowered broadband prices and offered a much wider range of choices for Internet service.

8059 While many of the countries leading in telecom performance have implemented fairly drastic solutions, the Commission can take a small step in the right direction by adopting a rigorously cost-based approach that enables independent pricing model autonomy.

8060 In dependent ISP pricing autonomy refers to the degree to which independent ISPs can develop their own businesses and pricing models without being beholden to the wishes or dictates of incumbents.

8061 Independent ISPs have more pricing autonomy when rates are cost-based and transparent, so they can compete on an equal footing with incumbents.

8062 Canada has attempted unbundling, but it has failed to take significant hold. The Berkman Center's Next Generation Connectivity Report associates our high wholesale rates with Canada's falling standing on key broadband metrics like price and speed.

8063 According to the report:

"Looking at 2008 data as reported by the OECD, Canada's commitment to a cost-plus-mark-up approach is uncharacteristic of other countries where long run costs as well as less crisply defined concepts like cost orientation plus reasonable profit are used. The result, in any event, is that by comparison to high performers for which the OECD reported data in the Communications Outlook 2009, Canada's rates for local loop are high. As of September, 2008 the monthly price of an unbundled local loop in Canada was roughly 70 per cent higher than that of South Korea and Denmark, almost 50 per cent higher than in Italy, 30 per cent higher than in Japan, France, or Norway, and 25 per cent higher than in Finland or the UK. Indeed, Canada has the highest monthly charge for access to an unbundled local loop of any OECD country."

8064 In the spectrum of pricing autonomy, Canada's on the far end, where independent ISPs find themselves highly constrained. In fact, while UK indie ISPs pay 25 per cent less than their Canadian counterparts, Ofcom recently put forth a proposal to lower rates even further.

8065 So with that in closing, studies show that we need to move from a paradigm of protecting incumbents to a paradigm of encouraging competition. If we want lower prices, world-class speeds and more choice, we need to provide indie ISPs with the flexibility to compete and both incumbents and independent ISPs with incentives to invest.

8066 Thank you.

8067 MR. ISRAEL: Thanks. So as we noted in our last visit before you, for us a successful tariff is one that embraces autonomy in the wholesale market by being cost-based, facts-based and transparent.

8068 As Steve just noted, studies suggest rigorous adherence to cost-based tariffs as a necessary element in ensuring sufficient wholesale competition develops.

8069 To this effect, we are very pleased that there appears to be fairly broad consensus at this point around a cost-based tariff, at least in principle.

8070 I would like to start by saying a little bit about peak period and volume pricing, as these are two of the competing models before the Commission.

8071 Briefly, in order to clearly decide which of these two pricing models is preferable from a cost-base perspective there needs to be evidence on the correlation between, on the one hand, peak period usage at a point of interconnection and congestion on a network as well as, on the other hand, as a connection between usage generated at a network end, whether at the user's end or the wholesale interconnection point, and utilization rates at downstream links.

8072 Online traffic congestion and, hence, online provisioning remains peak period driven. Indeed, it appears that increases in video streaming and away from peer-to-peer usage, are driving greater peak period to off-peak period usage disparities, meaning that peak period usage will increase as a driver of network investment in the future.

8073 There is a quote there, I am not going to read it, but it is just showing that peak period is increasing at a faster rate than off-peak usage.

8074 A very typical daily traffic curve resembles the following. So it is the bottom line there that resembles the peak, whereas the top line just shows number of subscribers, but that doesn't correlate to usage, that just shows number of people who are connected. So given broadband, people are connected all the time. But it is the bottom line, which is more peakish, which resembles actual usage.

8075 These peak-usage patterns are fairly endemic across most ISPs, with slight variations, and we have seen no indication to suggest that this patterns is likely to change. As such, we submit that peak-period usage or throughput remains an effective and appropriate mechanism for determining net work investment costs.

8076 We note that we do not believe it is so simple to flatten out usage curves of this nature, so as to vitiate peak period traffic tends altogether. Indeed, incumbents currently have the incentive to do so, but have not successfully managed to.

8077 With respect to the 95 percentile plan put forth by CNOC, it is our view that this proposal appears the most favourable at the moment, as it emulates peak-period usage.

8078 As we have stated before, however, it is difficult to assess the plan in whole without understand how the per megabit per second rate attached to it will be priced.

8079 With respect to MTS Allstream's proposal and Primus's similar proposal, we note that this plan has the advantage of best emulating incumbent conditions in some respects for wholesale ISPs. Again, it will depend how it is priced.

8080 Finally, it is our view that Bell deserves credit for its latest proposal, which is a vast improvement over its previous offerings. We have some outstanding concerns over the per gigabyte pricing of this plan and continue to favour the CNOC plan, priced properly, and the MTS plan, as these appear to offer wholesale ISPs greater autonomy by allowing them greater flexibility and responsibility in planning their own networks.

8081 Indeed, if it were not an overly cumbersome endeavour, we would join Vaxination Informatique and urge the Commission to put in place a range of tariffs so that wholesale ISPs could each choose for themselves which is best suited to their needs.

8082 On a final note, as I mentioned, we have concerns over the 17.5 cent per gigabyte rate put forward by Bell for its aggregate volume pricing proposal. The 19.5 cent per gigabyte rate that was previously before the Commission, by Bell's own admission, was an incentive-based rate intended to encourage traffic discipline.

8083 We have put in place cost estimates suggesting that the per gigabyte transport costs on Bell's network is lower. These are not 100 per cent estimates. I think only Bell has that data and it will have to be estimated under the Phase II costs.

8084 But if the AVP model is adopted, I think there needs to be a really clear critical look at the assumptions underlying the 17.5 cent figure.

8085 Thank you for your time and we would be pleased to take your questions.

8086 THE CHAIRPERSON: Thank you.

8087 I think we all are coming to the conclusion that nobody is trying to find the perfect model, there isn't one, we are sort of trying to find the least imperfect one.

8088 And I gather from what you are saying that MTS or Primus, et cetera, of the lot presented, looks to you like fitting into that category? Am I putting words in your mouth?

8089 MR. ISRAEL: I think both the 95 percentile plan and the MTS/Primus plan have -- I think to really assess the full benefits of those two it would be best to have full sort of costing scenarios to see how they are going to play out. I think that is the only way to -- so I think they both have very very positive things, elements, as far as autonomy for wholesale ISPs are concerned.

8090 And I think, ideally, you would have both options actually, if that is possible, I don't know if it is.

8091 THE CHAIRPERSON: Now, Bell moved a lot from where they were originally were, with UBB, then AVP, and then yesterday's modified AVP. Besides obviously the rate of 17 cents, and you question whether that is appropriate, but other than that, conceptually, what is your objection to the Bell model?

8092 MR. ISRAEL: I guess it is less a direct objection, except for to the extent that I still believe that in that it is still based on monthly usage as opposed to some of these other megabit-per-second vectors, it's still less reflective of actual costs and to that extent it emulates to a lesser extent for the CLECs, the incumbent's sort of like pricing -- the way that costs are pushed onto the incumbent.

8093 So I think that's what we want to do. I think if we have that in place, the CLECs can compete sort of on an equal footing. I think the other two models might do that to a greater extent. So it's less an objection, more --

8094 THE CHAIRPERSON: I think it was Mr. Jean-François Mezei who said anything capacity-based is better than volume-based.

8095 You basically share that bias, I gather?

8096 MR. ISRAEL: Yes, we do.

8097 THE CHAIRPERSON: Thank you.

8098 COMMISSIONER KATZ: I have no questions, Mr. Chairman.

8099 THE CHAIRPERSON: Any one of my other colleagues? No.

8100 Thank you very much for your presentation then and let's move right along.

8101 MR. ISRAEL: Thank you.

--- Pause

8102 THE SECRETARY: All right. So we will now proceed with the oral rebuttal of Primus Telecommunications Canada Inc. and Distributel Communications Ltd., who will be appearing as a panel. We will hear each rebuttal argument, which will be followed by questions from the Panel.

8103 We will start with Primus. Please reintroduce yourselves for the record, after which you have 12 minutes.

ORAL REBUTTAL

8104 MR. STEIN: Good afternoon, Mr. Chairman, Commissioners and staff. My name is Matthew Stein and I am the Vice-President of Network Services for Primus Canada. With me is Christopher Hickey, Regulatory Affairs.

8105 This week has in some ways been even more interesting than the last. We heard about cars driving on roads, highways and causeways. These analogies implied that managing network capacity was a nightmare on Elm Street -- and Main and Maple Streets too.

8106 At the same time, the ILECs made us all worry about end users going mad and downloading like zombies in the night, while suggesting that dire consequences would be just around the corner if competitive ISPs were able to offer unique and differentiated retail services.

8107 While all very interesting, I am concerned that some issues have been obscured in these discussions and analogies. This will be my focus today.

8108 First, however, I feel the need to remind us all that this proceeding has not been about how incumbent telephone and cable carriers should manage their network or even an exposé into those challenges. This proceeding is about coming to terms with a method to record the amount of those networks being used by each ISP and billing them accordingly.

8109 I would also like to take a moment to briefly clarify a few points that arose in Primus' opening presentation.

8110 First and foremost, Primus supports the 95th percentile peak-capacity billing model and in fact would be supportive of pretty much any peak-capacity billing models that are fair, consistent and allow a competitive market to form. The alternative model suggested in our comments is preferable to a volume model but also has disadvantages relative to the 95th percentile peak-capacity billing model, namely in terms of efficiency. That said, this model remains highly preferable relative to any volume-billing model.

8111 Second, while there are two parallel proceedings to separately consider the billing framework for residential and business services, it is our position that both residential and business wholesale access services should be subject to the same rate framework comprised of distinct rates to access, capacity-sensitive aggregation and interface components. We will be arguing the same in the parallel proceeding.

8112 With various analogies about streets, highways, road and cars, the incumbents argue that measuring and billing according to the highest level of capacity at the point of interconnection does not address the additional costs that may occur in other places somewhere in the network.

8113 This seemingly ignores the fact that peak-capacity billing compensates for all capacity usage, all the time, in aggregate throughout the network. We need to remember that peak-capacity billing is not being suggested as a capacity-management policy for the incumbents to follow but just as a method for recording the peak impact an ISP makes on that network.

8114 Put simply, competitors should pay for all capacity used in a manner that accounts for all costs. It is up to the incumbent to use these monies to augment their network where and when necessary. They still have to capacity manage their network, just as they always have.

8115 The concern appears to be that the incumbent's cost studies and models do not somehow take into account various theoretical or feared increases in costs. Yet, MTS Allstream, another incumbent, argues that their cost studies do indeed account for all of these costs.

8116 As I said at the start, I am not a costing expert but this discrepancy should be reviewed by the Commission. If somehow, incumbent cost studies do not recover all costs, then update them accordingly. This is all we are saying: Charge us appropriately, and in doing so, make us responsible for the total impact we create.

8117 I mentioned the midnight madness scare a few minutes ago, so let me focus on this and related concerns for just a minute.

8118 According to the incumbents, allowing competitors to offer differentiated retail service plans such as those that include off-peak and peak usage thresholds -- now lovingly known as our midnight madness -- will result in massive capacity requirements during what would have otherwise been off-peak periods.

8119 Bell provided diagrams to evidence this, so it is only fair to evaluate them together.

8120 In Figure 4, Bell has implied that during a typical peak period at 8:00 p.m., neighbourhoods served by four Central Offices would use 250, 100, 50, and 200 Mbps of capacity respectively.

8121 Yet, in the fictitious perfect storm of midnight madness traffic, these same neighbourhood capacity usages have changed dramatically. The first neighbourhood is now using 400 Mbps of traffic, a 60 percent jump in capacity usage all because a competitive ISP has a special price available.

8122 Is it reasonable to expect that level of take-up? Is this reasonable to expect, especially when the neighbourhoods served by COs B and C were so disinterested in this deal that they have gone to sleep altogether?

8123 ISP marketing is generally not hyperlocalized like this, so there is no reason to believe the same spectacular 60 percent capacity increase would not have occurred in the other COs. In fact, had it, the competitor would have now set a new peak for themselves and would now be billed accordingly.

8124 In fact, this new peak would occur at a time when the ILEC network was otherwise not busy, or so we're told, therefore allowing the ILEC to recover costs from this competitor even though you could consider this a peak-free period.

8125 If we were indeed concerned about this first CO that was using 400 megabits, we would also need to realize that this number unto itself is irrelevant unless we know what percentage of the total capacity the incumbent has installed to the CO. Is it 400 of 500 megabits? Is it 400 of 4000 or 40,000? Remember, this fictional competitor was using 250 megabits just earlier in the same evening.

8126 To use basic math, even if we assume that this one competitor somehow represented half of all competitive ISP customers and thus represented 9 percent of the users in the CO, the CO would have had to be equipped with over 2.5 gigabits or more to manage the peak capacity requirements. In light of this, does 400 of 2500 megabits at a non-peak hour cause concern? That's less than 20 percent of the available capacity at a time when nobody else is using it.

8127 Much has been made about the various implementation concerns related to peak-capacity billing models. A concern that has been lost in this discussion is about which model provides the most efficient ongoing administration.

8128 Commissioner Katz touched on this yesterday when he mentioned that the Commission wanted to be convinced that the framework selected will not result in ongoing disputes and complex audits. This relates directly to a point that I made in our presentation last week.

8129 If volume billing was in place in April 2011, I would have needed to dispute virtually all of the volume usage measurements provided to Primus by Bell. The numbers just do not match up.

8130 These disputes will likely never be fully resolved as our measurements are taken at different places in the network. In fact, without any visibility to the source data, how can anyone outside of Bell be or become comfortable with the amounts being billed?

8131 On the other hand, I have a limited number of AHSSPIs with Bell. Any dispute requires only an audit of the measurements taken by both Bell and Primus. Since we both have visibility into the capacity usage at the same point in the network and at the same time, this is easy to do and I will also add this is common to do.

8132 Peak-capacity billing will result in some competitors paying more than they currently are. Other competitors will pay less. This is because peak-capacity billing ensures the correct party that uses the most pays the most -- the competitor.

8133 If you were to abstract this by viewing the peak use of an ISP divided by the number of subscribers it supports, this number, commonly referred to as the network provisioning number, differs across ISPs based on several factors, which include how they are managing their network.

8134 This is illustrated in the chart below, where six ISPs peak-traffic use per subscriber is shown. You will see that these six different ISPs, if you were to take the overall number of megabits in their peak divided by their count of subscribers, you come to a relatively consistent number, but notice how it does vary.

8135 This in itself shows how the different way that an ISP uses that will actually change the economics of their business and therefore of their model.

8136 To use a term I learned last week, I will end with two quick snappers.

8137 We prefer all peak billing models above all volume billing models because it appropriately makes competitors accountable for their impact to the network, provides incentives to manage that impact and is not prone to error or unnecessary complexity.

8138 AVP does impose a specific retail model on competitors. Bell has stated that AVP does not require competitors to mirror its retail offerings. This is true to the point that competitors will not be forced to mirror Bell's usage caps and overage rates per se, but AVP does, however, restrict competitors from being able to offer retail services without per gigabyte rates. Per gigabyte rates now, and increasingly in the future, will represent too large a portion of the total costs a competitor will pay to the ILEC for it to not become a fundamental aspect of the price competitors set.

8139 Thank you. I will be pleased to answer any questions that you may have.

8140 THE SECRETARY: Thank you.

8141 We will now hear Distributel. Please reintroduce yourselves for the record. You have 12 minutes as well.

8142 MR. COHEN: Good morning Mr. Chairman, Vice-Chairmen, Commissioners and Staff. My name is Mel Cohen. I am President of Distributel Communications.

8143 With me today are Don Cavanagh, Distributel's Vice-President, Telecommunications, and Anne McMillan, our Regulatory Analyst.

8144 With regard to the billing model, Distributel wholeheartedly believes in the 95th percentile method. A peak-usage billing model encourages competitors to make maximal use of existing capacity. A total usage model makes competitors totally indifferent.

8145 In all my years in telecom, I have never heard anything so perverse as the suggestion that making greater use of deployed capacity was somehow undesirable.

8146 We also believe that any billing model will be imperfect at reflecting underlying costs. The challenge is choosing a unit of measurement that will vary most closely with underlying costs.

8147 Mr. Bibic boasted yesterday that unlike the 95th-percentile model, which will not vary lockstep with every local peak, the total usage measure that he applies to consumers will capture every augment-inducing byte of traffic. What he conveniently omits is the fact that it will also capture every non-augment-inducing byte of traffic, and there are far more of the latter than the former.

8148 Then there is the Main Street-Elm Street analogy. Let me just point out that there is a flip side to this.

8149 After all the traffic is aggregated through the incumbent's network to the independent ISP point of presence on Main Street, it doesn't stay there. It goes out another pipe, down Main Street, to the Internet at large.

8150 From Main Street, maybe it jumps on the highway to the next town or the U.S. or overseas or maybe ends up right back in the same town on Maple Street. But one way or another, it fans out through a distribution network just like it came in.

8151 The vendors of that Internet connectivity, which we call Internet transit, find that the 95th-percentile billing model appropriately compensates for that distribution. That includes the incumbents themselves, who all sell transit in this manner.

8152 So as I lay in bed at four o'clock this morning, going over this in my head, I thought: How would Mr. Bibic respond to this? Surely he'll attack this by saying that Internet transit doesn't yield access to an intense distribution network like his.

8153 I know I can gain access to and from his end users through Internet transit, but I thought, if only I could restrict my example exclusively to them. And then it hit me. One can buy access to and from just Bell's end users through something called paid peering. And generally Bell would sell paid peering at a lower price than it would sell Internet transit, which it sells at competitive market-based prices.

8154 Bell Canada actively solicits Internet transit business in a competitive marketplace where Internet transit can be purchased for as little as $2 or $3 for each 95th-percentile megabit per second. Their Internet transit gives full access to and from every one of Bell Canada's end users 24 hours per day. So how can Bell Canada claim that providing access to and from these end users costs them $35 per meg when they actively solicit clients for that access for just a fraction of that figure?

8155 The fact that the incumbents all bill their customers for Internet transit using the 95th percentile brings us to the issue of the cost of implementing this billing model for our aggregated traffic.

8156 We heard Mr. Mansourati say that it would take TELUS "...months, over a year definitely, and it would be in the millions of dollars simply because of the complexity of billing systems."

8157 Monsieur Porretta of Vidéotron spoke of implementing measurement at 8500 nodes, perhaps requiring unique-to-Canada equipment, at great cost and disadvantage.

8158 This is not the kind of billing development that we want to pay for in our rates. We are talking about a simple measure of peak traffic extracted from their routers that connect to our interconnecting facilities.

8159 Yesterday, Bell Canada proved that they are capable of performing this kind of measurement. Their Figure 5 presented the 95th-percentile peak traffic of six of their ISP customers for each day in June and they were able to assemble this in a matter of days. We have no objection to production of manual bills based on this type of data collection.

8160 If the relationship between peak and total usage remained constant, either measure would do, but we have heard evidence here that the relationship is changing, that total traffic is flattening.

8161 To measure total usage in that context would unfairly penalize competitors since the total traffic would be growing faster than the augment-inducing peaks. Conversely, if traffic were becoming more peaked, the incumbents would be inadequately compensated by a measure that ignored peaks in favour of total usage.

8162 This issue is most important in the period between cost studies. When cost studies are recalibrated, they bring back into line the relationship between the unit of measure and the underlying costs, but in the interim period, that is when the most problems can develop. This is the issue of regulatory lag.

8163 We have lived examples in the past when the time elapsed between cost study updates has resulted in tremendous inequities to competitors.

8164 For example, in March 2000, the Commission dropped the direct connection rate paid by interexchange competitors in Bell Canada territory from 0.7 cents to 0.3 cents. Assuming that the new rate included a mark-up of 25 percent, as was the norm for Type I competitor services, the implication is that the day before the rate was dropped, the 0.7-cent rate included a mark-up of 192 percent. If anyone cares to see that math, I have it at my table.

8165 So we strongly recommend that the Commission set out a schedule of regular cost study updates for wholesale broadband services. The need for this can be readily seen from Schedule 1 of the Cable Carriers' opening remarks last week. That table showed that their expected costs per gigabyte transferred would drop by 67 to 70 percent over the next four years. Whatever method of usage measurement is adopted, rates must be revisited frequently under these circumstances.

8166 Mr. Chairman, on Wednesday you asked: "What would we have to do in order to even the load to make sure that most of the load does not ride on Bell but it rides just as much on the cable companies?" So I will answer in terms of what will make TPIA more attractive generally, not just in Bell Canada territory. We prepared these answers after a quick consultation with other CNOC members. Many ideas may still emerge.

8167 First and foremost, TPIA service must be attractive economically. Several CNOC members told us that they had considered but rejected TPIA because the numbers just weren't there. So reasonable rates are a must.

8168 Also noted were the high costs of opening POIs, points of interconnection, although this should be less of a problem with aggregated POIs.

8169 Another idea floated that would considerably improve the economics would be the introduction of service charge options like those available with Bell's GAS. There, independent ISPs have the option of paying the entire service charge up front or spreading it over two years or paying a lesser charge every month until the GAS access is disconnected or terminated.

8170 Another important issue that makes TPIA less attractive than wholesale DSL is the inability of TPIA customers to match IP addresses to end users. This is because the assignment of IP addresses to end users is done by the cable companies, but there is no means by which the independent ISP can tell which address has been assigned to which customer at any given point in time.

8171 The implications are serious:

8172 (1) We are incapable of measuring usage of individual customers. That means that the only type of service that is practical to provide is an unlimited service.

8173 (2) We cannot suspend service on a temporary basis without the involvement of the cable company. After five days of suspension, reinitiating service through the cable company counts as a new installation.

8174 (3) We cannot speed-limit our customers.

8175 All of these problems are a result of not knowing what IP address belongs to which customer. Interestingly, in investigating this issue, we discovered that a solution had been developed by CISC and approved by the Commission in January 2007, four and a half years ago. Not having been involved with TPIA until 2009, we don't know why this went off the rails, but we do know that it has never been implemented.

8176 A third improvement would involve facilitation of the use of competitive supply of backhaul facilities. Distributel had an attractive quotation from Bell Canada for backhaul facilities from the Cogeco POI in Windsor, but dispute over placement of the backhaul circuit's terminating equipment resulted in us giving up on the Bell option.

8177 A related issue, in that it would facilitate use of diverse supply, relates to a need for a more sophisticated method of traffic balancing across multiple interconnecting facilities.

8178 There are also a host of business process improvements required. To name a few:

8179  - serving area maps or postal code lists;

8180  - automated ordering, trouble reporting and tracking -- instead of email;

8181  - escalation procedures other than email;

8182  - improvements to billing information;

8183  - prescribed delivery times for POI interconnection and augments.

8184 Finally, IPv6 must be facilitated. Cable companies require blocks of IP addresses at each POI from TPIA clients. IPv4 addresses will soon be unavailable and are already difficult to obtain.

8185 That is the list we developed in this short interval. Maybe tomorrow someone will approach us with another great idea. Certainly, addressing these issues will improve the attractiveness of TPIA.

8186 In closing, we would like to leave the Commissioners with a final thought. When considering the appropriate billing model it would be most fair if the guiding principle were restated to be "Those whose usage costs the most should pay the most".

8187 Thank you for your attention.

8188 THE CHAIRPERSON: Thank you for your presentations.

8189 Mr. Stein, I have heard now for the last week and in these two weeks everybody saying your alternate model and the MTS model in the same breath as being very close to each other.

8190 What exactly is the difference between your alternate model and the MTS model?

8191 MR. STEIN: I think it would be, at this point, with the benefit of having spent a week and a half in this room and in conversations with many, at this point I would say the biggest difference would be in the application, in that I am suggesting that as an interim step it's a very reasonable model.

8192 The other key difference is that the MTS model has a particular element to it that takes the speed of the end users access out of the equation. It is, frankly, quite an elegant approach that I can't claim that we had suggested or come up with.

8193 THE CHAIRPERSON: If I used the expression "the Primus model", that does not require that; right?

8194 The Primus model, if I understand it, would mean that the access varies according to the speed. It's not like --

8195 MR. STEIN: The Primus model does not specifically describe that. As you have put it, the Primus model -- I must admit, I had never really thought of it named that way prior to last week.

8196 THE CHAIRPERSON: Okay.

8197 MR. STEIN: I came here last week actually thinking it was the Bell model, to be honest with you, not in that I hadn't read the tariffs, but in that the only reason I was suggesting it was it is just based upon what they do now. They just simply had to change price.

8198 THE CHAIRPERSON: Just for ease of communication let's call it the Primus model, okay?

8199 MR. STEIN: Sure. Okay.

8200 THE CHAIRPERSON: So what I'm saying, on the AHSSPI you still have a single access charge, right, and it says a single blended rate. You are not having variable ones?

8201 MR. STEIN: Correct. At each of the speed increments. Remember the speed increments were 100, 400, 1,000.

8202 Excuse me, the access itself, yes.

8203 THE CHAIRPERSON: I'm talking about the AHSSPI.

8204 MR. STEIN: Yes. Yes.

8205 THE CHAIRPERSON: You have one rate.

8206 MR. STEIN: Yes.

8207 THE CHAIRPERSON: And then at the speed you have the four and depending on what that ILEC offers they would charge according to the cost of providing at that speed; right?

8208 MR. STEIN: Based on the peak that you would be pushing through that interface, yes.

8209 THE CHAIRPERSON: Right. Right. And there would be no volume -- if it's a volume usage that whole discussion that we had yesterday about Elms Street and Main Street, all of that you would expect the ILEC to somehow put that in his AHSSPI charges because the prognosis and the costing would take into account?

8210 MR. STEIN: That's exactly correct.

8211 THE CHAIRPERSON: So that is what the Primus alternate model means, okay.

8212 MR. STEIN: Yes. Yes.

8213 THE CHAIRPERSON: Just so I get it in my head.

8214 MR. STEIN: Yes.

8215 THE CHAIRPERSON: Okay.

8216 And you clearly prefer the 95th percentile, but you could live with this because to your mind this still would be a capacity based rather than a usage model --

8217 MR. STEIN: Yes.

8218 THE CHAIRPERSON: -- and therefore would avoid any over billing. That's really what it's all about.

8219 MR. STEIN: Over billing is one component.

8220 Yes, I absolutely prefer that model over a volume model. We prefer any peak model and this model, whether it be called the Primus or the MTS model, are both peak-based models, or capacity-based models if you want to think of them that way.

8221 THE CHAIRPERSON: Yes. For you as an ISP, what would be the down side of this alternate model?

8222 MR. STEIN: Purely efficiency. Efficiency in that if I am just starting out -- in our case obviously we are not just starting out, but if I were to speak generally of ISPs, if I was just starting out I would have to be getting in to commit for 100. You may not think that 100 is very much, I also don't think it's very much, some might, but as you step up and you grow to 400 and 1,000 and then two times 1,000, three times 1,000, the increments become quite large.

8223 So the efficiency of it is not as beneficial as the 95th percentile model in that there will always be a portion that will never get used at the top versus 95th where you pay for precisely what you used and all you used.

8224 THE CHAIRPERSON: I understand that, but we have heard a lot about implementation costs and delays in cost of implementation if you use the 95th percentile, and since you are already in business and so are all the other ISPs here present, so implementing this, what I have called the Primus alternate model, would be quick and not represent, as far as I understand it from your point of view, any extra costs to either ISPs or cable or ILECs.

8225 MR. STEIN: If your question is about the information systems cost --

8226 THE CHAIRPERSON: Yes.

8227 MR. STEIN: -- the billing cost, and so on, you are correct in that regard.

8228 THE CHAIRPERSON: Yes.

8229 MR. STEIN: If your question is about the efficiency of it, it is not as efficient as 95th.

8230 THE CHAIRPERSON: Okay. Okay. I just wanted to understand sort of the pros and cons of it from your point of view.

8231 MR. STEIN: Yes. To me the difference is about efficiency.

8232 THE CHAIRPERSON: Okay.

8233 Mr. Cohen, thank you for answering my question of what could be done to improve the uptake of TPIA, but the various points that you suggested, this really requires, in effect, a follow-up hearing on TPIA, right. It's obviously not within the scope of this.

8234 But if I understand it, you feel that is really what needs to be done in order to make it an equivalent to the ADSL?

8235 MR. COHEN: I didn't think of it so much as whether it would be equivalent to ADSL. They were just the things that were identified to me as potential improvements.

8236 THE CHAIRPERSON: I see. Okay.

8237 Michel, do you have any questions?

8238 CONSEILLER MORIN : Non, merci.

8239 THE CHAIRPERSON: Len...?

8240 COMMISSIONER KATZ: I have no questions.

8241 THE CHAIRPERSON: Any other of my colleagues?

8242 Well, thank you very much.

8243 I'm sorry, I want to make sure I hear after rebuttal time from the --

8244 Bell, you have heard what Primus describes as the pros and cons of their alternate model. Is there anything you want to add or dispute?

8245 MR. BIBIC: The only thing I would add is just reiterate that if you look at closely at our Figure 5 from yesterday there is clearly -- at the same 95th percentile you can have vastly different throughputs and those vastly different throughputs on our chart could be due to the same ISP, the point being that an ISP one day that hits 13,000 megabit per second, 95th percentile throughput may be causing 40,000 gigs of total usage in that same ISP 10 days later in the month causing more than double the amount of throughput. The point is, you can -- you can drive more traffic and cause more costs.

8246 I do note that Mr. Cohen, in paragraph 1 says:

"A peak usage billing model encourages competitors to make maximal use of existing capacity."

8247 Well, of course, and that's the way it should be, it's just got to be paid for.

8248 THE CHAIRPERSON: Can I just hear from the cable company on what I have styled the Primus alternate model?

8249 What would it do for cable?

8250 MR. BÉLAND: Yes, I was about to make that very point.

8251 We have heard again from Primus, we heard it last time, we heard it today, the quote I have here is that: under their model it would compensate us for all capacity usage all the time. This is presented as a fact.

8252 In fact it is incorrect. Our models, which we have presented to the Commission and which Commission staff have examined in extreme detail based on the interrogatories we have received from them, do not assume that a wholesaler who has a certain amount of peak traffic at a certain amount of time is running at that traffic level 24 hours a day, seven days a week.

8253 That is factually not the assumption in our cost studies. Our costs studies assume that the traffic distribution of their end users is similar to that of our end users.

8254 So the assertion is incorrect and if we were take that assertion as an input into our cost studies the results would be very different.

8255 THE CHAIRPERSON: Yes, but it's also questionable whether they actually would be able to do that. I mean it would be available to them, but whether they actually could use that capacity 100 percent all the time is also something that is very much up in the air.

8256 MR. BÉLAND: I think it's an important overall point that you are making, is there are factual issues and there are issues of opinion.

8257 On the factual issue of how we have done our cost studies there can be no debate, Commission staff knows how they are done.

8258 THE CHAIRPERSON: Yes.

8259 MR. BÉLAND: But the matter of opinion is how will the behaviour of ISPs and ISP end users change based on the billing model that you adopt. That is a matter of opinion, but I would reiterate, as Bell has already, that we have several of the ISPs making statements to the effect that that would be precisely what they would be incented to do, is to find ways to let their customers run 24 hours a day, 7 days a week.

8260 THE CHAIRPERSON: Okay. Thank you.

8261 Mr. Moore...?

8262 MR. MOORE: Just going back on a comment of Bell, bring again their Schedule 5 graph, like I said earlier, it does show that ISPs can be -- the incumbents can be over compensated for the usage made by the independents. Bell will have -- and they can use their current costing methodologies based on usage to calculate a proper rate per megabit per second for that compensation.

8263 I don't see why 95th percentile cannot be used to actually properly compensate Bell for the use of their network by the independents. I just don't see why.

8264 MR. BIBIC: Mr. Chairman, of course these data point -- it's Mr. Bibic, for Bell. These data points are plotted at a point in time when there is no 95th percentile billing adopted in terms of for usage over and above access.

8265 What we are saying is, today as it is you can see that there is vastly different throughputs. Once a billing model like 95th is adopted, then the incentives change. That's the point.

8266 There's no over and under compensation.

8267 THE CHAIRPERSON: I have heard that point several times now, I do get it. I think we all got it. Nobody knows what the incentives will be and how the behaviour will change if that is adopted, that's clear.

8268 Okay, I would like to hear from Mr. Bhullar and then I would like to hear from CNOC, please, before we end.

8269 MR. BHULLAR: Mr. Chairman, in the spirit of coming together on the 95th percentile model I have a suggestion, that since both the ISPs as well as the providers are looking at the same point in space, maybe in the spirit of cooperation and a little bit of trust in billing, then maybe the ISPs, the members of CNOC, Primus, like Distributel, they can provide the measurements for billing if Bell is willing to sign that if there are discrepancies they can come and dispute them. Because it's the measurement that both are looking at the same point and they may be able to do it without the massive organizations that Bell, Vidéotron, Rogers and the others have in terms of billing systems and their integration and everything else.

8270 If there is some kind of an oversight to ensure that there is integrity, that maybe it can be much easier done, as stated by TekSavvy, CNOC and many other members that it is possible, and Andrew Moore, and Mr. Mezei about MRTD.

8271 Thank you.

8272 THE CHAIRPERSON: Okay. Thank you.

8273 CNOC...?

8274 MR. TACIT: Yes. So I would like to make my concluding remarks very straightforward and simple.

8275 I know we have spent a lot of time talking about models and network and statistics, but at the end of the day what is important here is consumer choice and the fact of the matter is that it's pretty clear that a volume-based methodology is going to restrict consumer choice by reducing the ability of competitors to differentiate.

8276 It will do nothing to create specific incentives for network capacity management, which is the central issue that imposes costs on incumbents and thereby will not send correct economic signals to the marketplace, to competitors or to incumbents.

8277 So this is the reason why we have advocated a peak capacity model. We think of the choices before you the 95th percentile is best and we urge you not to let implementation details related to billing and costing be an impediment to that. These are all things that evolving businesses have to deal with every day, all the time. We are not inventing something radically different here.

8278 So again, if we keep the consumer in mind, we want to give them the ability to use the Internet as freely as possible without imposing costs upon them that do not relate to the costs of providing the underlying networks and allowing both carriers and wholesale providers to earn a reasonable return on their investments. Of course that has to happen, but to artificially constrain consumer supply and therefore demand, and to restrict consumer choices should really not be where we are going.

8279 We do have international examples that the industry is heading in this direction in other areas where wholesale regimes are constructed and enforced more vigorously and we urge you to make Canada a leader, a world leader in this respect.

8280 Thank you.

8281 THE CHAIRPERSON: Okay, thank you very much.

8282 Madam Secretary, do you have any last announcements?

8283 THE SECRETARY: Yes. Just for the record, Mr. Chairman, the Commission reminds parties that they may file final written arguments by 29 July, serving copies on all other parties.

8284 Written final arguments may address any matter within the scope of the proceeding, including comments on proposed costs and rates for wholesale residential high-speed access services. However, parties must limit comments on the policy aspects of the proceeding to 15 pages.

8285 This concludes the Phase II, Mr. Chairman.

8286 THE CHAIRPERSON: Well, then thank you very much, this is the end of the hearing.

8287 I want to thank all intervenors. I think we had a very full debate, a very spirited debate, I think we have all learned it is a very difficult subject, but thanks to your help I think the Commissioners now have a full understanding of the issue and hopefully we will make the right decision.

8288 I also want to thank my staff who have done invaluable work in preparing for us and getting us up to speed on this issues.

8289 I also want to thank the translators who, as always, have done a great service. In this hearing in particular where it was full of acronyms and technical terms, et cetera, they managed to translate it and that is not a small feat, so I tip my hat to you. Thank you everybody.

8290 That is the end of the hearing.

--- Whereupon the hearing concluded at 1317


REPORTERS

Johanne Morin

Carmen Delisle

Monique Mahoney

Jean Desaulniers

Susan Villeneuve

Karen Paré