ARCHIVED - Transcript, Hearing 28 November 2014
This page has been archived on the Web
Information identified as archived is provided for reference, research or recordkeeping purposes. It is not subject to the Government of Canada Web Standards and has not been altered or updated since it was archived. Please contact us to request a format other than those available.
Providing Content in Canada's Official Languages
Please note that the Official Languages Act requires that government publications be available in both official languages.
In order to meet some of the requirements under this Act, the Commission's transcripts will therefore be bilingual as to their covers, the listing of CRTC members and staff attending the hearings, and the table of contents.
However, the aforementioned publication is the recorded verbatim transcript and, as such, is transcribed in either of the official languages, depending on the language spoken by the participant at the hearing.
Volume 5, 28 November 2014
TRANSCRIPTION OF PROCEEDINGS BEFORE THE CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION
Review of wholesale service and associated policies
140 Promenade du Portage
28 November 2014
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
Review of wholesale service and associated policies
Eric BowlesLegal Counsel
Lyne RenaudHearing Manager
140 Promenade du Portage
28 November 2014
- iv -
TABLE OF CONTENTS
PAGE / PARA
13. Shaw Cablesystems G.P.1019 / 5832
14. VMedia Inc.1084 / 6188
15. MTS and Allstream Inc.1138 / 6513
16. The City of Calgary1209 / 6886
- v -
PAGE / PARA
Undertaking1043 / 5941
Undertaking1138 / 6503
--- Upon resuming on Friday, November 28, 2014 at 0900
5827 LE PRÉSIDENT : À l'ordre, s'il vous plaît.
5828 Donc, Madame la Secrétaire, s'il vous plaît.
5829 LA SECRÉTAIRE : Merci, Monsieur le Président.
5830 We will now hear the presentation from Shaw Communications.
5831 Please introduce yourselves for the record first and you have 20 minutes. Go ahead.
5832 MR. MEHR: Thank you.
5833 Good morning, Mr. Chairman and Commissioners. I am Jay Mehr, Executive Vice-President and Chief Operating Officer of Shaw Communications.
5834 I am joined by Zoran Stakic, Senior Vice-President and Chief Technology Officer, and our Regulatory team: Paul Cowling, Dean Shaikh, Esther Snow and Jocelyn Kearney.
5835 As the Commission recognizes, at its core this is a conversation about consumer choice and sustainable competition.
5836 With the dramatic shift in how Canadians connect with one another and consume media, Shaw has reinvented itself as a network and content experience company. This has rejuvenated our focus on what matters most: our customers and their rapidly evolving needs. The loyalty of each Shaw customer is constantly tested through fierce competition from an increasing number of distinct networks and service providers. We thrive on this rivalry.
5837 We are not content to rest on past achievements. We can only succeed if we disrupt ourselves in ways that are constructive and that create additional value for future customers.
5838 At Shaw, every decision we make, every initiative we launch, is driven by customer choice and the imperative to bring quality, reliability, innovation and value to the customer experience.
5839 Shaw continues to invest to meet incredible growth in demand for Internet. We have spent over 4 billion dollars during the past five years building one of North America's most extensive and advanced fibre networks.
5840 We are a leader in customer-friendly innovation. Shaw Go WiFi offers a totally new level of connectivity for Western Canadians. It now has over 45,000 access points and more than 1.25 million registered devices.
5841 We are uniquely positioned to combine the strength of our leading Wi-Fi network with great content and services that our customers can enjoy on any device they choose. In the past year alone, we've launched music streaming from Rdio, video streaming from shomi and online shopping through shop.ca.
5842 We bring the same innovative spirit and customer focus as a new entrant in the business market. In addition to ongoing investments, we have made significant acquisitions:
5843 - Enmax Envision, a fibre-based business network connecting office buildings throughout Calgary's downtown core; and
5844 - ViaWest, a leading cloud provider with 27 data centres in the U.S.
5845 These initiatives diversify and extend our offerings to serve the business market.
5846 Canadian consumers, creators and businesses have clearly embraced the Internet age. We spend more time online than any other nation. We are the most intensive consumers of online video in the world. This is all encouraged and powered by dynamic broadband networks like Shaw's.
5847 Canada's success has been supported by the Commission's consistently forward-looking framework. It emphasizes facilities-based investment, consumer-focused regulation and market forces. These principles form the foundation of compelling choices for Canadian Internet services.
5848 All sides of this debate recognize that Canada is unique in having strong interplatform rivalry. Competition in Canada's broadband market started with two very different networks: telephone and cable. To deliver broadband, these networks were redesigned through significant investments and we have competed for Internet customers ever since.
5849 As facilities-based competition matured, the Commission identified several retail and wholesale markets where regulation was no longer necessary. The Policy Direction confirmed the importance of competing networks and market forces, and in 2008 the Commission streamlined mandated services. Since then, competition and choice have continued to grow.
5850 Networks are now faster with more coverage. Over 90 percent of Canadians now have access to download speeds of 5 Mbps.
5851 Rivalry in wireline has intensified. We have been battling it out in Western Canada for several years, with consumers benefitting, as they should. This is now playing out in the rest of Canada.
5852 We have seen high levels of infrastructure investment, new entrant fibre networks, new wireless networks and telcos establishing a firm footing in the TV distribution market.
5853 We are responding to a whole new set of customer needs. Consumers want and deserve user-friendly access to all forms of media beyond their home and office, using their choice of devices from a rich ecosystem of tablets and smartphones.
5854 And finally, as Zoran will discuss, there have been technological transformations within the networks that compete for customers.
5855 A lot has changed since 2008, but this is a proceeding about the future. At Shaw, we want to optimize our investments and innovations to maximize customer experiences with unique and valuable choices.
5856 Canada's broadband future does not depend on one type of technology such as fibre-to-the-home. There are several roadmaps for next-generation broadband. Customers don't think about fibre versus DOCSIS or other facilities. Customers care about the experience: service, speed, reliability, usage and value. This is a long list but each is crucially important and expensive.
5857 Regulation should be neutral when it comes to different facilities. Current and next-generation DOCSIS platforms compete with fibre-to-the-home. If mandated TPIA continues, without mandated access to platforms that compete with cable broadband, we will have an imbalance. It will distort investment and network design decisions, driving sub-optimal outcomes for consumers and less choice and innovation. We have to be wary of picking "winners and losers" by imposing different rules on different technologies.
5858 I will now turn it over to Zoran to provide some more detail on the future of broadband networks in Canada.
5859 MR. STAKIC: Thank you, Jay.
5860 As Jay mentioned, Canadians are fortunate to have multiple networks that deliver next-generation data services. As more and more new devices connect us to the world, we need enhanced reliability and higher bandwidth. Our networks are also evolving to meet exponential growth in Internet usage.
5861 This requires ongoing significant investment at all levels of the network, regardless of technology:
5862 - the access portion, whether mobile, fibre, copper or coax, which reaches the individual, the home or the community;
5863 - the metro network, which routes traffic to friends, families and businesses across neighbouring communities; and
5864 - the backbone, including over 750,000 kilometres of fibre which extends from coast to coast to deliver traffic across the country and around the world.
5865 The future of broadband in Canada is not just about the access portion of our network. We have to invest at every level.
5866 For Shaw, the success of our investments depends on how carefully we listen to customers. Technology and market conditions are constantly changing as customer needs evolve. We have to look forward to the future and anticipate where customers are going. We have to be flexible, creative and cost-efficient as we design long-term technology investment strategies.
5867 Other networks that compete with us face similar challenges and opportunities. They are also evolving and advancing.
5868 Significant new spectrum allocations have increased mobile capacity. LTE is now widely available in Canada. In fact, mobile carriers have already introduced LTE-Advanced in many cities across Canada. LTE-Advanced allows these carriers to combine separate spectrum bands and maximize speeds. This will drive even more media consumption on mobile networks.
5869 New satellites and technology advancements have enhanced satellite broadband and fixed wireless. For example, Xplornet recently announced an initiative to bring download speeds of 25 Mbps to Canadians in rural communities.
5870 Shaw and its rivals, including new entrants, have invested in significant fibre deployments, whether to the home or node. However, fibre rollouts should not be the sole metric to assess the health of broadband in Canada. The technology landscape is much more complex and diverse.
5871 MR. COWLING: Thank you, Zoran.
5872 As we move to the future Zoran described, regulatory certainty and neutrality are critical so we can make the best technology decisions for the long-term future. Several different Canadian networks will support sustainable choice. That is something to celebrate, not undermine.
5873 This is one of the key reasons we're concerned about the Broadband Access Service. It would require Shaw to reconfigure its network based on competitors' needs and what appears to be a telco-driven architecture. That would contradict customer choice. We want to encourage diversity in our networks, not conformity.
5874 It would be very costly to implement and it would divert resources away from network initiatives that are enhancing efficiency and the customer's experience.
5875 As the Commission knows, Shaw recently redesigned TPIA to provide it on a more aggregated basis. The disaggregated TPIA service offered in the past had very little demand. In contrast, there has been increasing demand for the current aggregated TPIA service.
5876 We are concerned that there wouldn't be sufficient interest in the Broadband Access Service in Western Canada. It wouldn't be in anyone's interest for Shaw to incur significant costs and deploy equipment throughout our network for a service that doesn't get used. The proposal may be of interest to certain competitors in certain parts of the country, but we struggle to see any specific benefits for consumers in Western Canada. We therefore fail to see how it is in the public interest.
5877 We should avoid unnecessary regulation that curbs our ability to respond to consumer needs. Applying the existing framework to today's market realities and looking to the future, we believe it would be appropriate to gradually shift to market forces for wireline wholesale arrangements.
5878 The Essential Facilities Test correctly focuses the analysis on consumer interests in the retail market, rather than on individual competitors. It provides the Commission with the tools to identify instances of market failure that harm consumers. In those cases, proportionate regulation is warranted.
5879 When applying the Essential Facilities Test to today's broadband market, wholesale high-speed access services, including TPIA, do not meet the definition of essential. There are multiple alternatives: ubiquitous wireline providers as well as mobile, fixed wireless and satellite. There is also substantial evidence of innovation, investment and rivalry. Shaw Go WiFi offers a compelling case in point.
5880 This intense competition among diverse platforms is the source of tremendous benefit for the economy and for consumers. Even more alternatives could emerge. Since the last wholesale review, the government has liberalized foreign ownership rules, removing a barrier to capital and the market.
5881 After reviewing other proposals, we suggested ideas for a gradual and neutral transition to negotiated arrangements for wholesale services. Our intent was to be practical and balanced and to preserve Commission oversight.
5882 First, the Commission would refrain from mandating wholesale access for speeds higher than 25 Mbps. The majority of Canadians currently subscribe to services at or below this speed.
5883 This will allow market forces and consumer choice to drive the investment and business decisions for next-generation broadband. Of critical importance this will also ensure, and restore, technological and competitive neutrality to the wholesale framework.
5884 The second step would be for the Commission to introduce a five-year phase-out for services below 25 Mbps in markets with at least three unaffiliated facilities-based providers, two of which provide 25 Mbps speeds. For the first year, rates would continue to be regulated. After that, rates would be negotiated, failing which parties could seek Commission-assisted mediation.
5885 This provides our TPIA customers with mandated access covering a broad customer base for several more years, giving them time and stability to invest and negotiate continued access.
5886 It is also a gradual shift to market-based outcomes, with recourse to the Commission if necessary.
5887 The third element is that wholesale access would continue to be mandated, and subject to rate regulation in all other markets until they become sufficiently competitive. This will preserve choice in markets that don't have as many alternatives, including rural areas.
5888 For services that remain subject to rate regulation, the current Phase II costing model is appropriate. Applied consistently, the model is designed to result in just and reasonable rates and allows carriers to recover their respective costs along with a reasonable return on investment.
5889 MR. MEHR: Thanks, Paul.
5890 As we have described, Shaw is committed, above all, to customers. We measure the success of everything we do from the customer's perspective. For example, we see the power of Shaw Go WiFi in the fact that over 80 percent of our customers are likely to recommend Shaw to their friends and family because of it. That's our proudest moment, that over 80 percent of our customers would champion Shaw's Internet with friends and family.
5891 We are also proud when we see Shaw placing first among its competitors in Netflix and Google ISP rankings. To be clear, we don't do anything to speed up or slow down Netflix or YouTube. We don't pick winners or losers. Our customers are in control and these results are a proof-point for all our customer choices.
5892 We are actively changing our company to maintain our relevance and leadership today and in the future. We see a marketplace full of competitive services and providers, and we embrace the opportunity to deliver to our customers and viewers more compelling experiences -- just like our founder J.R. Shaw did when he launched cable service in Sherwood Park more than 40 years ago.
5893 We are living out our brand promise that with Shaw you won't miss a thing. Shaw is driven to this commitment through competitive pressure in the marketplace.
5894 With broadband competition alive and well, a streamlined framework will ensure that we can maximize innovation and investment for the benefit of customers.
5895 It is also critical that the framework respects neutrality and the diversity of platforms in Canada, whether cable broadband, VDSL, fibre, mobile, fixed wireless or satellite. Each offers something unique, but they all compete for broadband customers and enhance consumer choice.
5896 We are confident that facilities-based competition will continue to thrive in Canada. This will allow us to provide the world-class broadband services that support Canada's digital economy, driving the connectivity, creativity and engagement of Canadians, who deserve nothing less.
5897 Thank you, and we are happy to answer any questions you might have.
5898 THE CHAIRPERSON: Thank you very much, ladies and gentlemen.
5899 Commissioner -- Vice Chair Menzies will start us off. Thanks.
5900 COMMISSIONER MENZIES: Thank you.
5901 While I shuffle my papers -- and I know this isn't the Giller Prize -- whoever wrote your oral presentation did a very good job, but it isn't a writing competition --
5902 COMMISSIONER MENZIES: -- so we will go on and talk regulation.
5903 Just in terms of your oral remarks, can you just maybe start with there are some comments in there regarding BAS and possibly lack of demand? So could you maybe start by describing sort of very high level what you see as some of the core differences between -- I mean I know you were not only in the west, but you are primarily there between that western market and the eastern markets.
5904 We have heard, for instance, this week that the Atlantic is different from the Ontario and Quebec landscape. And we have heard that most of the CNOC members, their market share might be 8 percent nationally, but that in Ontario and Quebec they have been busy. We have heard from SaskTel saying that they have, you know, basically no customers for wholesale access and yet we have also heard from the B.C. Broadband Association sort of pointing out how the small ISPs are struggling there.
5905 So can you kind of articulate on a grand scale to maybe give some framework to this discussion what you see as the differences between where you operate and some of this discussion?
5906 MR. MEHR: Yeah, great. Thank you. I'm certainly happy to characterize our perception of the competitiveness in the market and then you can lead me where you want to go from there.
5907 I think it's true that you get the -- from our point of view, the TPIA customer that you earn. And I think the competitive environment in Western Canada has been so competitive for so long that we have all had to get better. You know, it seems -- I don't know that I have ever said this publicly before, but we are kind of thankful to have had this incredible competition that we have had primarily with TELUS, but before that with SaskTel and MTS and to have such formidable competitors, because it has made us better and it's going to set us up for the next generation of competition against the global Internet service providers, and so forth.
5908 You know, the B.C. folks talked about -- our friends from the TPIA -- folks in B.C. talked about the free TVs. We have had five years of competing against free TVs and free laptops and free Xboxes. You can't feel sorry for yourself. You just have to dust yourself off and get up and do what you do and compete harder. So I think that's very much been the dynamic in Western Canada. I think, to be fair, we don't do usage-based billing and we have quite soft caps and approach to caps.
5909 By the way, we don't do CBB with TPIA either, so I think there are some other dynamics that have driven checks and balances in the marketplace where consumers have made other choices. For us, TPIA is certainly less than 1 percent of our Internet customers and so they are valuable customers, but not dissimilar to SaskTel. It's not a big part of our market.
5910 COMMISSIONER MENZIES: When you talked about BAS in here in terms of -- you don't have numbered paragraphs so I won't refer to it, but in your oral remarks you were discussing BAS and the complexities of having to convert. So what would those complexities look like and, you know, if that was a route that we chose to follow, what sort of compensation paths would be appropriate?
5911 MR. MEHR: Okay. Great. Well, let me take that from a business perspective and then if you have more technical questions I will defer to Zoran later on.
5912 You know, when Zoran talked about in his remarks, if you think of the network in terms of the core network connected to the backbone, the metro network and the access network, today TPIA connects at the backbone level, aggregated. The BAS proposal suggests that they would like to move that level of connection deeper into the network at the metro network level. And my understanding of the proposal is that it would be a way presumably to have an option to lower the costs of the TPIA provider when they had very significant volume of market share in a market. I can't figure out why else they would want to do that except in that incidence.
5913 So when we went to the aggregated model it was designed to allow TPIA providers to gain share, is what I would think was the policy driver of that. I think TPIA providers would still like that in order to gain share, but once they reach a certain amount of share, presumably they are having volume-related issues with pricing and they would like to bring their pricing down by getting deeper into the network.
5914 For us it would be very heavy regulation. It would require us to put a couple of devices into each of our hub sites, and our hub sites were never built or designed as CLEC-style hub sites. These are often in strip malls and other places where we have been able to find the space -- rent the space deeply into neighbourhoods. They don't have fibre access from other providers because no one else would have built to there.
5915 So it's hard for us to see how it gets us anywhere and it's important to note that even today where we have TPIA providers, every single one of them contracts with us commercially for their backbone. So they haven't even built backbone to the current aggregation points, which I think are 10 or 11, and this would take us to 160 aggregation points.
5916 COMMISSIONER MENZIES: While you are talking about that, just so I'm clear, in your oral remarks there you say:
"Regulation should be neutral when it comes to different facilities. Current and next-generation DOCSIS platforms compete with fibre-to-the-home. If mandated TPIA continues, without mandated access to platforms that compete with cable broadband, we'll have an imbalance."
5917 Can you just be specific about what platforms you're talking about there in terms of "that compete"? Was that just the DOCSIS or what were you referring to there?
5918 MR. MEHR: Yes. So, I mean, I think we are specifically referring to the combination of what's possible today with DOCSIS 3 and DOCSIS 3.1 and that also regulation should be future friendly, too, in terms of LTE and 5G and those network investments.
5919 I think each of us -- regulation is most helpful if it creates a level playing field. As each of us are sitting in making our capital allocation decisions, we are making the optimal capital allocation decisions both on customer experience and on return on capital
5920 And not to oversimplify the point, but in North America probably the path forward for phone companies is from the -- or both -- fibre-to-the-node today. Probably the path forward for phone companies when you do that math and you think about the customer experience, it's at some point fibre-to-the-premise. Probably the path forward for cable companies is not as quickly down that path, maybe a five or 10 year difference in time down that path and it's about going from fibre-to-the node-deeper into communities and using DOCSIS 3 and DOCSIS 3.1 to deliver the same speeds and the same services that you can get from fibre-to-the-premises.
5921 So I actually think if the marketplace develops that way that's facilities-based competition and it is in the interest of Canadians because you could have very much two different technologies competing with each other and I think that will enhance customer choice.
5922 COMMISSIONER MENZIES: Thank you. I would like you to comment too, or just get your general view -- this week we heard, earlier in the week more than later -- but that Canada was lagging behind in terms of, I think, fibre in particular but in terms of its -- I think it was articulated. I think it is fair to say it was articulated in a fashion to say that our facilities framework was lagging behind other countries, that we were sort of middle of the pack in terms of that. And yet as you point out in your oral remarks, Canadians spend a great deal of time on the Internet and consume a great deal of data.
5923 So that's not necessarily inconsistent, but it seems inconsistent with the idea that you have an immature framework. But usage seems to be -- or the accusation is that we have an immature framework but we have very mature usage. So what is your perspective on that in terms of how Canada compares globally in terms of its facilities?
5924 MR. MEHR: Yes. We think Canada is a leader. We certainly know there are different models globally. We think the evidence suggests that Canada is a leader for sure and we acknowledge that in the Canadian environment the issue is the gap between some rural communities and what the rest of Canadians enjoy.
5925 We think it's -- there is a soft spot in our market. It's where the return on capital story doesn't make sense and hasn't been able to drive that innovation. But the reason that one of the enablers of the shift of behaviour in Canadians who have embraced this shift as much as anyone in the world -- the shift in behaviour, one of the enablers of it has been powerful broadband networks.
5926 So that's our view.
5927 COMMISSIONER MENZIES: Okay, thanks.
5928 You appear to generally support our essentiality test but, as you are aware, that test is only part of the equation as to whether to mandate because we've mandated certain wholesale services despite non-essentiality to meet policy objectives. So I would like your point of view on what you think of our past application of our mandating criteria and whether you have any suggestions on how we may wish to improve it.
5929 MR. MEHR: Great. I think I will let Paul go with that.
5930 MR. COWLING: Yes, thank you. Well, certainly in the 2008 framework there are special designations for interconnection services and public good services and we certainly support the rationale for mandating those and we think they are reasonably clear. With respect to continuing to mandate those services, we don't believe there is much controversy in this proceeding.
5931 Where we are dealing with competitor access on a mandated basis we know that the essentiality test is the core -- we interpret the framework to say that the essentiality test is the core principle whereby you test whether the service should be mandated and we think that should be the touchstone.
5932 There were other services in the 2008 framework that were conditional, non-mandated, and the conditions have changed and we think that the framework drives you to a review of those conditions and a decision on whether or not it makes sense to continue to mandate them.
5933 COMMISSIONER MENZIES: Can you give some specifics on your view about conditions having changed?
5934 MR. COWLING: I think if you look at the evidence on what has happened in the retail market, there is certainly no evidence of competition diminishing. I think there is good evidence that competition is increasing both on the wireline side as well as from other platforms such as wireless and satellite.
5935 On the wholesale side, I think you also have a much more dynamic market than you did back in 2007.
5936 COMMISSIONER MENZIES: How much more dynamic?
5937 MR. COWLING: Well, I mean in terms of our TPIA uptake it's quite a bit more dynamic, several times what we would have had back in 2007. And so I think there is choice in that market. The wholesale service segment of our business has grown substantially in that timeframe.
5938 COMMISSIONER MENZIES: Would you mind providing us with data in terms of how that wholesale market has grown?
5939 MR. COWLING: Yes, sure.
5940 COMMISSIONER MENZIES: Okay. As an undertaking?
5941 MR. MEHR: Yes. We absolutely will do that as an undertaking and it has grown six-fold in the last three years in terms of our TPIA. It makes sense.
5942 COMMISSIONER MENZIES: Okay. I thought you might not want to give the number but...
5943 MR. MEHR: Yes. It has grown six-fold.
5944 And we also want to be clear while we are talking about numbers that we have quite a strong wholesale business at Shaw and it is growing dramatically. We like wholesale as a model and only one dollar out of every $10 we take in, in wholesale, is through mandated TPIA. The other nine dollars are commercially negotiated agreements, including with TPIA providers.
5945 So we think commercial wholesale works and is a big part of our Shaw business model.
5946 COMMISSIONER MENZIES: Thank you.
5947 We have talked this week a bit, I am sure you are aware, about the importance of bundles to consumers and some discussion that it should be an important part of our analysis. So to what extent do you think bundled services -- we have talked this week about whether they actually constitute a distinct product market, et cetera. To what extent do you think the triples and quads should inform our decisions regarding the definition of either wholesale or retail markets?
5948 MR. MEHR: I mean it's certainly not our view that bundles are a unique product market. Paul can give more definition on that if you want.
5949 Bundles are absolutely part of competition. If you think about the world today, though, and you look at what is happening in other proceedings here, customers have never had more choices. We have over 400,000 Internet-only customers with us and they are consuming video and presumably some of them are using voice, but they are not buying it from other providers. Overwhelmingly, our Internet- only customers are going over the top and choosing applications from global Internet providers. So there is lots of choice in the marketplace.
5950 We are still able to compete and we have a very profitable -- we have a very profitable satellite business in Shaw Direct that's a single play unbundled product going against bundled competitors. So for sure if you save 5 percent by bundling your service you buy more, you save more, that's a valid means of competition, but we don't think it overly drives the market.
5951 COMMISSIONER MENZIES: Okay. Thank you.
5952 Our take on it is that one of your key considerations regarding the state of competition is your view on the substitutability of mobile wireless data for wireline broadband. So it might be convincing that your Go WiFi is a reasonable alternative to a wireless data package. How can the opposite be true, given the rates and capacity constraints on mobile wireless data? Like, is wireless a substitute for wireline Wi-Fi?
5953 MR. MEHR: Yeah. I mean, I think to be completely honest, as it is priced and packaged today it is probably hard to make that argument. I mean the LTE networks today are certainly capable of providing speeds that are of similar levels of speed to broadband, to broadband Internet offering for sure.
5954 The way wireless is priced and packaged in Canada today, there is not enough data for the average consumer to be able to make a substitution, so if there is any substitution there it would be from only low end-users. So we certainly accept that.
5955 Because we are not in that business it is not clear to us whether the way it is packaged today is driven by technical limitations or economic limitations. I suspect it is both.
5956 The regulation should be future facing, though, and everyone has already announced LTA which is going to drive much more opportunity for them to package much more data into their product. There is no question that 5G will absolutely be a substitute.
5957 Now, how far away is 5G from a substitute for the average Canadian? I suspect it is more five or six years than two or three, but I think it certainly should be a factor in your deliberations.
5958 COMMISSIONER MENZIES: It's interesting in terms of that because I was thinking that in part in terms of at least SaskTel's evidence yesterday is while things are advancing the uptake on the very high level technology seems to be less enthusiastic than people might presume. I mean in terms of their very high speed package, for instance, that wasn't going yet.
5959 So is there -- are we reaching a point at which for the vast majority of people the more basic speeds -- I wouldn't call them low speeds, but the more basic speeds are meeting pretty much all of their needs and the consumer driver for expanded technology, at least in what you would call the residential market, might be peaking out?
5960 MR. MEHR: I mean I think that's an interesting line of thought. It really is behind our proposal around how do you level the playing field with fibre-to-the-premise investments. Quite frankly, we landed on speeds at 25 Mb per second, not because that's what the networks are capable of today, but it's a level that today decent numbers of customers don't appear to be willing to pay more for speeds beyond that speed and so I think that's right.
5961 And when you -- I mean, we were struck by Bell Aliant's evidence that, even though they are fibre-to-the-premise in Atlantic Canada, and there is really not a lot of incremental cost for them to offer higher speed services, over 80 percent of customers are taking a speed that they can provide with their fibre-to-the-node technology.
5962 I think one of the reasons fundamental around forbearing the next generation broadband is because there is risk in those investments.
5963 Speaking plainly, I think that risk is just time-based. I think there is a risk that we get there ahead of our customers and ahead of the applications that will drive that kind of usage. I don't think there is a lot of risk that we will permanently build too much headroom. Customers will grow into and applications will grow into wanting those kinds of speeds.
5964 I can't imagine that's not true, but the commercial return over those speeds over the next three or four years -- I think there is some risk there.
5965 COMMISSIONER MENZIES: I understand that. SaskTel, certainly, in terms of what they presented, seem to be ahead of their customers. It was kind of at the point where -- and that may be to their credit, for the speeds that they are already providing, but people would rather not have their lawn dug up than get the other thing.
5966 Anyway, it is interesting how consumers evolve.
5967 What is the state of your fibre-to-the-prem deployment? You have talked a lot about fibre in your networks and that sort of stuff, but how much fibre-to-the-prem are you doing, planning, have done?
5968 MR. MEHR: We have done some, for sure, primarily in new build and in MDU.
5969 I think we got a little ahead of ourselves -- and without too much discussion of RFoG and PON, we haven't got a great way to deliver video over fibre. We find that our fibre-to-the-premise experience -- we are offering an inferior product today, just because that technology hasn't got us there yet.
5970 So we are certainly not driving fibre-to-the-premise in the consumer market today. Fibre-to-the-premise in the business market is fundamental to our new entrant strategy, and we are doing that in a big way, in the tens of millions of dollars range.
5971 For us, for sure, the way to design our network is to push fibre from fibre to the current node, to fibre deeper, to fibre denser, to fibre to the curb, to fibre to the street corner, and we think it is a number of years away before there is a case for us to dig up the lawn, as you suggest, and put the final fibre drop in.
5972 The difference between us and the phone company is that that last mile is coax, and that box has been able to create incredible power in that last mile.
5973 COMMISSIONER MENZIES: Do you understand that it would be or it wouldn't be technologically possible with fibre-to-the-prem for the customer to have multiple service providers, technologically? If they took your cable offering, but somebody else's Internet, could that all be provided through the ONT?
5974 MR. MEHR: Yes, for sure it's possible, and I think where you have seen fibre-to-the-premise competition be successful, it is still facilities-based fibre-to-the-premise competition.
5975 There are communities today -- there aren't many -- there are communities today in western Canada where you have two fibre drops going into the home, and we increasingly see that, because we are both doing it in new greenfield. We have both done it in new greenfield, where you are building a brand new subdivision, or a brand new MDU.
5976 The economics of doing fibre is not an order of magnitude difference for either us or the phone company.
5977 So there are lots of instances where we both have a fibre drop directly into the premises.
5978 COMMISSIONER MENZIES: Now, among incumbents there is a certain unanimity of opinion that it would be wrong for us to mandate access to fibre-to-the-prem.
5979 Your argument is that services provided by fibre-to-the-prem are essentially the same product market as other residential wireline access services, which you consider to be non-essential.
5980 So do you agree that if we decide to continue to mandate wholesale high-speed access services, we would also have to mandate access to fibre-to-the-prem, as they would be in the same product market?
5981 MR. MEHR: Yes, we do agree. Our position is clear, which is that we think it is an incredibly competitive market, and we think that wholesale works, and that we could do commercially negotiated wholesale on all elements of the broadband network.
5982 In our proposal, though, we recognize that while it is competitive and could be forborne, that maybe a five-year transition period on speeds of 25 meg or lower would provide the independent ISPs with more flexibility and leverage in building those relationships.
5983 For sure, though, whether or not mandated -- whether or not that position wins the day, we don't sort of whip up and say: We are going to stop investing.
5984 To be clear, we are going to continue to invest and we are going to continue to compete, regardless of the outcome of this hearing.
5985 So if there is mandated TPIA on next-generation services, then absolutely there needs to be mandated retailer access to fibre-to-the-premise.
5986 COMMISSIONER MENZIES: Just to be clear, your approach is that nothing should be mandated, but if something is mandated, then fibre-to-the-prem should be included in the mandate.
5987 MR. MEHR: Yes, that's very well said.
5988 COMMISSIONER MENZIES: All or nothing, right?
5989 MR. MEHR: Yeah. Well, we propose that there is a phase-in period for all, and that we start with 25 meg or above, but on both sides.
5990 I would hate to have a regulatory environment that forces us to dig up people's front lawns, because, if we did, we wouldn't have to resell that network. I would think that we should be in a position where we should make the best customer experience decision in terms of our investment, and for regulation to force us quicker into fibre-to-the-premise -- I know that sounds good in simplistic terms, that fibre-to-the-premise must be good; I think it would mean we are not making the investments that we could be making to deliver a world-class broadband experience for customers.
5991 COMMISSIONER MENZIES: Specifically -- and you made reference to it before, but I just want to go back and, for clarity's sake, make sure -- why, again, did you pick 25 megabytes as the line that you were drawing? Is that the point at which most customers are --
5992 MR. MEHR: The vast, vast majority of customers today take that speed or less, and we have tried -- and maybe we are part of SaskTel's problem. We have all tried those higher speeds, very aggressively in price, which has probably forced us and them faster down this path than consumers needed to go.
5993 But our market evidence suggests that -- you know, would somebody take a 50 meg speed? Sure they would, but they are not going to pay an extra $20 a month to get it in this marketplace today.
5994 COMMISSIONER MENZIES: Right, and your forbearance test has to do with -- the forbearance test you are suggesting we use has to do with three service providers in any market.
5995 Is that correct?
5996 MR. MEHR: Yes, two of which are offering 25 meg service or above.
5997 There are markets where that is not true today, and there are even decent-sized communities where that is not true in our service area.
5998 I don't think that's true in Jasper. I think we are the only folks delivering that service in Jasper.
5999 And it's not true in Flin Flon, which is a pretty good-sized community, because we don't have connectivity to be able to offer that high-end service.
6000 So there are certainly spots where we think this could play an important role in levelling the playing field for Canadians.
6001 COMMISSIONER MENZIES: That provider presence test would be your definition of a geographic market, essentially?
6002 MR. MEHR: Yes, I will let Paul answer that.
6003 MR. COWLING: We didn't really think of the phase-out proposal from the point of view of a forbearance test. It is really trying to stage a gradual transition and to provide the Commission with an opportunity to see what is going on in local exchanges. That was the geographic market that we identified as the right community of interest, where carriers tend to market their services.
6004 So, in answer to your specific question, it was the local exchange that we used as the market for that phase-out transition proposal.
6005 COMMISSIONER MENZIES: It has certainly been implied by statements you have made so far today, but for clarity of the record, you would continue to offer TPIA services on a negotiated basis for all of those customers?
6006 MR. MEHR: Yes, absolutely, and we think that there is great opportunity for that space to grow on a negotiated basis.
6007 COMMISSIONER MENZIES: And that would be agnostic of whether it is 25 or 50 or 100? That number doesn't come into where you would continue to provide negotiated services?
6008 MR. MEHR: We embrace the wholesale model in our business, and on commercial terms it can be a very profitable business for us. Serving customers, and everything that comes along with that piece, can be very expensive. So we absolutely embrace that model.
6009 And we recognize -- I mean, we have TPIA providers in our market today that do a terrific job. I won't name them, but we have a provider focused on the Chinese market that is our customer and uses our TPIA service, and bundles it with 60 overseas Chinese channels, and 24/7 multilingual technical support in seven Asian languages.
6010 We have people adding great value to customer experiences, and filling spaces.
6011 I am a little embarrassed that we are not filling that space better ourselves, but they are taking a space that we weren't filling ourselves and moving things forward.
6012 So we think that kind of innovation, enabled by our wholesale, is good for consumers.
6013 COMMISSIONER MENZIES: You also argue in your submissions that there is really no credible basis to conclude that you have market power.
6014 Given that we did before, what has changed that would change the assessment, if we were to assess it exactly the way we did last time? What has changed so that it should be assessed differently now?
6015 MR. COWLING: Well, I think there is certainly evidence of rivalry, certainly evidence of competition and I think that's just intensified.
6016 And one of the reasons it has intensified is because other platforms that operate from a different technology are also exerting discipline in the market, whether it's satellite or fixed wireless or increasingly mobile.
6017 I think that dynamic is at play. Whether you conclude that wireless is a complete substitute or not, I think that enhanced competitive dynamic is certainly different now than it was at the time that you last reviewed this and I think there's evidence that there is more intense competition between the two wireline providers.
6018 COMMISSIONER MENZIES: Why did you choose a five-year phase-out period?
6019 MR. COWLING: Well, a couple of reasons. I think that it's important to build on a regulatory stability that was set back in 2008, so I think the five-year phase-out provides the right cadence for looking at this and give the independent ISPs enough cushion so that we as an industry can transition to a market-based model.
6020 There was a five-year period between the last review and this one, and so we thought that that hit the right balance in terms of that transition mechanism.
6021 COMMISSIONER MENZIES: So at the end of that competitors would be negotiating access with you in pretty much 95 per cent of the markets that we currently define?
6022 MR. COWLING: Correct.
6023 COMMISSIONER MENZIES: Okay. And you're willing to backstop that with mediation from us. Is that a firm enough backstop, or should there be something more like arbitration, if we were to be backstopping?
6024 MR. COWLING: Yeah, that's a good question. We thought quite carefully about that and one of the things that may have been a challenge under the current dispute resolution model is that mediation is a voluntary process. You don't have staff at mediation unless both parties are willing to be there.
6025 So given that we really would like to see negotiated outcomes as opposed to a ruling from the Commission, we think you can enhance the discipline of the mediation process so that it would be mandatory and create some incentives and some discipline in that process to get to a negotiated outcome that is guided by the regulator.
6026 We think, you know, given the history of the regulator's involvement on costing and that the rate would be the dispute, there is a role for the regulator to play there in disciplining that process and really -- I mean, eventually that would fall away, that mandated mediation side of it would fall away because you'd get to a place where everyone's transitioned from the regulatory bargaining relationship to a market-based bargaining relationship and we think that the regulator can occupy that space during that transition period on the rate side.
6027 COMMISSIONER MENZIES: Okay, thanks. In 2008 we decided to phase out Ethernet services. As a result, as you point out, you made -- or consequently, I shouldn't say as a result, consequently you made investment in facilities for, and you mentioned Enmax Envision in Calgary and you've suggested re-regulation would undermine that investment, right.
6028 Now, in your early submissions you suggested that in the business market there is only one ubiquitous network controlled by the ILEC which is TELUS.
6029 So we understand the need for regulatory consistency, but what evidence do you have to show that retail business markets are better off since forbearance?
6030 MR. MEHR: So we'll take the first part of the question in terms of investment decision and then throw to Paul on the evidence of retail markets.
6031 Yeah, I mean, you're correct. First of all, you've correctly identified a shift from our early documents. It certainly appeared to us as we worked our way through the process that it was hard for us to make the argument that when it was in our advantage you should de-regulate and when it worked against us you should regulate. It was not a very pure position for us to take.
6032 MEMBER MENZIES: You're not the first ones.
6033 MR. MEHR: Accept that, but it didn't seem consistent, so we certainly softened our position, for sure.
6034 Yeah, we spent $225 million on Enmax Envision and what we bought was a tremendous amount of fibre into the big office buildings and oil and gas businesses in Calgary and we don't think there's any argument that point-to-point fibre for business customers, that there aren't very valid economics to support that investment.
6035 I mean, we understand that it may be in the interest of some providers, and we understand why people like Allstream would want that, we totally understand why they would want that, but we're prepared to invest and we're spending tens of millions of dollars at this moment building fibre into those buildings.
6036 We think the economics are there, not just for us and the Telco, but for others. But we'll pass to Paul on evidence of competition.
6037 MR. COWLING: I mean, if you look at the number of players in the market, I think there's definitely an increase there and there's been an increase in the size of that business.
6038 In terms of specific evidence on pricing and that sort of thing, you are seeing evidence of a competitive market. I think that's reflected in the Communications Monitoring Report.
6039 COMMISSIONER MENZIES: Thank you. Now, to go back to the negotiated agreements, so do you envision that the tariff would still be in place as a backstop?
6040 MR. COWLING: Yeah, as far as the phase-out proposal goes, the tariff would still be in place for the first year and then it would not be -- through that next four years of the phase-out it would not be in place.
6041 COMMISSIONER MENZIES: Do you think the existing level of disclosure is appropriate?
6042 MR. COWLING: In terms of costing?
6043 COMMISSIONER MENZIES: Yes.
6044 MR. COWLING: Yes, I think the level of disclosure is appropriate under the last ruling from the Commission on that item.
6045 COMMISSIONER MENZIES: Okay. So if one of the parties in your negotiations thought there wasn't enough disclosure to inform negotiations, shouldn't we reconsider disclosure requirements?
6046 MR. COWLING: Well I think that, again, the regulator would be at the table through the mediation process, so the regulator could or would have that information and as through a mediation process it would be disciplining the parties.
6047 COMMISSIONER MENZIES: Okay, thanks. Understood. The proposal to establish a CISC costing working group has collected several negative responses, you among them.
6048 MR. MEHR: I suspect we're going to give a different answer, so let me give you my answer because it's the one you'll prefer.
6049 MR. MEHR: Look, we're open to meet, we're open to participate in any process that you deem appropriate. We would like to make this work.
6050 I think history does not suggest a high probability of great success in that process, but we're totally open to participate.
6051 COMMISSIONER MENZIES: And give me my other choice now.
6052 MR. MEHR: It is consistent. I think it's the other aspects of the proposal that I think we would have concerns with; namely, the efficient operator proposal and there's been a lot of discussion on our remarks and submissions about the diversity of networks and that's something we should embrace, and I think a uniform cost approach runs the risk of undermining that.
6053 COMMISSIONER MENZIES: Okay. I was going to ask you initially if there might be another form that worked for you, but you indicated in your remarks that you were willing to work with any form that we might suggest, so I'll assume that.
6054 Give me something, just so it's on the record.
6055 MR. MEHR: Yes.
6056 COMMISSIONER MENZIES: Your nodding was good, but the transcript won't show it.
6057 So there are a variety of alternatives proposed to replace Phase 2 costing methodology. One of them perhaps might be appropriate in certain circumstances.
6058 So for example, if a wholesale service has a similar associated retail service, would retail minus be an appropriate way to set the rate, or should Phase 2 be the only approach for all wholesale services?
6059 MR. COWLING: Yeah. Our view is that Phase 2 is the right approach. I mean, you've heard from a lot of people that Phase 2 is challenging and TPIA is the only service that we provide that's subject to Phase 2, so it's something we work through in a challenging way.
6060 But it does ensure that carriers can recover their specific costs and we don't see the attractiveness of a retail minus model and in a competitive environment we see a lot of challenges in identifying the right rate for the purposes of that model.
6061 COMMISSIONER MENZIES: Okay. In terms of mark-ups there, several of the ILECs have argued that mark-ups on wholesale are insufficient. Do you think the mark-ups are appropriate or not and why or why not?
6062 MR. COWLING: We're comfortable with the mark-ups where they are today.
6063 COMMISSIONER MENZIES: Okay. And that's for -- okay.
6064 You did suggest that a single mark-up for all wholesale services wouldn't take into consideration the risks associated --
6065 MR. COWLING: Well -- sorry.
6066 COMMISSIONER MENZIES: -- with investing in --
6067 MR. COWLING: Where the mark-ups are today is that there are a different -- there is a different mark-up for services that are competitive, there is a different mark-up for our TPIA service and in order to reflect the fact that it's a competitive market and that, risks should be reflected in that mark-up and return on investment should be reflected in that mark-up.
6068 So that's what we have today and we're comfortable with that. It's proposals that would take us away from that that we would be concerned about.
6069 MR. MEHR: Yeah. So the first position for sure is the market's competitive and we should forbear with a five-year phase-out period 25 Meg and underneath. If the Commission were to decide that a greater markup on fibre-to-the-premise was available because of the risk that we agree about in terms of consumer payback, obviously we would be open to a greater markup on our next-generation broadband services as well.
6070 COMMISSIONER MENZIES: So how do you evaluate risk internally? Like I asked SaskTel yesterday, do you have a different hurdle rate for lower risks or higher risks? Maybe you can just help us understand how you account for risk when you're costing internally.
6071 MR. MEHR: Yeah. When we're making capital allocation decisions, risk is absolutely a factor in the consideration. We've got a fairly detailed capital allocation model that breaks all of our capital allocations from a service risk perspective, return on capital, new revenue streams and then prioritizes based on a model to do that, and so it's a fairly rigorous way that we determine how we're going to spend capital. I'm trying to figure out how I can give you a specific answer to your question, except to say that it's formally accounted for in the return on capital calculation.
6072 COMMISSIONER MENZIES: Okay. So maybe you could help me with sort of what risks do you include in calculating cost of capital or is it -- I mean if it's enormously detailed, you don't need to go through it right now but part of it is trying to understand when looking at markups what risk is already captured in the cost of capital going into the rate and then what risk might be assessed in terms of the markup. So why is --
6073 MR. COWLING: If we're talking about --
6074 COMMISSIONER MENZIES: What gets missed in the cost of capital assessment of risk versus the markup risk?
6075 MR. COWLING: Right. So the cost of capital associated with the enterprise as a whole, when we go to the market and raise capital, that cost is not divvied up internally when we're looking at an individual project.
6076 And in terms of the markup, so the cost of capital is a cost and we need to be able to recover the cost. The markup is also reflective of the risk associated with the investment, so it's sort of a second bucket.
6077 And then there's also a return. So above and beyond the cost that we can incur, there's an expectation of a return on that in a competitive market.
6078 COMMISSIONER MENZIES: Bell proposed in terms of pricing process improvements two exemptions from the requirement to file a new cost study. One was for recently filed cost studies and the other was for the service demand and revenue of the services level. What are your thoughts on that?
6079 MR. COWLING: Yeah, we support those exemptions.
6080 COMMISSIONER MENZIES: This is becoming like SaskTel's reference to the straight answers from Prairie folk yesterday. Your answers are getting ahead of my ability to come up with the next question.
6081 But the next question is how do you continue to ensure that the rates -- do we continue to ensure that the rates are just and reasonable when you make an exemption in that area suggested by Bell's two exemptions?
6082 MR. COWLING: I think there are other cost studies and tariff rates out there. So I'll start with the example of the recently filed case. The scenario that we had in mind when we looked at that exemption is you're starting with a 15 Mbps speed, you're five years into your cost study and you want to bump up your speed to 20 Mbps.
6083 Using that same cost study, to us, seems like a very reasonable thing to do because you're effectively just enhancing the service but you're still ensuring that you get the costs over the 10-year amortization of those costs. So I don't think there's any risk that -- the risk would be ours that it's not just and reasonable because we're not sort of increasing the cost, we're just enhancing the speed on basically the same cost base.
6084 COMMISSIONER MENZIES: Okay, thanks.
6085 Going back to your very first intervention last winter, you stated then that you opposed the freezing of rates for legacy services like loops, low-speed CDN, and you suggested then because the cost of those services are subject to change. Are you still of the same view because you haven't commented on it since?
6086 MR. COWLING: Yeah, we're still of the same view.
6087 COMMISSIONER MENZIES: Okay. So how appropriate is it to -- what's your view on the appropriateness of using other incumbents' costs in order to assess the costs for similar wholesale services? That's the first question.
6088 MR. COWLING: I think it's a question of degree and reasonableness. Benchmarking for the purposes of imposing uniformity is not something we would support. The carriers should be able to recover their costs and there's good reasons for differences.
6089 COMMISSIONER MENZIES: So in terms of company-specific costs, what would be examples of areas where there's -- that we should be more mindful of in terms of assessing company-specific costs or being aware of where some costs are specific to one company, where they might not be to another?
6090 MR. COWLING: Well, in our case, we've had -- the issue that comes to mind for us is our CSG costs.
6091 COMMISSIONER MENZIES: Can you just unpack that a little bit?
6092 MR. COWLING: Well, if you have a service and you have sort of a fixed cost associated with a staff that's provisioning a wholesale service, it will by definition -- given the scale of the service and the scale of the resources that we have to put into it, it may not be proportionate like it might be for another carrier who has a much bigger TPIA base that they can amortize their costs over.
6093 COMMISSIONER MENZIES: Those are my questions. Thank you.
6094 THE CHAIRPERSON: Thank you very much.
6095 I believe Commissioner Molnar has some questions.
6096 COMMISSIONER MOLNAR: Good morning. I want to understand the discussion and your position as it regards that conditions have changed in the retail Internet market. Maybe you could just tell me again why you believe that the conditions since this was looked at have changed significantly in the retail Internet market.
6097 MR. COWLING: I think if you look at the metrics around performance of broadband, they've all improved and I think -- I don't want to repeat myself but I think in addition to that you've seen technological transformations, as Zoran has alluded to, that allow for a more dynamic rivalry among different platforms, that again enhances the broadband performance of the market generally.
6098 I frankly don't think -- I mean we didn't agree with the market power assessment five years ago but we think that conditions have continued to improve and we're at a point now where there's no evidence of us being able to exert market power based on the metrics that we're seeing.
6099 MR. MEHR: I think at a high level -- to add to that, you know, if you think of the competition between the telephone companies and the cable companies, I would argue that the retail competition has dramatically increased over that period, and while the cable companies didn't have market power in 2008, I think it's fair to say that we had our competitive advantage over the telephone companies in terms of delivering Internet service.
6100 And I think if you see very clearly through the shifts in the marketplace and market share over that period of time that the telephone companies have made major investments, so that there is a much more narrow competitive advantage and certainly our primary competitor would claim they have a competitive advantage over us in terms of Internet speeds. So I think the level --
6101 COMMISSIONER MOLNAR: You're saying conditions have changed between the two facilities-based operators --
6102 MR. COWLING: Yes.
6103 COMMISSIONER MOLNAR: -- the telcos versus cablecos?
6104 MR. COWLING: Yes.
6105 COMMISSIONER MOLNAR: Okay.
6106 The Commission's speed-matching decision stated clearly that in the Commission's view an ILEC and cable carrier duopoly would likely occur in the retail residential Internet market and competition might be reduced substantially. Oh, I'm kind of reading the wrong one here. I'm sorry.
6107 But essentially, if you look at the speed-matching decision it stated quite clearly that a duopoly between the telcos and cablecos was not sufficient and went on -- as you're talking about phasing out regulation on the wholesale side, the decision also stated the conditions under which the Commission would phase out regulation on the wholesale side and it was conditions as it regards retail or wholesale.
6108 Are you aware of the decision?
6109 MR. COWLING: Yes.
6110 COMMISSIONER MOLNAR: I have it here and I can try and read it, but, as you saw, I picked the wrong sentence right there.
6111 But essentially, I mean, if I paraphrase and don't read, on the retail side when retail service competition among wireline, wireless, satellite-based retail Internet providers is sufficient to protect the interest of end users in these retail markets. So the condition for retail competition was competition amongst different technological platforms.
6112 MR. COWLING: M'hmm.
6113 COMMISSIONER MOLNAR: You're not saying that that condition exists, you're simply saying there's more aggressive competition between the --
6114 MR. COWLING: I think we are saying that condition exists. And in addition to that, I think Jay talked about sort of there's a difference between the two wireline providers on the retail side. I think you also have an enhanced wholesale market since 2008, a more robust wholesale market.
6115 COMMISSIONER MOLNAR: Okay. Well, it also talks about the conditions on the wholesale market that could also cause forbearance and that is where there's a functionally equivalent practical and feasible wholesale alternative available to these people. Are you suggesting there is a functionally equivalent practical and feasible alternative --
6116 MR. COWLING: Well, I --
6117 COMMISSIONER MOLNAR: -- to your network or the ILECs' network?
6118 MR. COWLING: I think our position is that you could have a dynamic wholesale market with two providers. I think that's our position.
6119 COMMISSIONER MOLNAR: Okay. So you're saying that the decision we made wasn't right and we should just be looking at the two?
6120 MR. COWLING: I think we should --
6121 COMMISSIONER MOLNAR: Because it did lay out the conditions when forbearance would be granted.
6122 MR. COWLING: And it is an alternative, so you're looking at the retail and the wholesale side, and I think on both sides of the equation you're seeing a more dynamic market. I think our position is that whether it's two or three you have to look at the dynamic. There isn't a magic number.
6123 COMMISSIONER MOLNAR: Well, I think you said forbear when there's three facilities-based competitors --
6124 MR. COWLING: Yeah.
6125 COMMISSIONER MOLNAR: -- and then mentioned that there's just a couple of markets where that doesn't exist for you. So what are you defining to be those facilities-based competitors?
6126 MR. MEHR: Right. To be clear, we were suggesting that this is a competitive environment and that you should -- that we should consider the entire market for forbearance. We added to our proposal a five-year phase-out period because we thought it would be easier for a healthy and dynamic wholesale market to emerge if we had that phase-out period but we're suggesting that the competitive environment exists today and therefore forbearance.
6127 MR. COWLING: I'm just going to add one point to that, which is, you know, again, the purpose of the transition proposal actually provides an opportunity to the Commission to test this. Like there will be rigour in the --
6128 COMMISSIONER MOLNAR: Right. Did I misunderstand what you said -- when I read your statement here and you say:
"The second step is introducing this five-year phase-out in markets with at least three unaffiliated facilities-based providers, two of which provide 25 Mbps speeds or higher." (As read)
6129 So that's in here and I thought I heard you say that there is a couple of markets -- or a couple of communities or locations within the markets you serve where that condition does not exist.
6130 MR. MEHR: Yeah. So just on the couple of markets piece and then I'll let Paul answer the first part of your question.
6131 To be clear, in the geography of Canada, most of the physical space of Canada, that doesn't exist in. There just aren't a lot of people in those spaces. I gave you a couple of examples of two of the larger communities that didn't have that, but in lots of rural Canada there aren't two providers that provide 25 Mbps speeds.
6132 COMMISSIONER MOLNAR: Okay. I'm going to ask the question differently. Do you have in your marketplace communities where there are at least three unaffiliated facilities-based providers providing 25 Mbps speeds? Does this condition exist?
6133 MR. MEHR: Well, we've said three providers of which two provide 25 Mbps, and certainly that exists in Vancouver and Edmonton and Calgary and Saskatoon and so forth because there's lots of other Internet providers around, and certainly satellite today provides -- Xplornet provides an Internet service to most Canadians and they've said they're going to offer 25 Mbps next year. They've publicly said that. So we think that's an option.
6134 COMMISSIONER MOLNAR: Okay. I understand better. So you're not actually suggesting three high-speed facilities-based providers -- I mean higher-speed -- you're saying this essentially could be achieved anywhere there's a telco, cableco network?
6135 MR. MEHR: Yes.
6136 COMMISSIONER MOLNAR: I see. Okay.
6137 I want to go back to your comments on satellite. I'm just trying to understand how you think it's relevant to this really as we're looking at whether or not wholesale services, you know, wholesale TPIA should be mandated and what relevance you see satellite has to that discussion.
6138 I believe you mentioned that you accept that wireless is not a substitute for wireline Internet access services today --
6139 MR. MEHR: Yeah.
6140 COMMISSIONER MOLNAR: -- a viable substitute and you believe that satellite is?
6141 MR. MEHR: Yes. So we believe wireless is a factor and we believe the way wireless is being packaged today by the current providers that it's not a substitute.
6142 COMMISSIONER MOLNAR: M'hmm.
6143 MR. MEHR: We don't have -- I don't know that business well enough to know whether or not that's a packaging choice or a technology choice.
6144 COMMISSIONER MOLNAR: Right.
6145 MR. MEHR: Certainly, it's fast enough.
6146 COMMISSIONER MOLNAR: But practically, for the majority of customers --
6147 MR. MEHR: Yes.
6148 COMMISSIONER MOLNAR: -- it is not a practical substitute as it regards the price and quality delivered?
6149 MR. MEHR: Yeah, for sure. We agree.
6150 COMMISSIONER MOLNAR: And you believe that satellite is a practical substitute based on the price and quality delivered --
6151 MR. MEHR: Absolutely.
6152 COMMISSIONER MOLNAR: -- in competition with your service?
6153 MR. MEHR: Yeah, absolutely. If you look at the satellite service that's available today, you can get fairly consistent 5 Mbps speeds over satellite and we think that the companies that are involved in that are making major investments. Is there a portion of the market that 5 Mbps is fast enough for? For sure, there's a portion of the market that based on cost and price that's a valid substitute.
6154 COMMISSIONER MOLNAR: Okay. So as you're saying that, you're saying at the lowest speeds they are a viable substitute, at the lowest speeds, without significant usage? Because I think we would accept that there are some pretty significant caps on satellite usage today.
6155 MR. MEHR: Yeah. Okay.
6156 COMMISSIONER MOLNAR: So it's different than wireless? I mean wireless might be a substitute if all you want to do is check Google maps now and then or something like that.
6157 MR. MEHR: Yeah. No, I think that's right. I think if you look at where the market is today, we would agree that satellite is a substitute at low speeds.
6158 And we think if there's an argument around substitution for wireless, it's around low data usage, and I think just the nature of the dynamic is the customers that happen to have the lowest data usage tend to skew older, quite old, and they're probably not on the big wireless plan to begin with, so you probably haven't seen practical substitution there.
6159 But I agree with you. I would like to point out to the comment on Canada's lagging broadband network that was made earlier that we're now referring to 5 Mbps as low speed, which I think is quite an accomplishment for the Canadian system because it certainly wasn't low speed and I don't know that it's perceived to be low speed globally.
6160 COMMISSIONER MOLNAR: M'hmm. You made a wise statement that regulatory should be future-facing, and so setting up frameworks for 5 Mbps does not seem to be that future-facing at this point.
6161 I think you would accept, you know, while maybe we're talking about it now as low speed for customers, the expectation -- I mean you could tell me. In your customer base, what is the most common speeds that your customers are looking for? What are you selling? Are you selling 5 or are you selling more?
6162 MR. MEHR: Yeah. By far, our most popular packages are 10 and 20.
6163 COMMISSIONER MOLNAR: Right.
6164 MR. MEHR: And I'm not going to --
6165 COMMISSIONER MOLNAR: So us spending a lot of time figuring out whether or not there's facilities-based competition for 5 Mbps maybe isn't --
6166 MR. MEHR: I absolutely accept your point.
6167 COMMISSIONER MOLNAR: Okay. Thank you. I have no other questions. Thanks.
6168 THE CHAIRPERSON: I believe those are our questions. The advantage of coming up later on the stand is that you've seen all the other questions and I think your answers are more efficient. So that's the advantage of being later. So thank you very much.
6169 I think it's probably best that we take our morning break at this point and come back at 10:35 for the next intervener. Thank you.
--- Upon recessing at 1020
--- Upon resuming at 1038
6170 LE PRÉSIDENT : À l'ordre, s'il vous plaît. Madame la Secrétaire...?
6171 THE SECRETARY: Yes. We will now hear the presentation by VMedia. Please go ahead. You have 20 minutes.
6172 THE CHAIRPERSON: Before you get started, I noticed you have some charts in your presentation. If I understand correctly, these are charts that are drawn from reports that aren't technically on the record of the proceeding; is that correct?
6173 MR. BURGER: Yes, Mr. Chairman. They are reports that came to our attention. One of them, for example, was only published in June 2014 and only came to our attention very recently.
6174 Which was the other report? There was only the J.D. Power report, I think.
6175 THE CHAIRPERSON: I believe the footnote refers to -- Footnote 3, "Fast Forward".
6176 MR. BURGER: Yes, that's the one. That's from the late summer.
6177 THE CHAIRPERSON: Right. But you are not trying to put the entire -- those reports on the record?
6178 MR. BURGER: No.
6179 THE CHAIRPERSON: Just that chart, right?
6180 MR. BURGER: That's correct.
6181 THE CHAIRPERSON: And it is part of your presentation?
6182 MR. BURGER: That's correct, Mr. Chairman.
6183 THE CHAIRPERSON: And other parties will have the opportunity, if they so wish, to respond to that?
6184 MR. BURGER: Yes.
6185 THE CHAIRPERSON: Is that your position?
6186 MR. BURGER: That is, thank you.
6187 THE CHAIRPERSON: Okay, good. Thanks. Thank you. Go ahead.
6188 MR. TCHERNOBRIVETS: Thank you, Mr. Chairman, Vice-Chairmen, and Commissioners.
6189 My name is Alexei Tchernobrivets and I'm the CEO of VMedia Inc., an independent Internet service provider. To my right is VMedia's advisor, George Burger.
6190 The range of issues considered in these proceedings is broad, and much of the analysis and commentary on most matters relating to the interests of independent ISPs have been extensively and expertly addressed by CNOC and others in their submissions and appearances at these hearings.
6191 VMedia is the only ISP offering a triple play alternative to consumers in all of the markets of Ontario dominated by incumbent telcos, featuring its own BDU and home phone services. The central focus of its business is the development of a competitive, compelling and innovative IPTV-delivered BDU service. As such, VMedia has a unique perspective on the importance of the outcome of these proceedings, and the extent to which that outcome will determine choice, fair pricing and innovation for Canadians.
6192 VMedia will limit its comments to the relationship between the wholesale service issues under consideration, and the ability to create and nurture a competitive environment in which diverse and fairly priced video content is permitted to flourish. That video content includes:
6193 - Not only content delivered on its own BDU service but also over the top content exempt from regulation pursuant to orders by the CRTC issued from time to time;
6194 - The ability of a grandmother to communicate with her grandchildren face-to-face on Skype wherever they may be;
6195 - The ability of educators to most effectively communicate their knowledge to students around the world, and;
6196 - The ability of doctors, scientists and other thought-leaders to share their experiences and maximize outcomes for the betterment of all.
6197 Moreover, VMedia seeks to help develop a market in which ISPs like VMedia can compete with the duopolies to serve residential homes with the sort of bundle offerings that Canadian homes, over 83 percent of them according to a recent J.D. Power report, demand.
6198 VMedia hopes that in the course of these proceedings there is a recognition that:
6199 - Internet service cannot be considered in isolation from other services that comprise bundles;
6200 - Video distribution over the internet is the ultimate "killer app", and is an integral part of the process of determining wholesale internet access policies, and;
6201 - That a fair wholesale framework within which independent ISPs can strive and survive is an essential underpinning to a robust competitive market for bundled services that will benefit Canadian consumers.
6202 While the residential Internet market is substantial, with nearly $6 billion in revenues in 2013 and alone merits a supportive wholesale framework, the BDU market, with nearly $9 billion in revenues in 2013, raises the stakes considerably for, at this point, the only new entrants which would be able to provide choice in BDU services to Canadians across the country, alternatives to the duopolies which currently dominate the market, are ISPs.
6203 Accordingly, as go these proceedings, so too will go the ability of Canadians to enjoy all of the rich, diverse content that the internet can deliver to them, including BDU services at fair prices.
6204 Our comments are comprised of three parts. The first is our view of the current competitive environment in Canada. The second, a discussion of the importance of fair pricing in wholesale services to enable competitors to enter the market and provide alternatives for Canadians. And, third, our responses to the three areas of focus set out in the Commission's letter of October 23rd.
6205 VMedia is acutely aware of the fragile state of competition in the delivery of content in its market. Surrounded by behemoth vertically-integrated entities which are both its suppliers and its competitors, VMedia's ability to establish a robust business which is capable of delivering the competition which Canadian consumers want and deserve is difficult in the best of circumstances, but it is severely constrained in the absence of a fair, if not entirely level, playing field.
6206 From VMedia's point of view, these proceedings will determine whether Canadians will be limited to duopolies in virtually all the major markets throughout Canada in the delivery of services television, internet and phone which in the aggregate generate over $50 billion in revenues for the four largest incumbents in the country.
6207 Put in perspective, in most of those markets for most of those services, and certainly for a triple play bundle, Canadians are limited to a choice of two suppliers from among four companies that dominate the fourth biggest industry in Canada after only banking, food and natural resources. This is an unacceptable concentration of services and market power and underscores the importance of these proceedings.
6208 If the proceedings result in a framework in which ISPs have access to bandwidth at prices which will allow them to offer internet and IPTV services at competitive prices, even as usage continues to inexorably rise, and one in which service levels required of incumbents in providing that bandwidth enable ISPs to provide the best possible service for their customers, consumers may yet experience robust choice in their bundles and services.
6209 It is useful to compare consumer choices between the major cities in each of Canada and the USA, Toronto and New York City. Both Toronto and New York City are served by four different content delivery platforms but that is where the similarities end. A consumer in Toronto has two satellite-delivered BDU services and two terrestrial ones available to her. One of them, Shaw Direct, is virtually invisible in the market, concentrating its marketing on its home territories in Western Canada. That leaves three platforms, but really two providers, with Bell TV delivered on both satellite and IPTV.
6210 MR. BURGER: In New York City consumers can choose between Time Warner Cable, Verizon's FiOS, Direct TV and DISH. Four unrelated platforms, competing vigorously for subscribers. The results of this competition is reflected in numbers. The best way to determine whether consumers have the benefit of competitive pricing between markets, excluding unique market differences, is to compare margins.
6211 As the simple chart below shows, in comparing the EBITDA margins of triple play providers in the respective markets, margins in the USA are on average 10 percent less than in Canada. Among quad play providers, the margin difference, again to the benefit of Canadian providers, is 7 percent. This comparison, when applied to the revenues of the companies in question, translates into over $5 billion in excess costs to consumers at the high end and $3.5 billion at the low.
6212 It is important to note that the analysis contradicts the claim that higher prices are justified to account for geographic differences, and the capital expenditures related to accommodating those differences. Margins are margins, ROI is ROI, and despite those geographic challenges Canadian companies are generating margins up to a third greater than their U.S. counterparts.
6213 VMedia acknowledges that these are telecom hearings, and the focus is on internet services in particular. Unfortunately, the costs related to the various business segments of the incumbents are not segmented so it is difficult to show the margins relating to the respective services.
6214 However, we remind the Commission that one of the incumbents presenting at the "Let's Talk TV" hearing acknowledged that its TV services generated a gross margin of 70 percent, while its internet margins were 100 percent. So we can only assume that these numbers do not unfairly characterize the disparity relating to telecom services or the substantial margins attributable to them.
6215 VMedia acknowledges that delivering its competitive and innovative bundle alternative to consumers is dependent on its ability to obtain access to bandwidth on economical terms, based on reasonably determined tariffs which reflect the true cost of those services to the wholesale suppliers, and a fair return. As such the central consideration for VMedia or any other ISP in formulating any business plan that provides bundle alternatives, is the ability to benefit from fair pricing. In VMedia's view, fair pricing is currently not a feature of the existing framework.
6216 VMedia's central strategy is to provide as much choice and flexibility in content consumption to Canadians as its technology can deliver. VMedia is content agnostic, encouraging its subscribers to watch regulated television as well as over the top content without limitation.
6217 However, the core of VMedia's business, and central to its profitability, is its BDU business. VMedia delivers its BDU service on an IPTV platform, and as such its cost of delivering those services to its subscribers includes not only the wholesale cost of channels but also the bandwidth required to deliver that content. That bandwidth is, of course, acquired from incumbent telcos.
6218 Accordingly, in order to enable VMedia to deliver content of a quality matching that distributed by incumbents, VMedia must be assured of the affordability of its internet service to consumers. If the wholesale pricing of the services VMedia acquires from incumbents is not fairly arrived at, VMedia's business model is impaired, and its ability to compete at a quality of service level comparable to vertically integrated entities is diminished.
6219 MR. TCHERNOBRIVETS: VMedia has developed processes and adapted technologies to maximize quality while reducing bandwidth consumption. VMedia delivers content consuming on average over 3 megabits per second of speed. This is in comparison to 7-plus megabits per second which VMedia understands is deployed by incumbent IPTV services.
6220 Notwithstanding that, in order to be able to compete in the long term through the provision of content delivered with the same speeds as that used by the incumbent IPTV providers, it is even more important for VMedia to be able to provide similar speeds and still compete on pricing, sustaining VMedia's value proposition. The key element in enabling it to do so is fair pricing for bandwidth.
6221 Specifically, at current tariffs in order for VMedia to replicate the quality of service delivered by the incumbent IPTV services, based on the foregoing assumptions, VMedia would have to pay nearly $100 wholesale, $25.60 fixed monthly access rate per subscriber, plus $10.36 times X 7 Mbps, for the capacity it would require to ensure it could deliver those speeds to its subscribers at peak. Together with other costs and a reasonable markup, its retail cost would be $140, a price at which VMedia could not compete. The price compares with Internet service available from the incumbent which retails at $64.95 per month, and even less in a bundle.
6222 VMedia submits that this disparity must be considered in these proceedings because its perpetuation, which appears to be unjustified, will severely impede the ability of VMedia or any other new player to deliver the level of competitive services which Canadians demand and deserve.
6223 In effect, by including a constant 7 Mbps use with the IPTV service, the incumbent IPTV customer is getting the video-related capacity for free, capacity for which VMedia is required to pay $72.52 wholesale. This raises questions regarding undue preference shown by the incumbent's wholesale internet service in favour of its IPTV division, and discriminatory pricing imposed on VMedia and other potential competitors.
6224 MR. BURGER: As mentioned above, it is impossible based on the publicly filed financial statements to determine the cost to incumbents of their Internet services, other than the comment of an incumbent we referred to previously. However, VMedia does have a estimate of the increasing cost of wholesale services from at least one provider, as well as the ARPU trend for Internet services as derived from the 2014 Communications Monitoring Report.
6225 The chart describes the respective trends, and infers an incompatibility between the rising cost of wholesale bandwidth, and incumbent ARPUs.
6226 The chart reflects a dramatic move in a very short time in wholesale prices. In that period, between an increase in the tariffed basic end-user charge and CBB, wholesale prices increased at a CAGR of over 23 percent. In that period, the incumbent ARPU increased at a CAGR of 12 percent. The respective increases in the last year were 35 percent and 13 percent.
6227 This trend is alarming enough, but admittedly covers a brief period. However, the chart below shows the impact of projecting those trends out just five years. The assumptions driving the growth of wholesale prices is based on a recent study commissioned by NLKabel, the Dutch telco, and CableEurope, the European trade association representing telcos in the EU.
6228 The study projects a CAGR for downstream traffic demand of 40 percent. Our own observations of growth in these relatively early days of the availability of high-quality video over the Internet is 30 percent over the three years since CBB was adopted, and so we have applied that measure going forward.
6229 The chart shows that based on projected traffic growth trends, under the current CBB regime wholesale prices will exceed retail prices in just over two years. It is not difficult to predict what kind of an impact that will have on the independent ISP sector, and the ability of ISPs to provide alternatives to incumbents in offering triple play services to the market.
6230 VMedia believes that a renewed focus on wholesale pricing, with a view to addressing and correcting these obvious disparities, will result in a fair pricing framework that will avoid recourse to costly proceedings before the CRTC and the end of meaningful competition in the provision of these key services that are so central to the lives of Canadians.
6231 In our view the current framework is written too narrowly to serve the new environment within which telecom services are provided. As VMedia has attempted to show in these comments, in the current environment wholesale wireline service issues, almost exclusively focused on Internet service, are inextricably linked to the provision of video services, and more particularly BDU services. Policy objectives to ensure a competitive landscape in providing both services are dependent on the outcome of these proceedings. Similarly, in order for the proceedings to achieve that outcome, the framework has to be expanded to allow consideration of issues which more formally would be within the purview of the Broadcasting Act.
6232 At the "Let's Talk TV" hearing comments regarding competition in the BDU sector inevitably touched on competition in the provision of Internet service, but discussion was forestalled as those matters were reserved for telecom proceedings. VMedia respectfully submits this divide should no longer be observed by the Commission.
6233 VMedia recommends that the scope of the framework, the areas which it seeks to encompass, the issues which it considers in its application, and the very structure of that framework, ought to feature an integrated approach which acknowledges that as goes the state of competition in Internet services, so goes competition in the highly concentrated BDU sector.
6234 In addition to the better integration of broadcasting policy issues into the process, the framework should more extensively consider approaches that would enable ISPs to economize on bandwidth usage through tariffed access to points of interconnection and other facilities, for example installing equipment to cache content, and other solutions for reducing last mile capacity usage.
6235 Finally, in view of the apparent disparity described above in the provision of bandwidth for IPTV customers, a greater emphasis ought to be placed on undue preference regulation, and self-dealing, to integrate internet pricing into the VIE code, to the extent that such disparities unduly lessen competition.
6236 Our comment on specific wholesale services is limited to the question of whether FTTP should be a mandated service made available to ISPs at fairly determined prices.
6237 There is no question that FTTP should be a mandated service. The general issues regarding whether incumbents would continue to build out FTTP facilities in such a regime have been ably addressed in detail by CNOC and others, and will only reinforce the view that whatever detrimental impact giving the ISP community access might have, is far outweighed by the business opportunity to grab increasing amounts of cablecos' market share. That, coupled with a fair price for access to ensure a reasonable rate of return, will ensure that the investment will continue to be made.
6238 VMedia does however wish to categorically reject any suggestion that FTTP represents part of the existing market, and that it is substitutional with existing services. As the chart shows, there is a growing need for speed in the market, an insatiable appetite driven by video consumption. The CableEurope report dramatically reinforces this trend.
6239 The percentages, to be clear, reflect market share, not growth rate. In just four years the "16 Mbps and over" segment has grown nearly exponentially from near zero to over 30 percent of the market. This reflects a combination of higher cable speeds and the introduction of high-speed ADSL service.
6240 The trend clearly reflects an increasingly widespread demand for speed, and each new platform that increases access to speed creates its own new market in the face of such demand. An analogy would be the introduction of colour television. If colour TV were only made available to one retail store, all other TV stores would over time go out of business, simply because the public appetite was so strong for colour TV.
6241 As it happened there were multiple providers almost from the outset, but the demand was so strong that pricing on an exclusively marketed basis would likely have extracted exorbitant margins, especially once all retail competitors had been put out of business.
6242 FTTP, particularly with its unique ability to enhance the TV viewing experience, would not only impair an ISP's ability to compete in terms of internet service, but completely frustrate its ability to compete as a BDU.
6243 MR. TCHERNOBRIVETS: Regarding the wholesale rate setting process, only one modification that has to be made: complete transparency. The recent rate setting processes have, from VMedia's perspective, been flawed and unsupportable starting with the obvious issues with the UBB decision, and then the complicated and inconsistent results of the CBB process. In each of those cases, despite an intense effort by ISPs to be involved and to analyze costing inputs, the inability to examine key information has relegated ISPs, certainly VMedia, to feel like we are looking at shadows on a wall.
6244 We are left to question outcomes based on inference, such as our earlier discussion regarding margins, or the disparity in bandwidth costs for IPTV services. We can be nothing less than skeptical about outcomes when CBB costs, after much examination, are determined to range between $3.00 and $24 per megabit among incumbents asking for CBB, to an acceptable flat rate for other incumbents apparently content to bear the risk of increased demand.
6245 As an incumbent executive mused at the time of the CBB decision, he had thought everybody's cost is pretty much the same. Knowing that, the range is particularly egregious but, more importantly, the costing elements cannot be so sensitive that they cannot bear full examination by ISPs and their advisors to ensure a robust and vigorous process leading to an unimpeachable outcome.
6246 Finally, with regard to that rate setting, in view of the constantly falling cost of equipment, and the increasing ARPUs of incumbents, it must be recognized that the return on investment measure is constantly changing. Accordingly, under the appropriate circumstances, the determined rates should be re-examined as frequently as necessary to ensure fair pricing.
6247 The impact on our culture of the Internet with its diversity, ease of access and, properly priced, its universal affordability, is transformative. The entertainment, the knowledge, and the interconnection that video content over the Internet affords, offers previously unimagined benefits. This technological marvel cannot be squandered by its sequestration in the hands of a small number of gatekeepers which, through their control of the means of access or of the content itself, make its bounty prohibitively expensive.
6248 VMedia again thanks the Commissioners for this opportunity, and will be pleased to answer your questions.
6249 THE CHAIRPERSON: Thank you very much. The Vice Chair Broadcasting will start us off.
6250 COMMISSIONER PENTEFOUNTAS: Thank you. Good morning.
6251 I particularly appreciate the platonic reference to the allegory of the cave in paragraph 49. That being said, let's start with that and let's start with costing.
6252 I understand you are not happy, uncomfortable, displeased with costing as it has been done thus far. Is there some other model you wish to propose this morning?
6253 MR. BURGER: I will start with our response. In terms of a specific model I think that a lot of it really stands from the point that we are trying to make about transparency and a clear understanding.
6254 I mean, we understand the stakes involved. We understand our role in this process and to some extent, frankly, it's embarrassing for us to sit here and to try to encourage you to draw conclusions and results from the inferences that we make by looking at margin differences and, you know, the comparison between ARPUs and our costs and so on, but in many respects that's really all we have to go on. All we know is that there is a clear inconsistency.
6255 When we look at the range in prices that were arrived at in the CBB process, I mean that was a head scratcher at the time and I think that everybody knew if you believe that speed matters, it's a growing -- it's got a growing appeal every single day. I mean somebody earlier mentioned something about, you know, 25 megs seems to be like the sweet spot. Yes, today. I mean by tomorrow it will be something different.
6256 I remember when we were doing -- when we went through the UBB process. You know, the whole discussion centred around, you know, the Canadian public is pretty happy with about 10 or 15 gigs of volume a month. I mean it rapidly became obsolete.
6257 So in that kind of context we just know that under a CBB regime the ISP market is just going to get killed, while in the meantime the incumbent market is just going to carry on with its regular ARPU growth and that will be it. So there is fundamentally something wrong.
6258 What the model should be, I think, again we want to reinforce that it should be centred completely on transparency. Once we have a complete understanding, once we have the ability to really beat up the numbers that are presented to the Commission, then I think that a model will fall out of that pretty rapidly.
6259 COMMISSIONER PENTEFOUNTAS: You would like the costs to be made publicly available?
6260 MR. BURGER: The costing process to be more transparent than it has been. I understand that transparency rules have been introduced. They were not made available for the CBB process. There also is some discussion about the areas of it which remain potentially confidential and I think that the bottom line is that the more light that we shed on the process, the more likelihood is that we are going to come out with outcomes that are credible to everybody.
6261 COMMISSIONER PENTEFOUNTAS What can be shared, though? And if you don't have that today I wish you did, if you are going to raise a problem with costing. We have discussed costing with other interveners. I mean what can be made public or not?
6262 MR. TCHERNOBRIVETS: Well --
6263 COMMISSIONER PENTEFOUNTAS: It's one thing to not be happy with the rate and that is a whole different issue we can discuss. But in terms of costing you want it to be more transparent. What should be on the public record?
6264 MR. TCHERNOBRIVETS: Well, we would like to know the cost of the equipment upgrades, the cost of the actual laying fibre involved in -- like the incumbents say that they are laying new fibre, they are making new investments, they are upgrading their equipment to support it. So we would like --
6265 COMMISSIONER PENTEFOUNTAS: There is a lot of information out there. You can do a lot of reverse engineering. You know what the aerial rates are, you know what the--
6266 MR. TCHERNOBRIVETS: Pretty much, but when we did our math --
6267 COMMISSIONER PENTEFOUNTAS: -- in-ground rates are. Yeah, I'm sorry.
6268 MR. TCHERNOBRIVETS: When we did our math it just doesn't add up to the prices we are paying. I mean if you look at the point-to-point connections that they sell to you, which is not regulated, and the prices that we pay, we pay cents per megabit to a couple of dollars per megabit. I don't see conductivity in CMTS and POI and COs much different in terms of work required to lay the same fibre, utilize the same equipment.
6269 When they lay dark fibre they don't lay one strand of fibre. They lay multiple and then they can divide those strands virtually with different millimetre lengths of the wavelengths. It depends on the equipment on each side that they connect it to, to be able to get 10 gig, 100 gig and faster speeds as equipment becomes available.
6270 So we would like to know how big of a percentage is the cost of the hardware involved and the cost of the actual laying of the labour involved in laying the wires and then we would be able to figure out how much time they need to repay that investment if in fact they --
6271 COMMISSIONER PENTEFOUNTAS: And what kind of cost of capital and cost of risk and return on investment? What kind of margins would you allow there?
6272 MR. TCHERNOBRIVETS: Well, it's hard to comment on that without having any numbers in front of us. So all we can do is compare that to their own pricing for point-to-point connections as well as to international IP transit pricing that is available to us.
6273 COMMISSIONER PENTEFOUNTAS: Once you have costing, actual costing, what would you dedicate as a markup and/or cost of capital, cost of borrowing?
6274 MR. TCHERNOBRIVETS: It's hard for me to answer that question. I would like to see the numbers. Look, we don't want to -- we want them to get their investments repaid. It has to be done over a certain period of time.
6275 COMMISSIONER PENTEFOUNTAS: What would that period be in your estimation?
6276 MR. TCHERNOBRIVETS: Without knowing how impact of existing infrastructure is at the current state it is impossible to assess whether there is a lot of investment needed to grow it and expand.
6277 COMMISSIONER PENTEFOUNTAS: But once you have the costs? Supposing for the sake of argument you have the costs, how long would you allow for a recuperation of those costs?
6278 MR. TCHERNOBRIVETS: Well, I can give an easy comparative example here.
6279 COMMISSIONER PENTEFOUNTAS: Okay.
6280 MR. TCHERNOBRIVETS: For example, if we were to -- we are buying tariffed services from TPIA and GAS providers.
6281 COMMISSIONER PENTEFOUNTAS: M'hmm.
6282 MR. BURGER: We also have to purchase a point-to-point connection from their POI to wherever we are. So typically we pay let's say about $5,000 for a 10 gig link, point-to-point link, so that's $.50 per meg of capacity. If we were to lay our own fibre we would spend about $800,000 for a -- I'm talking about a particular company where the distance between 151 Front Street Data Centre and their place is about 16 kilometres.
6283 COMMISSIONER PENTEFOUNTAS: On the question of how long would be an appropriate amount of time for you to recoup that investment?
6284 MR. TCHERNOBRIVETS: With just 10 gigabits of traffic at the price that we are paying now it takes less than two and a half years to repay it.
6285 COMMISSIONER PENTEFOUNTAS: And how long should that be, from your perspective?
6286 MR. BURGER: Well, that fibre gives you hundreds and thousands of gigabytes of traffic.
6287 So what I'm trying to say is that if you were to sell it to multiple ISPs then your time would be months rather than years or days if you had the demand. But given the lack of demand maybe that is going to take months or years. It depends on case-by-case, POI by POI.
6288 COMMISSIONER PENTEFOUNTAS: Okay. We talked about POIs and you talked about a lot of things. Let's get there.
6289 BAS has come up on a number of occasions amongst interveners, including most forcefully by the CNOC representatives. I didn't see it in your intervention. I didn't see it today.
6290 Wouldn't that be of interest to you to have that -- I'm sorry. Since you're talking about costs and you're talking about how much cheaper it is, especially on the transport side, wouldn't that be of interest to VMedia?
6291 MR. BURGER: I think that our greatest sensitivity -- and we really wanted to target our focus, both in terms of the analysis and in terms of our ask, is really just the access first of all to the FTTP and also to get a better pricing regime. The BAS aspect of it would be definitely helpful as with anybody else, but our business model would be dramatically changed and clearly improved if there was some relief on the central issues that we have been addressing.
6292 COMMISSIONER PENTEFOUNTAS: And the central issue, I gather, is the CBB rate. Right?
6293 MR. BURGER: Absolutely.
6294 COMMISSIONER PENTEFOUNTAS: Okay.
6295 MR. BURGER: The beginning, middle and end.
6296 COMMISSIONER PENTEFOUNTAS: When you got -- I mean at some point it was judged that that point was just and reasonable. You agree with me on that? It may have been mistakenly, but that was the judgment of the Commission.
6297 MR. BURGER: It was the judgment of the Commission, that's right.
6298 COMMISSIONER PENTEFOUNTAS: Okay. So you may have disagreed at the time, you may still disagree, but you knew the rules of the road before you got into the BDU business.
6299 Now, I can understand some ISPs saying, "Well, there has been an explosion in consumption of video" but your entire business case or a large part of it would be based on consumption of video if you are going to be an IPTV provider. So why are we responsible for your math?
6300 MR. BURGER: Actually, it's precisely because of a recognition of that that we are so focused on the triple play bundle aspect of our offering, because the reality is that we concluded that whether we are in the BDU business or not, as an ISP we are going to get chewed up by the drive to video. I think the reality is, somebody is going to be doing it, whether it is going to be watching Netflix on HD or 4K, or whatever the demand is going to be in the future, that bandwidth is going to get chewed up.
6301 At least by being in the BDU business and making sure that we are able to provide a robust triple play off rate, then we can create additional margin which will let us survive. We don't look at the BDU aspect of our business and the telephone aspect of it as a layering on top of other great margins. It's really a cushion to be able to carry on a business as that margin gets eroded with the increasing cost of bandwidth.
6302 COMMISSIONER PENTEFOUNTAS: You talked about FTTP and we talked about speeds and we have heard a lot about speeds over the last week. Just before you, Shaw came to the table and said, you know, the majority of their clients, their customers are between 10 and 20 MBS. When will we actually need the kind of speeds that FTTP provides?
6303 MR. TCHERNOBRIVETS: Well, if you offer bundled services such as IPTV, you definitely want to compete with the offering by incumbents and those offerings include PVR and ability to record multiple PVR shows concurrently. So to be able to offer similar services we would have to deliver each individual show to a digital box at the rate that we encoded, which could be 3 to 7 megs.
6304 So to be able to just deliver one recording and to have a customer watch a channel and record another channel in the background, you already needed double that, and so you can compete. But some of the incumbents advertise up to eight concurrent recordings and how would we be able to match that or even get anywhere close to that?
6305 COMMISSIONER PENTEFOUNTAS: Okay. I haven't seen eight simultaneous recordings myself, but maybe three on a good day.
6306 MR. BURGER: And then there is the quality aspect.
6307 COMMISSIONER PENTEFOUNTAS: Three HD, I should say.
6308 MR. TCHERNOBRIVETS: But if you take 7 Mb per second as a benchmark and you do three recordings, you need 21 megs. So what's left for everything else, even if you take Shaw's 25 megs average? It's not enough for a family.
6309 COMMISSIONER PENTEFOUNTAS: Well, even a five plan, even an FTTP plan won't allow you to do more than three recordings in HD at a time, but we are
6310 MR. TCHERNOBRIVETS: Well, there are other solutions to that which we would like to, you know, have the Commission consider.
6311 COMMISSIONER PENTEFOUNTAS: Okay.
6312 Given your answer to the first question, Mr. Burger, I won't get into your ARPU charts. I could, unless there is some kind of point you want to make on the charts in terms of the CAGR and the ARPU.
6313 MR. BURGER: Well, not beyond what we said in our presentation. I mean the reality is, it just creates an incompatibility in understanding between our costs, their pricing and earlier on --
6314 COMMISSIONER PENTEFOUNTAS: You are not trying to make an abuse of market power argument strictly on EBITDA?
6315 MR. BURGER: The argument I am trying to make is that the inevitable result of the current framework is that this is where these lines are going to cross.
6316 COMMISSIONER PENTEFOUNTAS: Okay. On your four U.S. providers in New York, again the comparison is very difficult to make. They are all four of them facilities based?
6317 MR. BURGER: Yes, that is correct.
6318 COMMISSIONER PENTEFOUNTAS: All right.
6319 VLAN. You raised it in your intervention in the spring. You did not speak on the issue today. How do we make it work and what's the rationale for having sort of the two streams and the two perhaps different rates? How do we make that work in terms of costing and pricing?
6320 MR. TCHERNOBRIVETS: Well, the initial rationale was we looked at Bell Fibe. We thought they are delivering their TV service over the same lines and it looks like they are -- there is undue preference between their ISP business and their BDU business where they don't charge each other for the bandwidth consumed by their Fibe TV service.
6321 COMMISSIONER PENTEFOUNTAS: Well, yes. Okay.
6322 MR. TCHERNOBRIVETS: So when we deliver our TV service over our lines, we get to pay for it. Then we compared that to the flat line CBB or no CBB models in the Western Canada. We thought that there could be a way to segregate video traffic from generic ISP traffic and make it either flat priced or somehow differently tariffed, regulated, which would allow us to, within the limits of that Internet line, to compete on offering bundles.
6323 But further to the VLAN question, I wanted to talk about the ability by ISPs to do caching.
6324 COMMISSIONER PENTEFOUNTAS: To do what?
6325 MR. TCHERNOBRIVETS: To do caching, to install equipment downstream at the metro level. It's a fact that for any ISP about 30 percent of the traffic is due to Netflix and YouTube. Both companies --
6326 COMMISSIONER PENTEFOUNTAS: During prime time, yes.
6327 MR. TCHERNOBRIVETS: -- both companies, Netflix and YouTube, offer free equipment to any ISP to install within ISP network to reduce that and do caching. So if you have 100 customers requesting the same resource, only one copy would be delivered --
6328 COMMISSIONER PENTEFOUNTAS: Okay.
6329 MR. TCHERNOBRIVETS: -- and the rest would be saved. We don't know about the resources available to the incumbents, but we get to pay for every single copy by our customers and by having caching equipment installed just for that Netflix and YouTube we would -- everybody would save that 30 percent of the traffic.
6330 COMMISSIONER PENTEFOUNTAS: Are we getting into a net neutrality debate here?
6331 MR. TCHERNOBRIVETS: This wouldn't slow anything down or speed anything up. It would just save the downstream costs.
6332 Similarly for our business, for the BDU business, we would be able to take advantage of the same equipment to reduce the cost of our IPTV bandwidth because it would take advantage of the same equipment. Therefore, collectively, when you offer bundled services we would save those 30 percent on TV and ISP portions and that will allow us to compete.
6333 COMMISSIONER PENTEFOUNTAS: And that is why a lower CBB -- I mean I'm trying --
6334 MR. TCHERNOBRIVETS: No, this is unrelated to the lowering the CBB.
6335 COMMISSIONER PENTEFOUNTAS: -- unrelated -- but back on CBB, so you would have two different rates?
6336 MR. TCHERNOBRIVETS: Well, they are alternatives because incumbents could argue that one way or the other way would be difficult to implement. So they are choices that could be made.
6337 COMMISSIONER PENTEFOUNTAS: So on the difficulty, on the technical difficulty of implementing what you are bringing to the table, do you have any thoughts or comments on it? Is it technically difficult, if not impossible?
6338 MR. TCHERNOBRIVETS: Technically, it's not difficult.
6339 COMMISSIONER PENTEFOUNTAS: And the costs that are associated with doing...?
6340 MR. TCHERNOBRIVETS: Well, for caching approach you need a couple of appliances at each CO.
6341 COMMISSIONER PENTEFOUNTAS: Right.
6342 MR. TCHERNOBRIVETS: It's not that difficult to place it there. Any ISP would be --
6343 COMMISSIONER PENTEFOUNTAS: I'm sure there would be a planned model whereby you have two different streams going?
6344 MR. TCHERNOBRIVETS: You mean VLAN approach?
6345 COMMISSIONER PENTEFOUNTAS: Yes.
6346 MR. TCHERNOBRIVETS: That doesn't require any of that, so that would be just virtual work by engineers.
6347 COMMISSIONER PENTEFOUNTAS: But you would have two different rates --
6348 MR. TCHERNOBRIVETS: Yes.
6349 COMMISSIONER PENTEFOUNTAS: -- on your VLAN? And how do you cost that?
6350 MR. TCHERNOBRIVETS: Well, that's something else that would have to be looked into and compared to the flat rate models in Western Canada. And again, I could put a thumb up and guess a number, but I don't know.
6351 COMMISSIONER PENTEFOUNTAS: You don't know, okay.
6352 MR. BURGER: But I think --
6353 COMMISSIONER PENTEFOUNTAS: And how would that benefit Canadians? Let's take it on a different level. How would the implementation of a VLAN functionality benefit Canadians?
6354 MR. TCHERNOBRIVETS: Well, VLAN would benefit ISPs who would be interested in providing bundled services. It would not necessarily directly benefit the Canadian consumers, but caching approach would.
6355 COMMISSIONER PENTEFOUNTAS: Okay.
6356 MR. TCHERNOBRIVETS: Because by doing -- actually, it --
6357 COMMISSIONER PENTEFOUNTAS: How can the Commission get involved in caching?
6358 MR. TCHERNOBRIVETS: Well, if incumbents were mandated to allow ISPs to install a couple of appliances we would -- the ISPs would be able to do it all on their own.
6359 COMMISSIONER PENTEFOUNTAS: And how would that involve Netflix and YouTube?
6360 MR. TCHERNOBRIVETS: Well, only Netflix has, let's say, 1,000 items, shows or movies. Those movies could be downloaded to that caching server in off-peak time and could be served out of that appliance.
6361 COMMISSIONER PENTEFOUNTAS: And that is happening right now?
6362 MR. TCHERNOBRIVETS: No, it's not.
6363 COMMISSIONER PENTEFOUNTAS: From your --
6364 MR. TCHERNOBRIVETS: It's not.
6365 COMMISSIONER PENTEFOUNTAS: Okay.
6366 MR. TCHERNOBRIVETS: We are paying for every single movie being delivered over the CBB lines.
6367 COMMISSIONER PENTEFOUNTAS: And is the incumbent -- is the incumbent participating in that practice?
6368 MR. TCHERNOBRIVETS: No, they are not.
6369 COMMISSIONER PENTEFOUNTAS: Okay.
6370 MR. TCHERNOBRIVETS: And this raises a question that perhaps they have an abundance of fibre that they don't need to say that 30 percent for themselves. But we do because we pay for it and the rate is high.
6371 So that is going back to the transparency. We need to know how over utilized or how much usage is actually going on the existing lines --
6372 COMMISSIONER PENTEFOUNTAS: Right.
6373 MR. TCHERNOBRIVETS: -- and whether new investment really has to be made of that magnitude that they talk -- that they say.
6374 COMMISSIONER PENTEFOUNTAS: But you would agree that the same network would have varying rates? In other words, you would have one rate for your IPTV service and one rate for the rest of the services that you are providing as an ISP on the same network?
6375 MR. TCHERNOBRIVETS: Well, the caching and --
6376 COMMISSIONER PENTEFOUNTAS: But is the VLAN --
6377 MR. TCHERNOBRIVETS: Caching and VLAN could be put together and work together as they don't have to -- one replace another.
6378 COMMISSIONER PENTEFOUNTAS: But under the VLAN approach you do need two rates? You are asking for two rates, let's say it that way.
6379 MR. TCHERNOBRIVETS: On the VLAN approach, yes, we are asking for two rates.
6380 COMMISSIONER PENTEFOUNTAS: On the same network.
6381 MR. TCHERNOBRIVETS: On the same network.
6382 COMMISSIONER PENTEFOUNTAS: And how do incumbents recover their cost then?
6383 MR. TCHERNOBRIVETS: The cost of doing network?
6384 COMMISSIONER PENTEFOUNTAS: Yes.
6385 MR. TCHERNOBRIVETS: The question is: How can they afford to do Bell Fibe right now. In the same way they would recover their investments.
6386 How do they charge their own IPT -- BDU service.
6387 We don't want anything different than that.
6388 COMMISSIONER PENTEFOUNTAS: Right. But if we are going to continue with a cost-based approach, you would have to cost out what the IPTV segment of the network costs and mark that up, and what the non-IPTV segment of the network costs and mark that up, wouldn't you?
6389 MR. TCHERNOBRIVETS: Yes, and if they had their data provided to us with how they divide their lines between BDU and non-BDU services, you would see the statistics and the costs in that, and we would just want the same. We just want to have exactly the same cost applied to us.
6390 MR. BURGER: It's effectively happening now, because the way that IPTV service is being delivered, there are essentially two costs. There is the cost for the other Internet use that a particular incumbent subscriber has, and then the cost that is attributable to the TV portion, and the TV portion, clearly, cannot be costed on the basis of $10 minus something per meg, because they are using 7 megs.
6391 So there has to be some kind of different pricing structure.
6392 COMMISSIONER PENTEFOUNTAS: I will come at it from another angle. Does every video provider need to place their servers in the central office or the head end?
6393 Is that feasible?
6394 MR. TCHERNOBRIVETS: Sorry, could you repeat the question, please?
6395 COMMISSIONER PENTEFOUNTAS: Would every potential video provider have to place their servers in the central office or the head end?
6396 MR. TCHERNOBRIVETS: Not necessarily. Only one type of equipment could be placed and made available to everybody.
6397 For example, in the case of Netflix and YouTube, it would be enough for incumbents to put that equipment once in their network and independent ISPs to take advantage of it.
6398 In the case of BDU services --
6399 COMMISSIONER PENTEFOUNTAS: Through the central office or head end?
6400 MR. TCHERNOBRIVETS: Through the central office.
6401 But in the case of BDU services, such as VMedia BDU service, it would probably be difficult, because each BDU service technology may be different. That's why we touched on the VLAN matter, as an addition to caching.
6402 COMMISSIONER PENTEFOUNTAS: I just want to swing back around to the FTTB services. You made the analogy of the colour TV. Not everyone bought a colour TV on Day 1.
6403 It was way before my time or anyone else's time in this room, obviously.
6404 But there is a period of time when something becomes available -- and we are getting sort of back to the product market and what is the product market or not. You made the point here.
6405 But, again, I come back to the fact that FTTB is out there, there are certain speeds that are out there, but the majority of Canadians, over the next five years, are not going to require those kinds of speeds.
6406 MR. BURGER: I don't know, really, how to embark on that kind of analysis, because the change in take-up is really difficult to project.
6407 I think that we tried to take a relatively conservative approach to the numbers that were available out there, but I think that where we are now probably is dramatically different from where all of us thought we would be three years ago when we were doing the UBB discussion, because you just have to go back to that record and look at the predictions that were being made at the time, and they would be pretty much laughable at this point.
6408 And probably all of us were making those predictions.
6409 But one thing is certain: we know that the movement toward television --
6410 And, by the way, it is a bit of a digression to talk about the other screens, the small screens. The reality is that, certainly, people enjoy watching the big screen, and that's really where the bandwidth is all being used up.
6411 And they enjoy watching it in better and better quality all the time.
6412 So from the FTTB point of view, that also delivers a better TV quality.
6413 I think CNOC -- I think that Keith on CNOC mentioned very clearly that the TV experience on the FTTB platform is superior.
6414 So you have that kind of differentiation. It's not just a question of speed, but there is also the quality aspect of it.
6415 So I think that everybody, as quickly as they can, they gravitate toward faster and faster speeds. Why? Because the benefits are immediately obvious.
6416 When I took a look at the monitoring report --
6417 COMMISSIONER PENTEFOUNTAS: But people aren't gravitating toward those higher speeds.
6418 MR. BURGER: They are not?
6419 COMMISSIONER PENTEFOUNTAS: No. Everything we have heard all week, they are somewhere south of 20.
6420 MR. BURGER: Yes, but I have a chart.
6421 COMMISSIONER PENTEFOUNTAS: I thought we were going to set aside those charts.
6422 MR. BURGER: But, you know what, it's from your own numbers. It is really just -- it's trends that were derived from monitoring reports from this year and going back five years.
6423 I mean, what has happened in the 16-plus, frankly, actually surprised me. To go from zero to over 30 percent of the market in just over three years, what does that predict for the future?
6424 It's really just a function of availability and affordability. And I think that, unless there is some kind of ability to drive a robust market where there are more choices than just two players, inevitably that desire for speed is probably going to extract non-economic costs from the market.
6425 COMMISSIONER PENTEFOUNTAS: Back to your charts, your ARPUs and your CAGRs, those are blended to include wireless services, are they not?
6426 MR. BURGER: No, they don't -- sorry, for the corporate ones in comparison to --
6427 COMMISSIONER PENTEFOUNTAS: Yes.
6428 MR. BURGER: When I make the comparison to margins between the U.S. and Canada?
6429 COMMISSIONER PENTEFOUNTAS: No, on your wholesale as opposed to incumbent.
6430 MR. BURGER: No, they are not. No, that's Internet and TV.
6431 Actually, no, it's not, it's Internet, because that was broken out.
6432 COMMISSIONER PENTEFOUNTAS: Strictly Internet?
6433 MR. BURGER: It's Internet. It's just Internet.
6434 COMMISSIONER PENTEFOUNTAS: At the end of the day, I want you to perhaps expand -- this is not a BDU hearing. You would agree with me?
6435 MR. BURGER: Absolutely.
6436 COMMISSIONER PENTEFOUNTAS: I understand your frustration, you came to Let's Talk and you got sort of bumped.
6437 So it's not a BDU hearing?
6438 MR. BURGER: This is not, no.
6439 COMMISSIONER PENTEFOUNTAS: Okay. And your white label or unbundled IPTV, wouldn't that be, clearly, sort of a broadcasting issue and not within the confines of this hearing?
6440 MR. BURGER: Just to clarify, it's not white label, but I take your point.
6441 But, frankly, the reality is that it's a diminishing part of our business. We are not focusing on that part of our business at all.
6442 That's why these issues are so relevant to us.
6443 COMMISSIONER PENTEFOUNTAS: I think that's it for me, Mr. Chairman. Thank you.
6444 THE CHAIRPERSON: Commissioner Molnar.
6445 COMMISSIONER MOLNAR: Your big issue is the price, and if I understand correctly, you still support Phase 2 costing as the way of establishing that price?
6446 MR. BURGER: I'll be candid, we are not experts in Phase 2 costing. The telecom environment is not exactly our sweet spot.
6447 But I think, from my understanding of it, the central problem with it is the ability to really dig down into the numbers, and to be able to get an understanding of what comprises the results that are derived from that process.
6448 And the sensitivity regarding the issue of transparency is surprising to us only in this respect. As I mentioned earlier, there is an understanding in the industry that things, just generally, tend to sort of cost the same. So vis-à-vis the disclosure of costing between incumbents, or between incumbents and ISPs, maybe it's a sensitive issue, but I'm not sure if it's the most sensitive issue that requires any degree of confidentiality.
6449 COMMISSIONER MOLNAR: Let me ask you -- and I appreciate that you said you are not the expert on this, but did you participate in the Phase 2 costing review that happened a year or so back, where they came out with new parameters as it regards what would and would not be considered confidential?
6450 Like, are you aware of the new parameters?
6451 MR. BURGER: Yes.
6452 COMMISSIONER MOLNAR: You are?
6453 MR. BURGER: Yes, we are. We are not experts in them, but we are aware of them.
6454 COMMISSIONER MOLNAR: But you are aware of them.
6455 MR. BURGER: Yes.
6456 COMMISSIONER MOLNAR: Have you looked to see whether, with those new parameters, if this rate was looked at again, you would get the information you require to participate effectively?
6457 MR. BURGER: I think it's probably safe to say that it would be a lot better, but there are areas of the new parameters which do permit confidentiality.
6458 So we would have to get a better understanding of the ramifications of those particular areas, but the transparency rules, definitely, would be -- would probably derive a better result.
6459 COMMISSIONER MOLNAR: Okay. But maybe not as good as you want.
6460 I think I heard you talking about equipment prices, like company-specific equipment prices, what they are paying to their vendors. You can't possibly believe that that should be not confidential, do you?
6461 MR. TCHERNOBRIVETS: Actually, equipment pricing is the least confidential information, because we can get the pricing and assume a certain percentage of discounts ---
6462 COMMISSIONER MOLNAR: So you don't care about that. That's not what your concern was?
6463 MR. TCHERNOBRIVETS: If they provided us with the kind of equipment that is installed there, then we could figure out the price of it.
6464 COMMISSIONER MOLNAR: Okay. I will go back -- fair enough, we can look at this. But, I mean, we are aware that folks are not happy with the CBB price. Everybody did a review and vary of the price, both sides, right?
6465 Everybody was unhappy, which always makes you question if it's right or wrong, if nobody likes it.
6466 And, frankly, part of why this review said: Are there alternatives? Are there alternative approaches to rate-setting, where we could get to a reasonable outcome more quickly, to reduce the uncertainty, to --
6467 You know, the cost of that rate-setting process was really very high, because it took a long time to go through the process. It took a long time to go through the review and varies.
6468 And then, at the end, nobody liked the rate anyway.
6469 So we were looking at whether or not there were different approaches, where we could come to these conclusions more quickly.
6470 I haven't heard one from you, and I haven't heard one from anybody in this process. Everybody says that Phase 2 is right, but the outcome is not.
6471 Anyway, if you think of anything beyond simply redoing it under the same approach, it would be interesting to know what that might be.
6472 MR. BURGER: If I could just comment on that, with respect to the sensitivity of the information, as broadcasters we have arrangements for content which allows the content providers to conduct a full audit of our reports.
6473 So, basically, whatever we pay them every month for their content, at some point in time they are entitled to come into our office and, literally, go through all of our books, from top to bottom.
6474 Now, as you know, most of the content providers are our competitors, without a doubt. So what we are essentially doing is allowing our competitors to get a complete and full understanding of our business. It is done through the means of an auditor, but the bottom line is, there isn't a single piece of information that they are not entitled to.
6475 So, conceptually, the idea of being able to verify the accuracy of information in a context where it may or may not have something to do with the interests of your competitors is not completely foreign, and it is certainly not completely foreign in our business.
6476 So, in terms of methodology, the idea that perhaps having auditors, or anyone else, go through a complete audit of what these costs are, drilling down to the deepest level, you could come to perhaps a better result. But the fact of the matter is, there is precedent for it.
6477 COMMISSIONER MOLNAR: Thank you. I think that it might be important for us to determine what are the best ways that we can ensure the accuracy of those results before we redo the CBB rate.
6478 Would you agree?
6479 MR. BURGER: I would, depending on how long it will take.
6480 COMMISSIONER MOLNAR: Yes, okay.
6481 Thanks, those are my questions.
6482 THE CHAIRPERSON: Thank you.
6483 First of all, the Vice-Chair of Broadcasting continues to try to spread the myth that he has not seen the conversion of colour television in Canada. I will allow him once a year, perhaps on this date, the 28th of November, to cling to that illusion, but just that one day.
6484 THE CHAIRPERSON: I do have one question, and it relates -- and my colleagues have gone through a lot -- and I believe there is one question from Legal -- have gone through this, to some degree, and I understand your frustration about the perception that you may be being bounced back between broadcasting hearings and telecom hearings.
6485 I was struck, in paragraph 40, where you are talking about the Commission -- asking us to have an integrated approach in looking at this.
6486 I think this is something that the Commission struggles with a great deal. This is convergence, right? Everything is converging to using broadband services and next-generation networks to deliver all kinds of services, including video services.
6487 Your point here is that we should think globally about the various services being delivered on broadband services, but to do it within the confines of our regulatory legislative mandate?
6488 Is that your point?
6489 MR. BURGER: I guess to the extent that the regulatory mandate and the legislation do not prevent that outcome, absolutely. If at the end of the day there is some need for some legislative amendments -- which I know, generally, policy-wise, people are relatively loathe to get into right now, but if that's necessary, it may be considered.
6490 Because it just seems that the Internet phenomenon really is completely replacing everything else, and it is consuming everything else. In that context, to look at the telco side of the Internet equation and the impact that it has on every other aspect of our culture, it is an incomplete process.
6491 I hope that we have managed to articulate to a bit of a greater degree the interrelationship, at least, between Internet and BDU, because there is a policy objective of having competition and diversity in the BDU sphere, but we simply cannot see it happening without a reasonable outcome in the issues that these hearings are pursuing.
6492 THE CHAIRPERSON: The Commission has a number of powers, but amending its own legislation is not one of them. But you are not suggesting that we are not looking at those issues. You may have seen that we were asking a lot of questions on triple play, we are asking about the types of services that might be delivered.
6493 You are not suggesting that we aren't turning our minds to the issues that you are putting forward.
6494 MR. BURGER: No, not at all. Actually, frankly, it was really gratifying, through the process of the hearings, to see the focus on those other areas.
6495 So I think that the Commission is fully cognizant of the interrelationship between these issues. The question is what kind of restrictions there are on its ability to respond to them.
6496 THE CHAIRPERSON: You are not suggesting, by referring perhaps a moment ago to legislative changes, that somehow we are legislatively, currently, prohibited from considering the points you are raising?
6497 MR. BURGER: I don't have, really, enough expertise in terms of the interrelationship between the Telecommunications Act and the Broadcasting Act to know if there is a Chinese wall in how we approach these things.
6498 It seems, certainly from the conduct of these hearings, that there isn't and that there is an opportunity to deal with it in an integrated approach in the current legislation.
6499 THE CHAIRPERSON: Right. We are certainly trying to be as pragmatic as we can be with what we have, knowing how the markets are evolving.
6500 All right. I will pass it on to Legal for a question.
6501 MR. BOWLES: Thank you, Mr. Chairman.
6502 In your presentation you mentioned Internet transit and point-to-point transit costs that your company incurs. Would it be possible for you to undertake to provide the Commission with available evidence on the prices you have paid for these services in the past, and the prices you are currently paying for these services, including any terms and conditions applicable to the provision of those services, such as volume commitments and/or term commitments?
6503 MR. TCHERNOBRIVETS: Yes, certainly.
6504 MR. BOWLES: Thank you.
6505 THE CHAIRPERSON: Thank you.
6506 That ends this panel. I realize that it is Friday, and I am going to suggest -- MTS, I think, is the next intervenor -- if they don't object, that we hear their presentation, and then we will take the break for lunch afterwards, if that's okay.
6507 Hopefully, we will be able to free everybody for the weekend a little earlier. I know that some people have flights, so why don't we do that.
6508 Thank you very much, gentlemen.
6509 MR. BURGER: Thank you.
6510 MR. TCHERNOBRIVETS: Thank you.
6511 THE CHAIRPERSON: If the panel for MTS Allstream could come up, that would be appreciated. Thanks.
6512 THE CHAIRPERSON: As you know, I will ask you to identify your panel, and please go ahead. Thank you.
6513 MR. FRIESEN: Good morning, Mr. Chairman and Commissioners, I am Russ Friesen, Vice President, Regulatory, at MTS Allstream.
6514 With me today are Fran Edwards, Director of Product Management, MTS; Kelvin Shepherd, President, MTS; Mike Strople, President, Allstream; and Carlo Di Luch, Director, Carrier Services, Allstream.
6515 As you know, we are the incumbent telecom company in Manitoba, as well as a major competitor in business markets across Canada. We believe this gives us a unique and balanced perspective on the issues under consideration in this proceeding.
6516 While there is some tension between the two sides of our business, we believe that we are well placed to offer guidance.
6517 It is our position that the Commission should only regulate where necessary. In this respect, we believe that the residential market is vibrantly competitive and no further mandated wholesale is necessary.
6518 The business market, on the other hand, is different. There are competitive gaps that must be addressed.
6519 In our opinion, the current regulatory framework for wireline wholesale services is, generally, appropriate. Currently mandated services, including the wholesale high-speed Internet access regime, unbundled local loops, low-speed Competitor Digital Network accesses and colocation, must remain mandated. These services support numerous business services and contribute to the existing vigorous competition in the residential market nationally.
6520 However, we believe that the Commission must mandate wholesale Ethernet services that will allow facilities-based competitors like Allstream to augment their own facilities to serve Canadian businesses. Based on our experience at Allstream and the evidence submitted to this hearing, wholesale Ethernet services were prematurely forborne in many areas.
6521 A proper market-based assessment was not undertaken before services such as Ethernet were phased out following the 2008 Essential Services decision. This needs to be rectified.
6522 As we have noted in our previous interventions, Canadians are best served by vigorous, facilities-based competition for telecommunications services. Competition produces the best value and drives investment in new and advanced telecommunications facilities.
6523 This is amply borne out in the residential market, where a significant majority of consumers are connected to the networks of both an incumbent telecom carrier and an incumbent cable carrier.
6524 While each network was originally built for a specific purpose, to provide telephone services in the one case and telephone distribution services in the other, both now support a broad range of telecom and broadcasting services in competition with one another.
6525 Increasingly, many consumers are viewing wireless services as viable alternatives, as well. However, the business market is different. There is no ubiquitous second network that can meet the communications needs of Canadian businesses. Outside the business cores of major centres, there are many areas where wireline network connectivity is only available from the ILEC serving that area. That is concerning in and of itself, but it becomes even more critical when combined with the fact that most businesses in the mid to large segments require integrated communications across multiple corporate locations.
6526 I will now turn the floor over to Mike.
6527 MR. STROPLE: Thanks, Russ.
6528 The business market is different than residential. Residential customers buy service at a single location. Most businesses, particularly mid and large, buy networks across multiple locations and geographies. That results in a fundamentally different market dynamic.
6529 The vast majority of Allstream's revenue is earned from businesses with two, three or several dozen locations often spread across large geographic areas. For most of the multi-business locations Allstream serves, we need last-mile access from either the ILEC or a third-party provider in order to reach at least one of the customer's locations.
6530 Expanding our network reach in this way allows us to offer viable competitive alternatives to the communications services offered to businesses by the ILEC. In the absence of competitors like Allstream, that use a combination of their own and leased facilities, many businesses would be left without a choice of service provider.
6531 Ideally, we would like to be able to offer service to all of our customers exclusively on our own facilities. Using our own facilities end-to-end gives us the greatest control over the quality of service we can provide. Unfortunately, though, this would leave us unable to serve a significant proportion of our existing customers.
6532 In the case of single location customers, fully 82 per cent of our revenue is earned from customers that we serve using only our own facilities. However, for customers with two or more locations, this drops to 21 per cent.
6533 For our multi-location customers, 79 per cent of our revenue are from customers for whom we require at least one off-net access.
6534 If we are unable to obtain access to services such as Ethernet that enable us to leverage our network investments, our ability to bid on contracts with governments and other large businesses would be severely restricted. This would also be the case for other non-incumbent competitors.
6535 In the absence of effective competition, these businesses will ultimately see their communication prices rise over time.
6536 Many of the ILEC services that we relied on to provide accesses were forborne prospectively in the 2008 wholesale decision or are legacy services that no longer allow us to meet the communication needs of Canadian businesses. While we are installing fibre to buildings, 3,167 IP fibre buildings as of Q3 2014, and using third-party facilities where available, no one has or is going to duplicate the ubiquitous access network built by the ILECs.
6537 For this reason, we believe that the Commission must mandate wholesale access to Ethernet services for the business market.
6538 We're proposing that prices for these mandated services be established through commercial negotiation, rather than ex ante cost-based tariffs. We believe that such an approach is efficient, minimally intrusive and relies on market forces to the extent possible.
6539 One important aspect, however, is that the parties must be able to call on the Commission dispute resolution mechanisms in the event that a commercially reasonable agreement cannot be reached by the parties within a reasonable amount of time.
6540 Since 2009, the Commission has permitted negotiated arrangements for tariffed wholesale service, with the tariff itself as a backstop. In the absence of ex ante tariffs, which we do not believe are necessary for new mandated wholesale services, Commission dispute resolution would serve as the backstop.
6541 Either party to a negotiation should be able to invoke the Commission's dispute resolution mechanism if they consider the agreement is not progressing satisfactorily or if they feel that the other party is not bargaining in good faith.
6542 Our experience highlights why such a backstop is necessary. Allstream has tried to reach commercial agreements for the provision of Ethernet services with different ILECs since before the end of the 2008-17 phase-out periods. In some cases we were successful in reaching an agreement for continued supply of these services at commercially reasonable rates; in others, less so. This is of concern not only to us, but also to the Canadian businesses that are thus denied a choice of service provider.
6543 By mandating the provision of wholesale Ethernet, the Commission will facilitate competition in business markets and give Canadian businesses the choices for their communication service solutions.
6544 The fact is that it has been more than three and a half years since wholesale Ethernet transport services were forborne and a year and a half since access components were forborne. During this time our addressable market shrunk significantly. While we were able to find alternative sources of supply in some locations, in many others we were not able to do so. We believe that commercial negotiation can work if it is backstopped by Commission dispute resolution.
6545 With respect to unbundled local loops which we use largely to provide local telephone service, the calls by some parties for forbearance are premature. We estimate that there are about 250,000 unbundled local loops being used across Canada and Allstream's usage accounts for about half of those.
6546 Generally, there are no existing alternatives to these unbundled local loops, so we believe forbearance is not warranted. History has shown that when services are forborne their prices rise substantially. This would mean we would be unable to compete where we rely on unbundled local loops.
6547 Further, the Commission must also remember that there are exchanges where the local retail business forbearance was granted on the basis of the presence of a competitor that uses unbundled local loops.
6548 Kelvin will now contrast the situation in the business market with a few words about the residential market.
6549 MR. SHEPHERD: Thanks, Mike.
6550 In contrast to the business market, the residential market is vibrantly competitive. Where business locations often have only a single network connection, most Canadian homes have at least two wireline connections and a choice of up to four wireless service providers that can meet consumers' needs.
6551 In this regard, Manitoba is one of the most competitive markets in Canada with at least one cable provider and all three of the national wireless service providers offering voice and data services in competition with MTS.
6552 As a result, wireless prices are among the lowest in the country and a majority of consumers have access to some of the most advanced broadband services anywhere.
6553 The competitive dynamic between ILECs and cable carriers in the residential market has led to greater investment and innovation by both. With two wireline networks to each home able to deliver voice, Internet and TV service, plus the growing competitiveness of wireless offerings, the ability to recover the very large investments required to overlay a brand new fibre-to-the-home network is challenging. We're already concerned about sustaining, let alone increasing, current levels of capital investment in fibre-to-the-home, given the long payback periods for such investments.
6554 MTS faces a challenging business case for deployment of fibre-to-the-home outside of greenfield areas. In total, less than five per cent of homes in Manitoba are connected to our fibre-to-the-home network.
6555 Given the level of competition enjoyed in the residential market, we don't believe that there is any need to mandate access to fibre-to-the-home facilities. Such a proposal is a solution looking for a problem. Not only is the market competitive today with multiple accesses into most homes and rivalrous behaviour between ILEC and cable incumbents, but in Manitoba we have seen little residential demand for the wholesale access services we currently offer.
6556 Fibre is a long-term investment with a long payback, even under ideal conditions. During that time, technology and services will evolve and many things can change. There is a lot of risk for small regional players like MTS.
6557 One of our fears is that large players with huge economies of scale will enter our market using our facilities at artificially low costs, as has happened in the wireless market. The introduction of further regulation or obligations to make fibre-to-the-home available to others would only increase the risk associated with MTS undertaking these investments, making them less attractive. This outcome would be detrimental to future fibre-to-the-home deployment even in urban areas.
6558 I'll now turn it back to Russ to summarize our position.
6559 MR. THIESEN: In summary, the existing wholesale framework is generally working. In the residential market, the vast majority of consumers have access to competitive choices, with most homes being connected to two physical wireline networks and access to three or four wireless networks.
6560 Competitive dynamics are working as they should and there is no need for further regulatory intervention. However, the different nature of the business market, especially in the mid to large and enterprise segments, means that competitive choice is lacking for many multi-location businesses.
6561 Mandating Ethernet access with commercial negotiations backstopped by Commission dispute resolution processes, will allow competitors to augment their own facilities in order to provide viable competitive choices.
6562 You've heard now from both sides of our company. We believe that our proposal is minimally intrusive and will result in increased competitiveness in the business market and continued competitiveness in the residential market across Canada.
6563 This concludes our presentation and we are ready to take any questions you may have for us.
6564 Thank you, and we appreciate the opportunity to present our position to you today.
6565 THE CHAIRPERSON: Okay. Well, thank you for that. As I said, I think we'll take a one-hour break and come back with the questions after the lunch break, if that's okay.
6566 So we'll adjourn for now and come back at one o'clock.
6567 Thank you.
--- Upon recessing at 1157
--- Upon resuming at 1300
6568 THE CHAIRPERSON: À l'ordre s'il vous plait.
6569 So we'll come back. We will start the questions with Vice-Chair Menzies who will start us off.
6570 COMMISSIONER MENZIES: Thank you.
6571 Just to frame the discussion a little bit, would you mind just sort of giving us a top line overview of what it is that makes, I mean, I know Allstream operates elsewhere, but the Manitoba market unique compared to others?
6572 MR. SHEPHERD: I'd say the Manitoba market is different. It may not be unique in every respect, but I think some of the characteristics that are unique is that, certainly the level of competition in the wireline segment has been there for quite a period of time.
6573 MTS was one of the leaders in Canada in rolling out fibre-to-the-node technology beginning back in 2001-2002, we were one of the first to offer an IPTV type service and, therefore, the level of competition in Internet and TV services and home phone services has been quite intense for an extended period of time.
6574 In many other areas of the country it's only been in the last four, five years where Telcos may have made those types of investments on the same scale that we had made.
6575 So that's certainly one difference, that that level of competition has been there longer.
6576 I think on the wireless front there are four facilities-based service providers in the market. That's not unique, but many other areas there may be somewhat fewer providers, typically three in some of the major areas.
6577 So those are some of the characteristics that make Manitoba perhaps a little different.
6578 COMMISSIONER MENZIES: Thank you. In terms of market definition, you've heard us talk I expect in this about bundles. How important are the triple and quad-play bundles in terms of your marketing? I mean, are they beginning to constitute or do they presently constitute a separate market onto -- a distinct product market onto themselves?
6579 MR. SHEPHERD: No, we would not consider them a distinct or a separate product market. It's undoubtedly an important pricing strategy in the market, but certainly in our own experience in Manitoba, there are a substantial level of competition where competitors are offering a single service and have significant market share, there are many customers that may take one or two services, not three or four services.
6580 And in our own case, we offer the services that are the mainstream components of our bundle which typically would be home phone service, high-speed Internet service, a TV service. Wireless is something that we have in our bundle, we also have a home security service.
6581 But each of those are offered separately and independently, people can take a TV service and only subscribe to MTS TV, or they can take an Internet service and only subscribe to it.
6582 So bundling is more of a pricing and loyalty strategy around rewarding customers that take more services, but it's not a unique product.
6583 COMMISSIONER MENZIES: Okay. So do you like discount with -- is there a discount if you take two or take three or take four? Basically it's more a marketing -- rather than being a market, I should just say a strategy --
6584 MR. SHEPHERD: Yes.
6585 COMMISSIONER MENZIES: -- so I don't confuse our terminology, it's more a sales strategy than a market that you're selling?
6586 MR. SHEPHERD: That's right, it's essentially a discounting and promotional type of tactic which is really more of how you sell to customers.
6587 And you're right, I mean, typically there's -- today for example, we offer a bundle for customers that take up to six services and, obviously, if you take six services your discount for that bundle is more than if you only take two.
6588 And, you know, there's different combinations and permutations of two, three, four, five or six that can be taken, but it's really a lot of variation because, in particular, you can take different high-speed Internet plans, you can take different packages of TV, you can take different levels of home phone service.
6589 All of those can get combined into bundled combinations, but it's not like a unique product market. And many of our competitors offer individual services quite successfully, but some of them offer different packaging and bundling strategies as well than what we would offer.
6590 COMMISSIONER MENZIES: Now, I'm curious, what's the sixth? I mean, we talk about the quad and the alarm service, and then I'm thinking, okay, what's number six.
6591 MR. SHEPHERD: So actually you can actually get seven in a bundle because we offer a sixth product bundle which could be a home phone, Internet, TV, up to three cellphones and if you want to add home security on top of that. Technically we don't call that part of the bundle, but you do get a discount in addition if you add that on and make seven services.
6592 COMMISSIONER MENZIES: Okay. So it's multiple wireless devices?
6593 MR. SHEPHERD: You can take multiple Internet connections too, if that's what you would like, but typically what we find is the variable part is mostly wireless.
6594 COMMISSIONER MENZIES: Okay, thanks. Speaking of Internet, it's another one of the areas we've been looking into, the division between higher speeds and lower speeds and the extent to which they might constitute separate markets for that sort of stuff.
6595 What's your view on that, first of all?
6596 MR. SHEPHERD: I don't think the difference between a low and a high-speed service is a separate market. I think clearly there's a different penetration and take rate of higher speed services than, call it more standard or lower speed services, but I would not characterize them as a separate market.
6597 I do think there's a separate market between a residential service and a business market, but not between the speed differences and plans, for example.
6598 COMMISSIONER MENZIES: And just in terms of speeds, it was referenced earlier in terms of 25 megabits that that seemed to be the area where most -- beyond which --
6599 MR. SHEPHERD: We --
6600 COMMISSIONER MENZIES: -- the largest segment of customers didn't feel they had a need to go. Is that your experience as well, or --
6601 MR. SHEPHERD: I think in the consumer market -- and I think it is distinct, in the consumer market the vast majority of customers are taking services at that 25 megabit per second or less rate.
6602 We do offer a 50 megabit service in our biggest serving area, Winnipeg. In some of our smaller centres where we've rolled out fibre or run some greenfield areas, we offer up to 250 megabit services.
6603 It's extremely rare to find demand for those services today in the consumer market, but certainly I think in the business market it's a slightly different story.
6604 COMMISSIONER MENZIES: Well, that's a part, I was curious about that because part of that discussion is that there's -- I mean, innovation occurs to meet people's demands, but beyond a certain price point people start to weigh, I mean, the cost and the benefit as you go through and while there is a segment of the market that is insatiable, what we're learning a bit about today is that for most people they may be reaching their satisfaction level in terms of your supply meeting their demand at a lower level than some of the innovation supply.
6605 MR. SHEPHERD: I would say things evolve and they change and certainly back in the early 2000s when we first rolled out our fibre-to-the-node platform and offered Internet, I could be mistaken, but I believe we were sort of in the 3 megabit per second range for a standard plan, and now our standard plan is closer to 10. It seems to meet a significant portion, probably -- I think based upon the penetration studies that I've seen, probably about 80 per cent of our customer base would be taking that kind of standard up to 10 megabit plan.
6606 There's another 20 per cent that are willing to pay for more, a 15 or 20, something like that. A very small percentage today that are paying the premium for 50 or 100 megabit per second services in the residential market.
6607 I think needs do evolve. We have seen more people willing to pay for more than the standard and move up because they're consuming more content generally on multiple devices simultaneously in their home, so the over the top phenomenon I think is driving that.
6608 I think there's probably some limit on how many simultaneous devices and streams a home sees value in having.
6609 So today, that's where we're at. Will that change in time? I believe so, but clearly, you know, I think there's some period of time still before you'll see mass adoption of, you know, 100 megabit per second in a typical consumer setting.
6610 COMMISSIONER MENZIES: And I just wanted to -- in your oral remarks you mentioned five per cent of your customers are currently served with, are fibre-to-the-prem customers and I just wanted to understand whether you meant fibre-to-the-prem is available to five per cent of your customers or it's just taken up by five per cent of your customers.
6611 MR. SHEPHERD: About five per cent are connected and subscribing to a service. I believe homes passed would be closer to nine or 10 per cent.
6612 And you know, we've deployed fibre-to-the-home for a number of years, really beginning in about 2009 and in a number of -- in a program and certainly in greenfield areas, since about 2009 in major urban greenfield developments we've been using fibre, but we have I think -- I could check the number, but it's 14 or 15 communities that we have deployed fibre-to-the-home in and that's largely been a choice of going with that versus fibre-to-the-node deployment. These would be communities that we had an ADSL service in, we believed that we needed to invest in higher speeds and better coverage in the communities and we chose a fibre-to-the-home overlay to do it in those communities versus fibre-to-the-node, which is really the predominant broadband platform we are using to serve customers today.
6613 COMMISSIONER MENZIES: So it sounds like roughly 50 percent of the homes passed subscribe to it. What is the -- why is that the number? Is that an unusual number? Is that lower than might be with other facilities or what is the issue in connecting the other 50 percent of folks to whom it is available?
6614 MR. SHEPHERD: Well, I think it's -- first of all, there are variations and I look at penetration in every community we deploy in as well as in greenfield areas.
6615 There are substantial variations and much of it has to do with competition in each area, existing level of services, because you are typically not providing a brand-new service. You are providing Internet. They may already have Internet. Typically these are locations that you have already been providing Internet, but now you can get a higher speed Internet service. So there is a variety of reasons why the penetration varies.
6616 The 50 percent kind of reflects a mix of higher penetration in smaller rural communities where clearly people are motivated to move off of our ADSL platform which had speed and distance limitations onto fibre which delivers a superior performance and, quite frankly, probably lower penetration in greenfields in a market like Winnipeg where we compete aggressively against cable and, you know, you are building into a new area and have two market to new customers that don't have any of your existing services.
6617 COMMISSIONER MENZIES: Do you have any plans to deploy fibre-to-the-home outside of territory, similar to the way SILECs are doing?
6618 MR. SHEPHERD: No.
6619 COMMISSIONER MENZIES: Doesn't that indicate -- why, I should ask first.
6620 MR. SHEPHERD: Well, first I think deploying -- these are long payback business cases. So you have to have a very strong, I think, competitive offering and be prepared to make a major investment with a long payback.
6621 So we are more -- first of all, I would say in our own market where we already have customers and markets and, for example, wireless as other services, that factors into a business case that is still challenging, but it makes sense to us.
6622 To go and deploy a third infrastructure to compete with an existing fibre, plus an existing cable in another market, I think is quite a challenging business case to make work.
6623 COMMISSIONER MENZIES: And doesn't that tend to support the argument made by some that it's not duplicable?
6624 MR. SHEPHERD: I think it is duplicable, but you have to be prepared to take a bigger risk when you are going into that type of environment. In our own serving territory, clearly that is our core business area and we are investing and competing hard.
6625 For us to go, for example, to Toronto and compete in that environment, it's possible. But I think when we would rank that project, if you want to call it, in terms of payback and risk, it would be significantly higher than the opportunities we have to invest our capital in our existing territory.
6626 COMMISSIONER MENZIES: That kind of gets into the -- because it obviously does present a very high risk, right? But we have heard the argument from some ILECs that the competitors are not disadvantaged by not having -- in the case of fibre-to- the-prem and they should be able to deploy their own facilities in terms of that.
6627 So if you can't -- well, you didn't say you couldn't compete, but you said it would rank lower on your priority list of competition. I guess what I'm trying to get at is how would it be possible for people with less resources than your company to be able to compete and deploy fibre-to-the-home?
6628 MR. SHEPHERD: Well, I think any time you are a new entrant into a market your risk profile is different. It doesn't mean that there isn't a case, but clearly you are going to have a different profile than somebody that is already in the market with customers. I don't think it has to do with network incumbency advantage.
6629 If you look at our business case to deploy into a greenfield, for example, we don't have any of those customers today. Anybody can build at the time a subdivision is being built. But overall, I think, you know, the new entrant is going to face higher challenges in terms of things like brand, in terms of knowing the market, in terms of being in the market with a set of products.
6630 For example, my example of coming to Toronto, I'm sure I could do it. I'm not sure the MTS brand would really go over in the Toronto market. I would have to get a BDU license, if I wanted to offer TV.
6631 All those things are doable, but when you factor it into a business case, the payback and the risk on that business case for me is different then deploying in a new neighbourhood in Winnipeg.
6632 COMMISSIONER MENZIES: That's certainly understandable. Now, you seemed to indicate in your remarks that in pretty much in most areas you would prefer even if -- in mandated areas commercial negotiations as opposed to rate setting. Would that apply to fibre-to-the-prem if we were to extend the mandate to that?
6633 MR. SHEPHERD: If you were going to extend the mandate, yes. I think that would be a preferable model.
6634 Clearly there is already existing wholesale services in the form of our VDAS and ADAS services for wholesale access. We don't really believe that there is a problem to solve there, given that there is extremely low residential demand for those services to mandate at this time extending to fibre, but if you were -- our position has been pretty consistent that we believe a commercial negotiation is an effective way of negotiating a wholesale agreement.
6635 COMMISSIONER MENZIES: And do you think the Commission backstop as a mediator would be sufficient or as an arbitrator?
6636 MR. SHEPHERD: We believe that you --mediation can work, but you will need to backstop with an arbitration process.
6637 COMMISSIONER MENZIES: So in the neighbourhoods or areas, the towns where you have overbuilt your existing copper infrastructure, what are your plans for the copper?
6638 MR. SHEPHERD: Generally -- and there is one exception which I will explain -- but generally when we go to an overbuild, so we are placing fibre where we already have copper, it is just that. It's a model where we go by homes.
6639 We really only hook up customers to fibre when there is a service demand to do so. In other words they order a high-speed Internet service or TV service or something that triggers us putting them on the network. The copper remains in place and still today is providing a significant percentage of the services in the community.
6640 There is one exception, and that is a community just north of Winnipeg called Selkirk. It's a fairly good sized community. You know, we don't own very many poles in Manitoba. Most of the pole infrastructure in Manitoba is owned by Manitoba Hydro and so we lease access to pole infrastructure.
6641 In that particular community the poles are not in very good shape. If we had wanted to maintain -- put new cable, new fibre cable and maintain the copper cable, we would have had to pay Manitoba Hydro to replace all the poles.
6642 So we negotiated a transition period where they were comfortable with us leaving the copper cable up for a period of a couple of years. So in that particular situation we ended up taking down the majority of the copper plant and converting customers to the fibre plant, primarily because of that third party infrastructure issue.
6643 But, in reality, all the other locations we haven't faced that degree of investment. We may have to invest in some new poles for Manitoba Hydro, but we found it not necessary or economic, really, to take down the copper.
6644 So at this time, certainly, our plan is to move customers to fibre gradually as there is a service trigger or demand and continue to use copper for customers that are in place.
6645 COMMISSIONER MENZIES: We have heard from some suggestions -- well, from several suggestions that the correct thing to do at this time is to step away from fibre-to-the-prem and fix a sort of moratorium time on that. We have heard five years from a couple of people; seven, I think, from SaskTel in terms of that. What are your thoughts in that area?
6646 MR. SHEPHERD: I guess a couple of thoughts.
6647 First, you know, with the existing wholesale services in residential markets we have seen essentially zero demand. Most of the wholesale demand for those services, if not all of it, we believe, is servicing the business market, not the residential market. So we see there is little evidence that extending that regime to the small number of fibre-to-the-home customers we have today would be warranted. Times can change so we certainly understand that. We think a five-year timeframe to review the situation probably makes sense.
6648 In the meantime, the vast majority of customers that we are serving we are continuing to serve with our fibre-to-the-node VDSL platform. You know, the wholesale regime is still there for that platform.
6649 COMMISSIONER MENZIES: So how many wholesale customers do you have on your existing high-speed or what percentage of your market is it?
6650 MR. SHEPHERD: Yes. I think we filed it with the Commission, but the number is somewhere on the order of, I think, 1,200 customers for our wholesale, either VDAS or ADAS. And we believe, based primarily on who was buying those services, they are primarily value-added resellers that are providing services to business. There's not a real residential component to it.
6651 COMMISSIONER MENZIES: So roughly what percent of your business with that be?
6652 MR. SHEPHERD: We have, I think, on the order of 200,000. I'm looking at Fran here for confirmation, but about 200,000 high-speed Internet customers. So it's a very small percentage.
6653 COMMISSIONER MENZIES: Thanks.
6654 Oh, sorry. How many years were you thinking about again in terms of...?
6655 MR. SHEPHERD: Five.
6656 COMMISSIONER MENZIES: It's five, thanks. If fibre-to-the-prem -- where fibre-to-the- prem exists, is it possible technologically for a customer to have multiple service providers? SaskTel indicated there might be some issues with that. Others have had -- there has been a blend of answers on that so far.
6657 MR. SHEPHERD: Yes. I have to admit I haven't went and asked our engineering team to give me a precise answer.
6658 I don't think theoretically it's impossible. I think it is primarily the work required to design and configure the service. I believe there may be some challenges with disaggregating that, simply because of the way the architecture works.
6659 But I think a service similar to the VDAS or ADAS service we have is probably technically feasible, subject to -- as I say, I haven't actually asked our engineering group to design one. But I don't see -- I think it's probably more a matter of the investment required to develop and deploy it than anything fundamentally different.
6660 COMMISSIONER MENZIES: Okay, thanks.
6661 You seem to have a different position than your ILEC counterparts with respect to the need for us to mandate access to high-speed services. In page 36 of your reply, for instance, you submitted:
"Aggregated wholesale high-speed access services that have been the subject of several recent proceedings must continue to be mandated until fibre-based alternatives are available or forbearance can be justified." (As read)
6662 So what is it about you that has caused you to draw a different conclusion than others?
6663 MR. SHEPHERD: We are specifically really talking about the application in the business market. That's where we use out of territory those services today and that's where in territory we see competitors and value-added resellers and other folks relying on those services.
6664 I think, quite frankly, what makes us different is we are different businesses. We have a competitor arm in Allstream and we do, even in our own territory, believe that it would be difficult for alternative providers to fully duplicate the province-wide access for the business market that would be required to, for example, serve a large national customer like a bank. I don't think it would be very difficult because in most of -- many of those locations we are the only service provider.
6665 So I think we do have a different position. We believe the residential market and fibre- to-the-home is a very different market and a different situation.
6666 We believe the business market, and particularly when you look at mid and larger sized customers and customers with multiple location requirements, it is extremely difficult for a competitive provider to service those customers without some access in some locations to wholesale broadband capability. We have used the term Ethernet because, increasingly, that Ethernet service is what is being required in the business market to meet the unique requirements there.
6667 COMMISSIONER MENZIES: What you think would be an appropriate forbearance measure or system to judge where forbearance should occur for those services? I think Shaw was talking about defining competitive markets in terms of that. Do you have a view on that?
6668 MR. FRIESEN: So we believe that the framework that we have for forbearance is correct and appropriate. The forbearance test we have that the Commission has provided is appropriate and so we would suggest if there is additional forbearance required that that would be the test we would use.
6669 COMMISSIONER MENZIES: Several others have suggested that if we stop mandating aggregated high-speed services that they would continue to operate them on a negotiated basis. Would you do that?
6670 MR. SHEPHERD: We have no plan to phase them out. And clearly in the business market there is some demand for it and we would plan to continue to offer them. We have seen very low demand in -- essentially, zero demand in the residential market. So we have to look at whether the demand there was sufficient to continue to offer the service, but certainly we have no plans to phase them out and wouldn't consider doing so.
6671 And we do see a need for application in the business market to continue to have access, competitive access to those services.
6672 COMMISSIONER MENZIES: So we have been -- a large part of the discussion this week, or large parts of it have gone around the CNOC proposal in terms of -- and their discussion about the value that they add to the national framework.
6673 And then following up that looking at national numbers, let's say they are at 8 percent, might not be the most appropriate way to look at it because they are at a much higher percent in Ontario and Quebec and may not be a feature -- much of a feature at all in other areas.
6674 To what extent do competitors such as CNOC members exist in your primary region and to what extent do they play any -- the role that CNOC suggests its membership does?
6675 MR. SHEPHERD: I don't think we see them playing a significant role. As I was saying, there are a number of sort of value-added resellers, value-added providers. There is more carrier -- traditional carrier providers.
6676 But I think CNOC is largely, from my understanding -- and I have to admit I'm not -- they don't show up on my radar screen so I only know what I read about them. But I think there is quite a different business model and we don't see them in the local market.
6677 We see a lot of competitive ISPs in Manitoba but they principally are focused on serving through wireless technology and not -- and a lot of them are serving rural or smaller areas that may be a more effective market for them to enter than to compete in, say, the major urban markets.
6678 COMMISSIONER MENZIES: Thank you.
6679 I think that makes my next question somewhat moot, so let's talk about unbundled local loops.
6680 Do you think they are in the same relevant wholesale market as high-speed services?
6681 MR. STROPLE: In our case unbundled local loops are used primarily providing local voice services, so from that perspective they would be -- they would be different.
6682 COMMISSIONER MENZIES: Are you experiencing -- let me put it this way. What -- how has the market for that service been evolving and what are you forecasting it to look like in the future?
6683 MR. STROPLE: So we are making less and less use of unbundled local loops, meaning we are ordering fewer of them, but we are still ordering unbundled local loops to provide local voice services. The overall volume we have is declining and will continue to decline over time, but there currently isn't an alternative.
6684 COMMISSIONER MENZIES: But you believe that unbundled local loops -- I'm getting a little tongue-tied. My mouth is getting dry at this stage of the week -- unbundled local loops should continue to be mandated? You are the sole incumbent who has suggested that so far, so help me understand.
6685 MR. SHEPHERD: Perhaps I will wade in here.
6686 I think, if my memory is correct -- I think we believe there is about 250,000 unbundled local loops being used in the overall Canadian market today. Principally about half of those or it may be a little less than half -- I think about 95,000, Mike --
6687 MR. STROPLE: M'hmm.
6688 MR. SHEPHERD: -- are local loops that Allstream contracts for us. That makes them by far, I think, one of the biggest users of unbundled local loop. In Manitoba as the incumbent there a much smaller number. I think we have a couple of thousand but I think we are looking at it in the business market nationally.
6689 And we know that there are a significant number of customers out there that are being provided competitive telephone service on those unbundled local loops. Without continued cost-effective access to those in the short term many of them would lose that competitive choice.
6690 Over the longer term, and I think we are talking the longer term, clearly there is a move to new technologies; voice-over-IP and those types of services. They will, I think over the long term, displace perhaps to a large degree some of those unbundled local loop requirements. But that's over, I think, quite an extended period of time.
6691 Mike could talk in more detail about the trends there.
6692 As we are saying, we still see the need to meet business customer requirements to order unbundled local loops in many locations.
6693 COMMISSIONER MENZIES: What would be the impact if we accepted Bell's proposal to stop mandating in bands A and B?
6694 You can expand your answer because I'm interested in the impact on your business, but I'm also interested in how that relates to the system overall regarding how it might impact opportunities as you just briefly suggested for consumers and competition in terms of that.
6695 MR. STROPLE: Maybe I will start and let you talk about consumers.
6696 Bands A and B for us represent 95 percent of the unbundled local loops that we buy, so A and B is the whole thing for all intents and purposes. As Kelvin mentioned, I mean, there is no alternative. So if that weren't mandated and weren't available there would be no local phone competition via traditional copper.
6697 And while I would agree in the long-term local phone service is being provided over a data network, we are not there today and business users aren't all ready to switch. Some are happy to switch and put their local voice over a data service. Some are in the process of preparing to do that and some aren't yet prepared to make the investments that they also have to make on their side.
6698 So for the near term, I still believe we need unbundled local loops to maintain competition in the local voice market.
6699 COMMISSIONER MENZIES: Is it possible, do you think -- is it possible, is probably the best word, to differentiate between business users and residential users. Business markets and residential markets is probably better.
6700 MR. SHEPHERD: Well, we think it is possible, but it may not be worth the effort when it comes to something like an unbundled local loop. They have been in existence for a long period of time. They have been available. While we are primarily concerned about their continued availability to service the business market and business customers, I'm not sure that trying to carve out the consumer market and say they are not available in the consumer market would make sense.
6701 COMMISSIONER MENZIES: Okay. What about carving out telephony and Internet?
6702 MR. SHEPHERD: You are talking about a different application of the copper line. Generally speaking, today there is not a lot special that is done if people want to run Internet on it. I think that is again a fairly small use and a declining use. Given that there are increasing demands, businesses in particular are looking for higher-speed services. those unbundled local loops can only serve, you know, out of a central office effectively which limits their application for high-speed Internet.
6703 I don't know, Mike, if you want to comment, but I would suggest an unbundled local loop is an unbundled local loop. You know, I wouldn't necessarily worry a whole lot about what it's being used for.
6704 COMMISSIONER MENZIES: I mean, I'm fine with that answer.
6705 Now, you propose that fibre-to-the-prem should not be mandated within Manitoba, but at the same time you are arguing that we should mandate access to fibre for wholesale Ethernet services outside of your territory.
6706 How do you -- some people might find that conflicting. How do you reconcile those?
6707 MR. SHEPHERD: I don't really find any conflict at all.
6708 COMMISSIONER MENZIES: I didn't expect you to.
6709 MR. SHEPHERD: I think our position is pretty clear.
6710 So just to clarify though, we are really saying, in our belief -- we are speaking from the experience in Manitoba in the residential market. But, you know, really, our position is that the residential market across the country is we believe, competitive. We think that there are alternatives already with at least two wired connections into most homes and increasingly wireless and other technologies may provide additional opportunities and are certainly, while not a total substitute, at least a partial substitute for some customers.
6711 So we are not -- our position isn't not to mandate fibre-to-the-home only in Manitoba. We believe that is a consistent position across the country.
6712 But we are also consistent that in the business market and for business services across the country, we believe Ethernet, access to Ethernet and key business components that go into offering competitive business services, that there does need to be a mandated access. We believe the commercial negotiations can address and solve the majority of the requirement to access those services. But without a mandate, without a backstop from the Commission, relying solely on commercial negotiations will be difficult.
6713 COMMISSIONER MENZIES: Okay. Now, this isn't the first time you have asked us to reverse our decision on forbearance for Ethernet and high-speed CDN. People such as -- or operators such as Shaw this morning, for instance, pointed to -- offered evidence of the success of forbearance in that area.
6714 I mean the last time you asked and we made a decision on this, was just 2013. So I'm curious to know, what do you think has changed between then and now that would cause us to change our minds?
6715 MR. STROPLE: I don't think our position has in fact changed over that period of time. We believe that in fact you should, for the business market, mandate accesses to those that provide competitive options for Canadian business.
6716 COMMISSIONER MENZIES: Remind me of your position before?
6717 MR. STROPLE: Our position before was that you should also mandate those services.
6718 MR. SHEPHERD: I believe probably the main difference in what we are suggesting today is that we are suggesting that there is a way to do it without requiring a cost-based tariff. It's not that we are opposed to that, but we believe that the majority of requirements can be met through commercial negotiation, that if the Commission mandates it that sends a strong signal that such services have to be provided and that failing commercial negotiation, you know, a mediation and arbitration process would back that up.
6719 But that is really the main difference today, is that we still believe that there was -- forbearance of those services was premature. We think the impact it has had on the competitive business market has been negative, that our ability to provide businesses access to the types of high-speed broadband data networks on a broad basis has been diminished. And without that certainly -- I'm sure customers that have multiple business locations it will be -- their choices are going to be more severely limited going forward and the competitive opportunity for them to have choice in the business market will be lessened.
6720 COMMISSIONER MENZIES: Okay. Thank you for that. You said in your oral presentation today, at paragraph 4, that:
"A proper market-based assessment was not undertaken, before services such as Ethernet were phased out... This needs to be rectified."
6721 Remind me what the issue is there or what was improper about the --
6722 MR. FRIESEN: We believe we have a forbearance test and that services such as Ethernet, when applied to the forbearance test, some areas, some wire centres would have been forborne and other wire centres would not have been forborne. By giving blanket forbearance we essentially have a situation where there are some areas that should not have been forborne that were automatically forborne by that blanket decision.
6723 COMMISSIONER MENZIES: Okay, thanks. You also mentioned in paragraph 15 here of the oral that:
"In some cases, we were successful in reaching an agreement for continued supply of these services at commercially reasonable rates. In others, less so."
6724 Can you give us some idea of where it was possible and where it wasn't possible and what some of the issues were around that, because -- yes, go ahead.
6725 MR. STROPLE: Sure. So we were able to -- we have been able to reach agreements with some, but not all incumbent carriers in the provision of those forborne services. In the case of TELUS we were able to reach some agreements although they tend to be time-consuming. But we were successful in those cases.
6726 And, as you heard earlier this week from Bell, that we believe we are close to a definitive agreement. We have a conditional arrangement in place and hoping to secure a definitive agreement in the new year. But we believe -- we do believe that commercial negotiations are the best route on this particular issue, but we need the backstop of the Commission dispute resolution.
6727 COMMISSIONER MENZIES: Okay, thanks.
6728 You have submitted to us that the existing wholesale service framework has hindered the ability of competitors to invest in facilities-based competition, right, but in an investor presentation in September this year, 9 September, you indicated that you have increased the number of fibre connected buildings in your footprint by 8.5 percent over the past year. Are those -- if that has hindered business, what would your business have been like if it had been unhindered?
6729 MR. STROPLE: The decision to invest in facilities, in our own fibre facilities, is one driven by a variety of factors, particularly where we find the density of customers. The hindrance is really about the fact that we find business customers dispersed and, while I may be able to serve a customer with 10 locations, I can serve eight locations on my own network.
6730 The inability to serve two very remote locations may preclude me from bidding on the entire bundle of 10 and by that nature of not having access to the remaining two, effectively bars me from being able to serve 10.
6731 COMMISSIONER MENZIES: I understand that. Also, I mean you have said frequently, it's obvious, that you are unable to reach many potential business customers in terms of that. In your Q3 2014 MDNA you said the company is "one of only three truly national providers in business markets" and there is a map there that shows your IP network footprint which appears to cover every major urban centre and several smaller cities across the country.
6732 So again I am trying to -- does the same answer apply? It's the smaller areas that you can't reach to complete the package on the sale?
6733 MR. STROPLE: It's the sparseness and it's the same. I can do eight on my own expansive network and in any and all of the metros, but even being in a particular metro would not give me access to absolutely everywhere there.
6734 COMMISSIONER MENZIES: What parts of the country specifically would we be referring to where it's uneconomical to build facilities on your own to reach those potential customers?
6735 MR. STROPLE: There are large parts of the country where that would be true. I'm not sure I can nail it down to one or two particular areas in the appliance of that forbearance test where you see the rivalrous behaviour. It comes down to --
6736 COMMISSIONER MENZIES: Perhaps just give me some examples, a "for instance".
6737 MR. STROPLE: A for instance.
6738 COMMISSIONER MENZIES: A for instance of one of those small areas that you weren't able to get access to which interfered with your ability to conclude a much larger commercial agreement?
6739 MR. DI LUCH: So you could pick areas like southwestern Ontario, parts of southwestern Ontario outside of major metropolitan areas, Tillsonburg. You could pick rural areas of Alberta, lots of places that are outside of a major metropolitan area.
6740 COMMISSIONER MENZIES: Any town that appears in the Stompin' Tom song?
6741 MR. STROPLE: Anywhere Stompin' Tom talked about, yes.
6742 COMMISSIONER MENZIES: Okay. And it's not possible, it doesn't make sense for -- the contracts aren't worth you making any sort of build there to just complete that deal?
6743 MR. STROPLE: That investment may be so significant and so substantial that even, you know, a three year, five year, even a 10-year contract wouldn't make that economical because -- when it's only the single customer. So the issue of density comes into play. If there were a large cluster of customers that may change the economics again, but when you are bidding on businesses rather than concentrated geographies, which is really the fundamental difference between residential and business, you often don't have the opportunity.
6744 And while there may be five businesses clustered together, only one of them at that time is prepared to offer up their national business for that particular branch.
6745 COMMISSIONER MENZIES: Okay. Let's talk about the essentiality test now for a moment.
6746 How, in your view, then, should Ethernet services qualify as an essential service if you go through the three main points; facilities required as an input by competitors to provide telecom services in a downstream market -- well, you know the points.
6747 Can you just help me understand why Ethernet qualifies there, in your view?
6748 MR. STROPLE: The services that businesses want to buy to make data connections today and then ultimately, as we referred, in the long term voice begins running on a data network centre around, you know, high-bandwidth and reliability. For some businesses high-bandwidth might be 10 meg. Some businesses would consider it 100 meg. Others would consider it a gigabyte.
6749 The symmetrical nature of what Ethernet provides also distinguishes it from high-speed, some high speed access services, including the reliability of the service, mean time to repair and other characteristics of what would be considered an Ethernet service that businesses are interested in for running their operation.
6750 COMMISSIONER MENZIES: Now, in terms of rate setting you obviously have a preference for negotiated agreements and we mentioned this somewhat before, you want dispute resolution or a tariff as a backstop?
6751 MR. STROPLE: Dispute resolution.
6752 COMMISSIONER MENZIES: Okay. Do you have any advice you can offer on Phase II costing in terms of where that might be -- there might be appropriate adjustments to that, for instance, a retail minus approach if a wholesale service is similar to an associated retail service, for instance, or anything like that or are you comfortable with the Phase II process as it is?
6753 MR. STROPLE: We think Phase II costing is appropriate provided you account for differences between carriers.
6754 COMMISSIONER MENZIES: Okay. Thank you.
6755 Markups. Some ILECs have argued that they are insufficient. What's your view on markups?
6756 MR. STROPLE: We think that the Commission has used its discretion in markups and not every service has to have the same markup. I think you can properly look at the situation and determine the markup based on the factors of risk.
6757 COMMISSIONER MENZIES: As in fibre-to-the-node where there is a risk factor built into the overall markup?
6758 MR. STROPLE: Correct.
6759 COMMISSIONER MENZIES: And that would apply to fibre-to-the-prem, I assume --
6760 MR. STROPLE: Yes.
6761 COMMISSIONER MENZIES: -- in terms of how you calculate your rate factors?
6762 Bell proposed a couple of exemptions from the requirement to file a new cost study, one for recently filed cost studies and, two, for when the service demand and revenue of the service is low, the latter of which you supported. Are there any other circumstances where it would be appropriate to not have to submit a cost study by ILECs and cablecos?
6763 MR. FRIESEN: We are aligned with the Bell exemptions and we have no others to add.
6764 COMMISSIONER MENZIES: Are you comfortable with using incumbent's costs for assessing the cost for similar wholesale services, benchmarking for instance?
6765 MR. STROPLE: Yes.
6766 COMMISSIONER MENZIES: This is such a great hearing. Everybody likes Phase II costing and the way we do everything. You have no idea how happy you are making the costing guys when you go through this.
6767 COMMISSIONER MENZIES: Anyway, thank you very much. Those are my questions.
6768 THE CHAIRPERSON: Commissioner Shoan, I believe you have some questions.
6769 COMMISSIONER SHOAN: Thank you, Mr. Chairman. Just a few quick questions.
6770 You mentioned you would like access to the dispute resolution mechanisms when a commercially reasonable agreement can't be reached by the parties within a reasonable amount of time. Can you define a reasonable amount of time?
6771 MR. STROPLE: I wouldn't put a specific number on it. In some cases I think a reasonable amount of time might be six weeks, in other cases it might be six months or nine months. It sort of depends on the progress and I think you can look at each situation and assess the reasonableness as opposed to putting a number on it.
6772 COMMISSIONER SHOAN: Okay. Is it really more efficient to go to dispute resolution? I mean that is a fairly involved process involving quite a few filings, possibly a hearing. There would likely be quite a bit of time associated with that. Is that really more efficient than an ex anti-tariff?
6773 MR. STROPLE: We think that we avoid dispute resolution through a commercial negotiation. So the expectation is we wouldn't end up in dispute resolution repeatedly. The tariff route, I mean getting a tariff and a tariff right is complicated because the tariff applies so broadly and the services that we offer are complicated and intricate and it's not just about price.
6774 COMMISSIONER SHOAN: Okay.
6775 MR. STROPLE: It is about what's offered and what's not offered and various options. We think that is best handled between two motivated parties and we believe that backstop is what ensures the commercial negotiations are successful despite market power.
6776 COMMISSIONER SHOAN: Okay. Did I hear correctly earlier that the number of residential subscribers to your fibre or Internet offering is very low, about 1 percent. Is that correct?
6777 MR. SHEPHERD: About 5 percent.
6778 COMMISSIONER SHOAN: About 5 percent, pardon me.
6779 MR. SHEPHERD: About 5 percent of our residential home base would be connected and subscribing to a fibre based service.
6780 COMMISSIONER SHOAN: Okay. Thank you.
6781 We heard a similar number, it might have been a little bit lower, from SaskTel yesterday and I'm just curious as to the reason why the uptake is so low. Is it a marketing issue, is it an application issue, is there a particular reason?
6782 MR. SHEPHERD: I can't speak to the SaskTel situation. For us, we have about -- I think it's about 69 percent, if I have the number correct. About 69 percent of the homes in Manitoba that would be part of the addressable market are passed with one of our broadband platforms. The vast majority of those are passed with our VDSL platform.
6783 COMMISSIONER SHOAN: Okay.
6784 MR. SHEPHERD: So the small number connected to fibre, which is fibre-to-the-home, is really more reflective just of the number of homes that we have covered with the program and our logic has been greenfield development --
6785 COMMISSIONER SHOAN: Sure.
6786 MR. SHEPHERD: -- which obviously, you know, takes quite some time to build a base of customers in terms of greenfield. We have been deploying fibre in greenfield because it is, we believe, the right technology for a greenfield investment. Our overlay fibre-to-the-home programs have all been in smaller communities outside of our major centres where we had already deployed VDSL.
6787 COMMISSIONER SHOAN: Okay.
6788 MR. SHEPHERD: As you can appreciate, we are able to offer a 50 Mb Internet service on our VDSL platform. The economics and the business case to drive a fibre-to-the-home deployment in an area that we have already done fibre-to-the-node in are quite a bit less than in a community where we had only central office-based ADSL service.
6789 COMMISSIONER SHOAN: Right.
6790 MR. SHEPHERD: So it is really a factor of the timing. We would have a very high percentage of homes connected to what we would call a next-generation broadband service, but not necessarily fibre-to-the-home.
6791 COMMISSIONER SHOAN: Okay, fair enough. Thank you for that explanation.
6792 Those are my questions, Mr. Chairman.
6793 THE CHAIRPERSON: Thank you.
6794 Commissioner Molnar...?
6795 COMMISSIONER MOLNAR: Good afternoon. Just a couple of questions first on Ethernet.
6796 You know, as was brought up, this is a long story and at this point now the service has been forborne and you mentioned that you had situations where you have been foreclosed from accessing Ethernet service; is that correct?
6797 MR. STROPLE: In the absence of -- so that's correct, and also accessing it at a competitive rate.
6798 COMMISSIONER MOLNAR: Okay. So you've been foreclosed from access or you couldn't agree on a rate, which of those occurred?
6799 MR. STROPLE: Both.
6800 COMMISSIONER MOLNAR: Okay. Did you bring those situations to the Commission? Forbearance doesn't mean that there is the ability to foreclose people from markets, forbearance is based on the suggestion that the competitive market will ensure rates are just and reasonable, so it's not like the Commission is not available to you.
6801 MR. FRIESEN: I don't believe we have brought any forward as specific complaints.
6802 MR. STROPLE: I mean, on that point, we have continued to work the commercial negotiations. As I mentioned, we have progressed some of them along and the backstop -- again, back to our backstop of commercial negotiation, I would even suggest the backstop of this proceeding may have been helpful.
6803 COMMISSIONER MOLNAR: M'hmm. As a backstop, there are retail Ethernet tariffs in place. Have those worked as a backstop for you?
6804 MR. STROPLE: We have availed ourselves of the retail Ethernet tariffs.
6805 COMMISSIONER MOLNAR: Okay. So, at this point, based on the situation that exists today, whether it's the result of this hearing or otherwise, is it your sense you will be foreclosed from obtaining services going forward?
6806 MR. STROPLE: I believe that with the mandated access and a backstop --
6807 COMMISSIONER MOLNAR: Yeah, but I'm not suggesting mandated access. Where the service exists today there are tariffed retail Ethernet services available. Forbearance has occurred. You have suggested that you have moved forward in some of your commercial negotiations. Do you believe that you will be foreclosed from the market in the future?
6808 MR. STROPLE: I believe that's possible, yes.
6809 COMMISSIONER MOLNAR: And you can't rely on the retail tariff?
6810 MR. STROPLE: The retail tariff, we don't consider competitive and don't think it will maintain -- continue to be competitive.
6811 COMMISSIONER MOLNAR: M'hmm. Just so I understand, as you're doing this, when you're serving these large businesses, you're suggesting that there are areas to serve. You used Southern Ontario. They would have -- I'm going to use an example of a company that may or may not be the case but let's say it's the Royal Bank.
6812 MR. STROPLE: M'hmm.
6813 COMMISSIONER MOLNAR: So you've served all of the enterprise market within the major centres but they want a couple of their small supporting centres. Is that a good example of the kinds of businesses that you're saying where you have the need --
6814 MR. STROPLE: That's a good example. We have large geographic dispersion and to the extent that they want to make one purchase and have their data network managed and provided by one provider that they would -- as an example, they might suggest that if you can't supply these 200 in aggregate that you can supply none.
6815 COMMISSIONER MOLNAR: Right. And you have a quite significant fibre network of your own and so it is some percentage of those that are at risk, some percentage of those where you have not been able to reach a commercial arrangement and there's a backstop, being the retail tariff, and that's not sufficient?
6816 MR. STROPLE: That's right.
6817 COMMISSIONER MOLNAR: Okay. I'm going to move on to speaking a little bit about fibre-to-the-prem. You mentioned that you have zero demand for GAS on the residential side, your wholesale ADSL service has zero demand.
6818 MR. SHEPHERD: It's very low. I don't know if zero is the correct number but it is very low.
6819 COMMISSIONER MOLNAR: Okay. I actually thought I heard you say there's none and to the extent that the service is used it's used to serve business.
6820 MR. SHEPHERD: Our belief is that it's being used for business.
6821 COMMISSIONER MOLNAR: Right.
6822 MR. SHEPHERD: But I mean, I'm not going to pretend. There might be a small number in there.
6823 COMMISSIONER MOLNAR: Yeah. Fair enough. Yeah. And maybe you shouldn't even have to know that.
6824 MR. SHEPHERD: I don't.?-- Laughter / Rires
6825 COMMISSIONER MOLNAR: Yeah, that's right. Yeah, that's right.
6826 So has the requirement to be able to make that available within your region been at significant cost to your company?
6827 MR. SHEPHERD: Well, there was a cost to develop and roll out the service. I think it was on the order -- it was certainly a million sort of dollars or in that range. I haven't gone back and looked at the demand profile to understand whether the demand and the timing, you know, has fully allowed us to recover the cost but I think the use of it in the business market probably shows there is some demand in the business market for the service. But if it had been purely a residential offering, it would have been just a sunk cost, a lost cost.
6828 COMMISSIONER MOLNAR: M'hmm. So essentially, as you know well, the requirement to unbundle the fibre-to-the-node was part of a speed-matching decision that looked at the retail market, determined a duopoly was not sufficient and competitive ISPs provided an important element to the --
6829 Assuming we don't accept now that a duopoly is sufficient and felt it appropriate to extend the speed-matching requirement, what would be the impact on you?
6830 MR. SHEPHERD: Well, I think there would be a couple of impacts.
6831 First, obviously, we would have to invest again some amount of money, and I will say I don't know how much because I haven't specifically asked the engineers to design and tell me, but there would be some investment required to extend it to the fibre-to-the-home platform.
6832 Secondly, as I mentioned in my remarks --
6833 COMMISSIONER MOLNAR: I'm sorry because I'll forget -- if you can remember your second, I'm going to ask my question on the first.
6834 MR. SHEPHERD: Sure. Go ahead.
6835 COMMISSIONER MOLNAR: Okay. Is there some way that that investment could be deferred or delayed or perhaps avoided if in fact no demand exists? Is there something from a regulatory perspective that could be done so that you're not investing for no demand?
6836 MR. SHEPHERD: Well, certainly, one of the ways, the simplest way is to re-examine the issue in five years and see whether the situation has changed. But I suppose -- I haven't thought of alternatives but --
6837 COMMISSIONER MOLNAR: No, I'm just saying, so you say that it needs to be made available but --
6838 MR. SHEPHERD: But if it was a commercial negotiation, I mean typically in a commercial negotiation if somebody is going to order a service they have to commit to either some of the service development cost or a sufficient volume to make it work.
6839 And so, for example, when somebody approaches me for Ethernet service I'm more than happy to provide that, but if I don't provide the service to anybody else I have to have some kind of volume commitment or belief that my investment is going to have a payback.
6840 I think the same situation exists here. If a party wanted that type of access and sat down and we had a commercial discussion on it, we would be sharing with them, saying this is what our costs are going to be, here's what we think our demand is in the market, but we would need a commitment of a certain volume, I would think, to reduce the risk that that investment would be stranded.
6841 COMMISSIONER MOLNAR: Okay. Thank you. Do you remember number two?
6842 MR. SHEPHERD: Yes, I do remember number two.
6843 MR. SHEPHERD: I was going to say the second impact really is that it introduces a new -- I guess a new factor into our fibre deployment plans. And I wouldn't say it's the only factor. I mean there are a lot of things that go into how quickly we will deploy fibre-to-the-home, including the demand for these higher-speed services being a big component, how effectively our current fibre-to-the-node platform can continue to meet the majority of customers' demands. Those are all factors.
6844 But I am concerned that -- you know, we're a relatively small company. I know some think of us as large but we're really a regional player with a certain amount of limited scale. So I am concerned about the situation where mandated kind of cost-based low cost access allows a very large, well-heeled competitor to come in, and really one that could afford to build that third infrastructure, that could afford to take the risk and simply leverage the investment we've made.
6845 So I'm not really concerned about competitive ISPs per se -- we see them in our market, they fill a role -- but I am concerned that, you know, as a smaller player, essentially we're making a significant investment on behalf of our shareholders and it does introduce that risk element because we're talking about an investment that has quite a long payback. I mean we're talking -- and in that timeframe then you have to be concerned about those types of strategic risks.
6846 COMMISSIONER MOLNAR: Okay, that's fair. And I think actually you did mention in here something about a large competitor.
6847 Under the conditions that exist with the FTTN now, which is it's an aggregated service available for Internet services, that risk exists to you in your view?
6848 MR. SHEPHERD: It does. I mean obviously, risk materialized after we had made the investment and I think there are many other drivers that would have led us to have to make those types of investments. As I've mentioned, it's a very competitive environment. Technology and customer needs are evolving. So I think at the end of the day it's unlikely that you would not make investments that are required to meet those requirements, but clearly, it adds uncertainty and additional risk into the business case and potentially delays the timing more than you might like. Capital is a scarce resource. It has to compete with other priorities.
6849 Fibre-to-the-home, certainly the deployments we've done have business cases that have quite long paybacks and we typically evaluate -- one of the evaluations of risk we have is how long a payback. I mean if you can have a three-year payback on a project, we believe that the element of uncertainty in a three-year period is a lot less than if it's a 10-year period.
6850 And these are big infrastructure investments with long paybacks. So the more uncertainty we have about the environment and the risk does make it more difficult to move forward with some of those investments.
6851 COMMISSIONER MOLNAR: One last question. Where you have deployed fibre-to-the-prem, have you included the drop?
6852 MR. SHEPHERD: We deploy in what we call a homes pass model and so we only deploy the drop when a service is ordered. But obviously, once a drop is deployed we leave it in, we don't --
6853 COMMISSIONER MOLNAR: Yeah.
6854 MR. SHEPHERD: You know, if a customer churned out in a year, we wouldn't go and recover it.
6855 COMMISSIONER MOLNAR: Bell Canada -- or Bell Aliant actually, I think they said the total cost of serving a home is about two-thirds network, one-third drop. Would that be within your experience?
6856 MR. SHEPHERD: I would say at least that probably and it does depend very significantly on whether you are aerial or buried plant. I believe Bell Aliant has a very high percentage of aerial.
6857 COMMISSIONER MOLNAR: M'hmm.
6858 MR. SHEPHERD: If you get into a buried drop scenario, that ratio goes up. In other words, there's more investment in the drop even than that ratio.
6859 COMMISSIONER MOLNAR: Okay. Thank you. Those are my questions.
6860 THE CHAIRPERSON: Does Legal have a question?
6861 MR. BOWLES: Yes, Mr. Chair. I only have two quick questions, or hopefully they will be quick questions.
6862 The first one, I'd like to close the loop on a conversation you had with Vice-Chair Menzies and in the process pick up on a question which the Chair put to SaskTel yesterday.
6863 I understand your position to be that service bundles do not form part of a separate product market from the constituent services that form part of that bundle. Can you provide your view as to whether a hypothetical firm with market power in the bundle market could profitably impose a small but significant price increase that is non-transitory in nature, and if not, why not?
6864 MR. SHEPHERD: I'd say no. I don't believe, at least in the environment that I'm operating in, that would be possible. And I think, first of all, there is an extremely competitive environment for both individual and bundled services. So to try to impose a permanent price increase on bundles, you're competing against other multiple service providers, consumers look at those combinations of multiple options and, generally speaking, can find equivalencies.
6865 So I think in the residential market, in the kind of vigorous competitive environment we see, and we see that continuing and if nothing else increasing, we don't believe that you could impose that type of an increase without having an impact on your market share or your churn, those types of parameters.
6866 MR. BOWLES: Sorry, I may have misunderstood but in your answer it seemed to imply that there were other firms out there that were competing in -- or effectively competing in the service bundle market.
6867 MR. SHEPHERD: Certainly --
6868 MR. BOWLES: I guess my question was phrased with a hypothetical firm that had market power in that market.
6869 MR. SHEPHERD: I guess hypothetically if you had market power you could do something like that, but at least today I would say I don't think that firm exists, at least not in the market I operate in.
6870 MR. BOWLES: Okay. My last question has to do with -- once again, it was a discussion you had earlier with Vice-Chair Menzies in which you indicated that in areas where you've overlaid your existing copper network with a fibre access network you had no plans to decommission the existing copper network.
6871 Is there a point at which, however, it no longer becomes economically feasible to maintain both access plants, and if so, what conditions need to be in place at which point it no longer becomes economically efficient to maintain both plants?
6872 MR. SHEPHERD: Well, I have asked in the past our planners that question, is there a trigger point at which you would invest to recover -- to fully deploy fibre and take down the copper plant. The studies I've seen suggest that that is a significant ways in the distance. It would require quite a high penetration to be reached in order for that to be cost-effective. So certainly in our planning horizon, which is typically five years, it's not within that planning horizon.
6873 I can think of scenarios which might trigger it. For example, I mentioned this one community where the pole infrastructure clearly I didn't want to invest in a brand-new set of poles which I didn't own and then pay the lease on them as well, which is sort of the way these arrangements work when you don't own poles yourself. So there it was clearly a trigger for me to take down the copper.
6874 I could see a situation if the copper plant deteriorated to the point the service costs were so high to maintain, that might trigger a replacement strategy. But certainly, in our five-year planning horizon, we don't believe that that trigger is going to be reached.
6875 MR. BOWLES: Okay. Thank you. Those are my questions.
6876 THE CHAIRPERSON: Thank you very much. Those are all our questions for you. Thank you very much.
6877 I assume you're flying back home for the weekend perhaps, so safe return.
6878 MR. SHEPHERD: Yes.
6879 THE CHAIRPERSON: Before we hear from the last and final presenter today, we will just take a short break till 2:25, a five-minute break just so that they can set up their computers.
--- Upon recessing at 1418
--- Upon resuming at 1425
6880 THE CHAIRPERSON: À l'ordre s'il vous plait.
6881 So, Madam Secretary.
6882 THE SECRETARY: Thank you, Mr. Chairman.
6883 I would just like to advise for those who were watching on CPAC or listening on the Web, that the last item on the agenda today will now be appearing at the end of the day on Monday, it is School District No. 67 Okanagan.
6884 So we're now ready to hear the presentation from City of Calgary.
6885 Please introduce yourselves for the Panel first and you have 20 minutes.
6886 MS BENDFELD: Thank you.
6887 Good afternoon, Mr. Chairman and Members of the Commission.
6888 I'm Mary Ann Bendfeld, Legal Counsel for the City of Calgary. With me on our panel today are, beginning on my right, Kelly Hess, Team Leader, Utility Line Assignments, Ron Holberton, Senior Regulatory Analyst, and beginning on my left, David Basto, Project Manager, Outside Plant, Peter Talbot, Manager, Access Solutions, and Matt Lonsdale, Legal Counsel.
6889 The City of Calgary has a current population of approximately 1.2 million residents. It is experiencing and forecasting unprecedented growth of approximately 40,000 residents a year. As a result, the city's management is focused on municipal capital investment for the development of required new infrastructure. New residents require access to essential City services, such as water, power, sewage and transportation, which require high-speed telecommunication networks for central monitoring and control. Growth necessitates accelerated deployment of municipal networks as well as privately owned networks for services that are increasingly seen by customers as virtually essential.
6890 Calgary's role in the telecommunication wholesale services market is two-fold: it is a non-dominant carrier providing infrastructure in the form of support structures and dark fibre to telecommunication service providers, but also owns and manages rights-of-way and other structures where telecommunication facilities are installed.
6891 In this proceeding, Calgary focuses its presentation on those issues of municipal concern affecting, or affected by the wholesale services market. Specifically, Calgary is advancing awareness about right-of-way capacity, or space, in high density urban environments. Right-of-way space, when constrained, functions like an essential service in the wholesale services market. An incumbent's use of right-of-way space for installation of telecommunication facilities substantially lessens or prevents downstream competition where right-of-way space cannot be duplicated or accessed by a competitor.
6892 Therefore, since incumbents' existing rights to support structures and right-of-way space provide them significant advantage in building out a fibre-to-the-premise network, Calgary is recommending the Commission mandate access to incumbents' fibre networks. Calgary is also recommending the Commission consider the benefit that municipal fibre networks can provide in promoting competition in the downstream market and seeks additional policy support from the Commission for municipal fibre networks.
6893 The existing wholesale services framework recognizes that a duopoly of an incumbent local exchange carrier and a cable carrier may not generate sufficient competitive pressure to ensure that the policy objectives of the Telecommunications Act are being met.
6894 In the Commission's latest Communications Monitoring Report, the Commission finds that five TSPs: Bell, Québecor, Rogers, Shaw and Telus collectively dominate the market for Internet services and account for 85 per cent of telecommunication services revenues.
6895 Typically, only two of these five providers compete with each other in a given geographical market.
6896 With the goal of driving competition, the Commission has imposed mandatory network sharing polices on incumbents, obligating incumbents to make those parts of their networks deemed essential, available to competitors at regulated rates.
6897 The dilemma that the Commission must address is that promoting competition between TSPs is not simply a matter of considering and applying economic principles. The physical reality of the installation of all telecommunication infrastructure has to be taken into account, which becomes particularly important with the construction of new fibre networks.
6898 Support structures are categorized as a public good wholesale service based on the fact that duplicate support structure facilities would result in an inefficient use of public land and private resources and would be an inconvenience to the public.
6899 During the course of the consultation, interventions emphasized the importance of support structures when building new facilities.
6900 In its intervention filed 31 January 2014, Bell Canada emphasized that "... support structures...are one of the most significant aspects of constructing an FTTP network".
6901 Bell Canada asserted that one of the reasons why fibre networks are duplicable, and why incumbents' competitors have a significant advantage, is because they can access incumbents' support structures at low regulated rates.
6902 However, a primary issue for those competitors may be whether there is capacity on the most readily available and cost-effective support structures for installation of additional fibre network facilities.
6903 For example, one the most cost-effective and efficient methods of deploying fibre optic cable is to use electric power poles. In Calgary, the power poles are owned by Enmax Corporation which has an exclusive franchise to distribute electricity in Calgary.
6904 A communication zone on the power poles is available for installing fibre optic cable, within which only three installation points are available. One is occupied by Telus, the second is occupied by Shaw; the third is occupied by Enmax Envision, now owned by Shaw.
6905 As a result, one of the most accessible and cost-effective resources for deploying fibre optic cable is unavailable to any other TSP. Even the City cannot access Enmax' power poles for its telecommunication installations.
6906 Large cabinets need to be located aboveground in right-of-ways or on private property for installation of fibre networks.
6907 As can be seen on the screen, multiple installations of fibre network cabinets by carriers are also an inefficient use of public land and private resources and a significant inconvenience to the public, similar to duplicate installations of support structures. Incumbents have the first opportunity to install cabinets aboveground and as more TSPs want space for their cabinets, residents are likely to express increasing dissatisfaction, similar to the ongoing complaints received from the public with respect to cell towers.
6908 In summary, the capacity of accessible, cost-effective support structures, such as power poles may be limited or exhausted in many cases. The aboveground capacity in right-of-ways is also limited as fibre network cabinets are a visual blight and nuisance in residential neighbourhoods.
6909 The issue of mandated access to fibre-to-the-premise services has risen to the fore during this consultation process. One of the significant issues before the Commission is whether the course set in 2008 to forbear from regulating high-speed fibre based access and transport facilities should be reversed.
6910 Fibre networks are viewed by many as a game-changer in the telecommunication industry.
6911 The main drawback for fibre networks is the up-front cost and process of building out to connect homes, institutions and businesses. Although the price for fibre optic cable is declining, costs associated with labour and construction remain high.
6912 Incumbents with access to support structures and right-of-way and strong market share have competitive advantage in building out a fibre network. Despite claims that de-regulation will increase investment in fibre networks, the Chairman of the FCC observed in a recent speech that in the U.S. as bandwidth increases, competitive choice decreases. Next generation broadband does not mean that its access comes with competitive choices.
6913 Generally, the incumbents' submissions advocated for the Commission to continue to support facilities-based competition and for the Commission to forbear from regulating fibre networks. Given the concept of duplicability and its application in determining whether a service should be determined to be essential, it is not clear to Calgary how competitors could duplicate the fibre networks built by incumbents.
6914 The incumbents insist that their legacy networks do not provide them with any advantage. This claim does not appear to be true from the perspective of the City of Calgary in its role as owner and manager of right-of-ways. Incumbents enjoy a significant advantage in regard to both their existing access to support structures of other utility providers in the geographic areas in which they dominate and their existing rights to space in municipal right-of-ways.
6915 The foregoing issues could be addressed if incumbents were willing to share nonessential facilities. However, for the most part, incumbents indicated that they do not have plans to install extra fibre capacity or license extra fibre capacity to competitors.
6916 The market advantage enjoyed by the incumbents is reinforced by their existing rights to right-of-way capacity. Although right-of-ways, unlike support structures, are not a wholesale service, capacity in right-of-ways for installation of facilities is essential if a TSP wants to install a Fibre network. However, underground right-of-way space is limited. As new entrants enter the telecommunication market and incumbents construct new fibre networks, right-of-ways in many Calgary communities are at, or reaching, capacity.
6917 Moreover, it is not only the telecommunication industry that constructs fibre networks. Municipalities, other utility providers, including electrical and gas companies and some private businesses all build fibre networks.
6918 The area circumscribed by the black circle on the map on the screen indicates the communities in Calgary that have a high level of congestion in their right-of-ways. As you can see, they represent a significant proportion of the city, including areas of dense business activity and high potential revenue such as downtown.
6919 If a right-of-way has reached capacity, the incumbent has the advantage of being able to remove their old facilities within the right-of-way to make room for new facilities or to install additional facilities within the same alignment. Although these may not be optimal solutions, they are solutions available to the incumbent that are not available to a new entrant to the market wanting to install its first telecommunication facilities.
6920 This diagram is an example of an older Calgary roadway and laneway. It shows the installation of the essential deep utilities, water and sewer, and essential shallow utilities, gas and power. TELUS' and Shaw's telecommunication facilities are hung on Enmax' power poles due to lack of available space in the right-of-way. The roadway and laneway cannot accommodate any additional shallow utilities, including telecommunication facilities.
6921 This diagram on the screen shows how various utility lines are placed within Calgary's right-of-ways in newly developed areas. The facilities for each type of utility placement are separated to ensure safety in installation, maintenance and repair and to support the structural integrity of the right-of-way.
6922 TELUS' and Shaw's facilities are located with Enmax and Atco Gas in a joint utility trench. Two locations, adjacent to each curb, are available for installing shallow utilities. Installation in these locations is significantly more costly than installing utilities in the joint utility trench during the development process.
6923 Additional examples of congested roadways and laneways can be found in Calgary's Reply Comments filed 31 October 2014. We encourage any questions the Commission may have in regard to these diagrams.
6924 Calgary's unprecedented growth requires continuing development of Calgary's own fibre network for long-term sustainability, reliability and security of municipal services. Municipalities have a mandate to act in the public interest and to ensure that the public is being served. Their focus on the public interest, rather than on profit, aligns with the Commission's policy objectives which are concerned with the beneficial effects telecommunication services have on communities rather than on companies.
6925 Municipal networks can complement the fibre networks constructed by commercial carriers by providing a neutral supply of dark fibre to TSPs. In the process of building its own fibre network, Calgary finds it is cost-effective and efficient to install more fibre than is necessary for its own use. This unused, or dark fibre, is and will be licensed to TSPs or other utilities on a non-discriminatory basis.
6926 his has a number of positive impacts on competition in the telecommunication marketplace: Competition in the downstream market is not impeded by the limited capacity of right-of-ways or conveniently accessible support structures; fibre deployment is ubiquitous, as municipal governments are mandated to provide infrastructure to all citizens, regardless of location or economic benefit; bottlenecks for the installation of facilities are eliminated; and right-of-ways can be managed more efficiently and effectively in a manner that supports all stakeholders.
6927 Municipal governments need the assistance and support of the Commission to carry out these initiatives. As a non-dominant carrier and owner of telecommunication infrastructure, Calgary submits that such support should come in the form of either freedom from regulation or with minimal regulation that does not affect a municipality's operation of its core business of municipal services. This requires insight into community issues and political communication at a level outside the mandate of the Commission.
6928 Excessive regulation would interfere in this complicated process and make it more difficult for municipalities to support the growth of healthy communities, which the policy objectives strive for and which are a municipality's over-arching purpose.
6929 One method for the Commission to achieve this is to continue to forbear from regulating non-dominant carriers that license dark fibre or, alternatively, to establish a government class of non-dominant carriers whose telecommunication services are forborne from regulation so long as they are not competing in the downstream market. Such would acknowledge that the objectives of municipal government and the goals of the Commission align in several important ways in a manner that does not conflict with the competitive sector's goals.
6930 In summary, Calgary puts forward the following considerations to the Commission in its task of effective policy development for wholesale services:
6931 First, consider the following physical constraints related to installation of telecommunication facilities: incumbents may already have exhausted space on the most convenient and cost-effective support structures for installation of their Fibre networks; and aboveground right-of-way space is limited for the addition of large cabinets for fibre networks, similar to the issues related to support structures already identified by the Commission; and incumbents with existing rights to right-of-way space have a significant advantage in installing new facilities in geographic locations where underground right-of-way space is at capacity.
6932 Second, the architecture of fibre networks may frustrate regulatory objectives designed to encourage competition. Optimally, multiple strands of fibre should be deployed during construction which would allow for multiple network operators to attach their optical equipment and provide their telecommunication services.
6933 Third, municipal fibre networks containing excess capacity of dark fibre may temper the effect of physical constraints to deployment and facilitate a competitive downstream environment. Further, policies that facilitate development and management of municipal fibre networks and licensing of municipal dark fibre to TSPs could stimulate additional investment by municipalities in telecommunication facilities.
6934 In applying the definition of an essential service, or determining whether to mandate access to a service, the Commission is concerned with whether a carrier can utilize market power over the supply of a facility in the upstream market to substantially lessen or prevent downstream competition. Potential duplicability of the facility is key to this determination.
6935 Current right-of-way capacity cannot be duplicated or increased. As a result, fibre networks cannot be duplicated because they require right-of-way capacity for installation; in many cases, there is simply no space for duplication to occur.
6936 Consideration of duplicability in the context of the foregoing discussion leads municipalities, and particularly Calgary, to conclude that the upstream power exercised by incumbents in the form of rights to conveniently available support structures and rights to above and below-ground right-of-way space substantially lessens upstream and downstream competition.
6937 Such a conclusion should compel a subsequent conclusion that fibre network facilities should be classified conditional mandated non-essential facilities, acknowledging that future changes in infrastructure development may favour a change in classification.
6938 The foregoing classification reflects the Commission's mandate in the Policy Direction to adopt practices that provide incentive for innovation and investment in telecommunication network facilities, taking into account principles of technological and competitive neutrality and the impediments faced by new and existing carriers in developing new network facilities.
6939 In conclusion, the City of Calgary respectfully requests the Commission consider that the technological capability of potential competitors cannot overcome the advantage of entrenched rights where the availability of such rights cannot be extended to every potential participant.
6940 Moreover, Calgary requests a wholesale services framework that recognizes the unique situation of municipal governments as infrastructure providers whose primary purpose is to strengthen the economic and social fabric of their communities.
6941 Thank you for the opportunity of appearing before you today to communicate the City of Calgary's concerns.
6942 THE CHAIRPERSON: Well, thank you for being here. When I saw the original witness list I had an 18-year flashback to a hearing where I was the legal counsel which I believe was the Commission's last rate of return hearing at which definitely Mr. Inlow had appeared, he wasn't there today, but a long time has passed since then and, you know, asking questions about the clash between the virtual world and the real world.
6943 So thank you.
6944 MS BENDFELD: Yes.
6945 THE CHAIRPERSON: Commissioner Shoan will start us off with some questions.
6946 COMMISSIONER SHOAN: Thank you.
6947 Good afternoon.
6948 MS BENDFELD: Good afternoon.
6949 COMMISSIONER SHOAN: Thank you for being here. You had a very clear targeted submission, so that will certainly help in terms of the questioning in terms of focusing in on that one issue.
6950 And this is the way I interpret your previous written submissions and your presentation today.
6951 MS BENDFELD: M'hmm.
6952 COMMISSIONER SHOAN: The issue that you're raising is that municipal rights-of-way are a limited resource, particularly in larger urban centres, and that as a result of municipal rights-of-ways being a limited resource, we should support service-based competition in order to manage that scarcity.
6953 As a result of that being brought forward, there are a number of possible solutions that we can follow in order to address the scarcity of that resource, municipal right-of-way.
6954 MS BENDFELD: M'hmm.
6955 COMMISSIONER SHOAN: And I'd like to go through those one by one to get your perspective on them.
6956 MS BENDFELD: Okay.
6957 COMMISSIONER SHOAN: And so, what I see is based on your previous written submission and your reply is that you suggested we could mandate the provision of wholesale FTTP service as a conditional non-essential service in order to alleviate right-of-way congestion.
6958 And I noticed this morning you raised the issue of establishing a government class of non-dominant carriers whose telecommunication services are forborne from regulation, so long as they are not competing in the downstream market. So those are two potential solutions.
6959 From the Commission's perspective, I suppose we could re-examine our support structure tariff, which isn't really part of this proceeding but something that can be done in a separate process. So that's a third possibility.
6960 And then, of course, the solution of municipalities building out their own dark fibre network such as Calgary has done and then leasing some of that dark fibre to new entrants, new ISP competitors in urban spaces, rather than having them build their own structures would be another solution.
6961 So given that municipal rights-of-way are potentially a limited resource as you've submitted, those are the four potential solutions that have arisen in my reading of your submission.
6962 So let's go through them one by one.
6963 MS BENDFELD: Okay.
6964 COMMISSIONER SHOAN: The first one was mandate the provision of wholesale FTTP service as a conditional non-essential service.
6965 Can you expand upon that a little bit more in terms of --
6966 MS BENDFELD: Certainly. I guess when we looked at that we didn't see dark fibre as an essential service because it doesn't fall within that definition yet. It's too new.
6967 COMMISSIONER SHOAN: We do, however, as you know, mandate services for reasons other than essentiality. We have a public good category --
6968 MS BENDFELD: Yes.
6969 COMMISSIONER SHOAN: -- we have a support structure category and we have an interconnection category as well. I'm sorry to interrupt.
6970 MS BENDFELD: Yes. Which is why we suggested conditional mandated non-essential, because we thought if it doesn't fall within the non-essential category it can still be mandated and conditional on the fact that at some point in the future, five years, seven years, as the industry evolves, the Commission can look at that again and arrive at a different designation. That was why we landed on that category within the current framework.
6971 COMMISSIONER SHOAN: Okay. Right, absolutely. In terms of the conditional aspect of that, is there a particular timeframe that you would suggest that service be mandated or perhaps reviewed?
6972 MS BENDFELD: Well, I mean we can speak to -- and Mr. Basto can speak to the City of Calgary and how we would roll out our dark fibre, but we do that for municipal services --
6973 COMMISSIONER SHOAN: Right.
6974 MS BENDFELD: -- and in the process we will install excess capacity and license it out. Now, over time if other municipalities do that, and they likely will because all municipalities require services for their municipal services --
6975 COMMISSIONER SHOAN: Right.
6976 MS BENDFELD: -- so we either need to put it in ourselves or we need to license it.
6977 COMMISSIONER SHOAN: Right. And the challenge, I suppose --
6978 MS BENDFELD: We are looking at probably 20 years before the whole city would be covered with dark fibre.
6979 COMMISSIONER SHOAN: Okay.
6980 MS BENDFELD: And we don't know what the carrier's plans are. So I think, no, we don't have an answer to that.
6981 COMMISSIONER SHOAN: Okay, fair enough. And in that scenario, certainly, the dark fibre that the city is laying out would have alternate uses for other utilities, whereas the fibre being laid by the telcos would be specifically dedicated to telcos. So presumably there would be capacity on there for other service to take advantage of it.
6982 MS BENDFELD: That's right.
6983 COMMISSIONER SHOAN: Okay, great. Okay.
6984 Let's talk about your dark fibre network. So if rights of ways, particularly in larger urban centres are limited in terms of their capacity, isn't the solution the one you have already enacted in terms of building out a dark fibre network? In other words, isn't that a market solution to the congestion of your rights of way?
6985 Once a dark fibre network is out then instead of having new entrants build their own fibre facilities, they can simply sublease yours?
6986 MS BENDFELD: That's exactly right.
6987 COMMISSIONER SHOAN: Right.
6988 MS BENDFELD: But we can't do that tomorrow. Other telecoms are -- they are also -- one in particular is building their own fibre network. It will take a long time for Calgary to build that fibre network.
6989 Our intention is to maximize the alignment that we have in the right-of-way and to the extent that we can license some of that capacity, we will. We have been advised through our RFIs that at least one of the incumbents installing dark fibre has no intention of licensing dark fibre. They may change their mind on that, but we can't comment on that.
6990 COMMISSIONER SHOAN: Right, of course. And I'm just playing through the various scenarios in my mind.
6991 Could a potential solution or scenario B that we mandate access to the FTTP facilities of a telco already in place and incumbent until such time that a municipality builds out their own dark fibre network?
6992 MS BENDFELD: That is certainly a possibility the Commission could consider.
6993 COMMISSIONER SHOAN: Okay, thank you.
6994 Let's talk about the government class of non-dominant carriers whose telecom services would be forborne from regulation so long as they weren't competing in a downstream market. In that potential scenario, with the municipalities, because their services are forborne, be able to negotiate whatever commercial arrangements or rates that they wished with a new entrant, a new ISP who wished to use their dark fibre?
6995 MS BENDFELD: The reason we want to be forborne from regulation or be subject to minimal regulation is that as distinct from a commercial carrier, our primary business is not telecommunications services. Our primary business is municipal services and we use telecommunication services to provide those.
6996 So we will install excess capacity to license to other TSPs, but that isn't our primary business. We have no intention to be a monopoly in the marketplace. TELUS, Shaw, the other incumbents, also have the ability to install fibre. They all have alignments and they all have the ability to install excess capacity and license it, if they so desire.
6997 Our concern with regulation is that regulation would impact our ability to provide municipal services in so far as that if access is mandated to our facilities and that impacts our ability to provide municipal services, that would be a problem for us.
6998 In terms of rates -- I'm sorry.
6999 COMMISSIONER SHOAN: No, no, I'm sorry. Please finish your thought.
7000 MS BENDFELD: So in terms of rates we are amenable to licensing fibre at the same rates that Shaw or TELUS would license it, for instance. Benchmarking would work for us or we could negotiate rates.
7001 We leave it to the Commission with their expertise to determine how that should be carried out if they decide to regulate non-dominant carriers and in particular municipalities as non-dominant carriers.
7002 COMMISSIONER SHOAN: Okay, thank you.
7003 In that particular scenario where the dark fibre facilities of a municipality were mandated, do you envision that the costs, the operational costs and the capital expenses associated with the buildout of that fibre network would differ substantially from those constructed by private telecom providers? Would there be differences in the costing?
7004 MS BENDFELD: I will refer that question to David Basto.
7005 COMMISSIONER SHOAN: Sure.
7006 MR. BASTO: So when we build fibre networks we often take advantage of a lot of the capital works projects that are currently going on in the city. So we build a lot of infrastructure, whether it be new road infrastructure, light rail transit infrastructure. And in the process we lay ducts in the ground for that.
7007 So we would only build out at the rate that provides municipal services. So we are really not planning to build out the rate for that telecommunications market, which is there is a gap there. That is what Mary Anne was talking about before.
7008 COMMISSIONER SHOAN: And by the same token, however, as I believe in your previous written submission, you noted that because you are a government, be it municipal, there is a public interest in building out as much as you can to as many residents of your community as you possibly could, which is not necessarily a mandate or a priority of a private telecom provider.
7009 MS BENDFELD: It is as municipal budgets allow for.
7010 COMMISSIONER SHOAN: Okay.
7011 MR. BASTO: Right.
7012 COMMISSIONER SHOAN: Okay, fair enough.
7013 I guess the last potential solution based on the issue that you raised, the congestion on municipal right-of-ways was revising our support structure tariff. I confess I'm not sure when the last time we reviewed it is, or even if it's on our three-year plan to look at, but would that be a possible solution in terms of relieving that congestion? It's something that we should look at in terms of perhaps --
7014 MS BENDFELD: I'm not sure, unless I'm misunderstanding, that changing the tariff is any assistance because I think the capacity on power poles right now is exhausted.
7015 COMMISSIONER SHOAN: Okay.
7016 MS BENFELD: -- there is no one else can get on. Shaw owns two of the points and TELUS owns one. So there isn't any capacity on those poles for any other TSP.
7017 COMMISSIONER SHOWN: Okay, I understand. Thank you.
7018 Those are my questions.
7019 MS BENDFELD: If you look at the diagram that we had with respect to the power poles, it shows the access points on each of those.
7020 COMMISSIONER SHOAN: Right. And would that situation differ materially for a buried installation as opposed to an aerial one?
7021 MS BENDFELD: For a buried installation what the telecoms do is apply to the City for an alignment --
7022 COMMISSIONER SHOAN: Right.
7023 MS BENDFELD: -- and so they will have an alignment, sort of their area of the right of way that they have been granted and they have a right to that space. So if they want to overbuild in that alignment they can.
7024 I will refer the question also to Ms Hess --
7025 COMMISSIONER SHOAN: Sure.
7026 MS BENDFELD: -- who has more experience in alignments and right of ways than I do --
7027 COMMISSIONER SHOAN: Great.
7028 MS BENDFELD: -- and she can respond to your question.
7029 MS HESS: So with regards to alignments and you heard today -- I think certainly a couple of different ones talk about overlay or they would overlay their existing. I think MTS Allstream made mention of overlaying their existing.
7030 So in Calgary, TELUS as an example, has the phone lines and if they are buried in the ground they are about a meter down and so they can come along and over dig that and they can leave that alignment in. They can leave the copper or whatever it is that they have buried in the ground in and lay a fibre right on top of it, a few inches above it, whatever way.
7031 It is more expensive for them to over dig that existing alignment than it is for them to get a second alignment, but that's where we are coming into the problems of congestion, because we have minimum separations that the utilities themselves have agreed to for the protection of their assets and for the protection of their workers, particularly for ENMAX Power and ATCO Gas, so that's where some of the congestion comes in. I'm not sure, though, that I answered all of your question.
7032 COMMISSIONER SHOAN: You did actually.
7033 MS HESS: Okay, good.
7034 COMMISSIONER SHOAN: Do you have a view on micro trenching?
7035 MS HESS: Dave will answer that question.
7036 COMMISSIONER SHOAN: Okay.
7037 MR. BASTO: Okay. We have tried some micro trenching downtown, probably back in 2006 and in Calgary it turned out to be not very applicable, just due to the frost heaves in the concrete --
7038 COMMISSIONER SHOAN: Okay.
7039 MR: BASTO: -- and it cut off a lot of our services. We ended up abandoning the installation. It might work in more temperate zones, but in Calgary it did not work well for us.
7040 COMMISSIONER SHOAN: Okay ,great. Thank you.
7041 Those are my questions, Mr. Chairman.
7042 THE CHAIRPERSON: Thank you. Vice Chair Menzies...?
7043 COMMISSIONER MENZIES: Thanks. How much of the area is covered by poles and how much -- so how much of it is aerial and how much is terrestrial?
7044 MS BENDFELD: Ms Hess will answer that question.
7045 MS HESS: About 50:50 that we are told related to -- and that's information coming from TELUS.
7046 COMMISSIONER MENZIES: Maybe you could help me with a little bit of the history on that, because I'm trying to get my head around the issue with ENMAX because you said like you can't get access on ENMAX poles, but you own ENMAX, right?
7047 MS BENDFELD: That's right, we do own ENMAX, but --
7048 COMMISSIONER MENZIES: It's 100 percent owned by the City of Calgary.
7049 MS BENDFELD: ENMAX is a wholly-owned subsidiary of the City of Calgary. It was established as -- it's a separate legal entity, it is established as a private utility and it is regulated by the Alberta Utilities Commission and so are all of its infrastructure. So ENMAX has its own agreements with its own parties and the City of Calgary does not interfere in their business.
7050 COMMISSIONER MENZIES: Right. So there is a city councillor who is on the board, right, or is that just for observation?
7051 MS BENDFELD: I believe there are two city councillors on the board.
7052 COMMISSIONER MENZIES: Two city councillors on the board.
7053 MS BENDFELD: But they already have agreements, long-term agreements with TELUS and Shaw.
7054 COMMISSIONER MENZIES: Right. So you would have to apply to the Alberta Utilities Commission to get access to the network, the poles that the City of Calgary owns?
7055 MS BENDFELD: Well, that is what any party would want to do if they wanted access possibly.
7056 COMMISSIONER MENZIES: Were you denied by the Alberta Utilities Commission?
7057 MS BENDFELD: I will refer that question to Dave Basto.
7058 MR. BASTO: Actually, we didn't bring up the point actually to discuss our issue with it because we basically abandoned the pole issue. We just want to raise the issue for the Commission to understand that there could be significant market power influences outside of the domains that you have control over. So they can make private agreements with utility companies that other service providers can't.
7059 COMMISSIONER MENZIES: It sounds like ENMAX has market power in terms of that point of view, but nevertheless, that aside --
7060 MS BENDFELD: We can't comment on ENMAX's business.
7061 MR. BASTO: They are not operating as a telecommunications provider.
7062 COMMISSIONER MENZIES: Right.
7063 MS BENDFELD: They had Envision which they sold to Shaw.
7064 COMMISSIONER MENZIES: Yes. I was going to ask about that because Envision was described as one of Calgary's largest fibre-optic's networks and specializing in providing large bandwidth solutions to business that required dedicated Internet connections or need to connect multiple locations over private networks, which sounds very similar to a lot of the usage you are looking for for the City of Calgary's purposes and you own ENMAX and ENMAX owned that and it sold it to Shaw.
7065 So none of you had anything to do with this, I understand, but if you might be able to enlighten me as to sort of the history of that or is it just as you say, that the city has no control over that. I mean I understand that the public service for the City wouldn't have, but I'm trying to understand things on the political level and with city Council. But maybe you can fill me in on the history.
7066 MR. BASTO: So as far as I know it, the history is that the City of Calgary had ownership of the electric utility and we divested back in early 2000. At that time a wholly-owned subsidiary called ENMAX Envision was incorporated by ENMAX Corporation, but because it was done at that time before regulation of the electricity market it was an unregulated arm of ENMAX, so now you have ENMAX regulated and then ENMAX Envision that was unregulated so they could operate differently than ENMAX Power.
7067 So at some point -- and there was some controversy about the City of Calgary building its fibre network and ENMAX Envision building a fibre network, but we were always under the concern that something like this could happen and we wanted to ensure and secure our mission critical services on infrastructure that we can control.
7068 And of course it came to pass that Envision was sold to Shaw. So we continue to build out our infrastructure for the purposes of securing our mission critical services.
7069 COMMISSIONER MENZIES: So I mean -- let's see if I have another -- so is the issue with ENMAX that they are just at capacity on the poles?
7070 MS BENDFELD: Yes.
7071 COMMISSIONER MENZIES: So there just is physically no more room left and the capacity has been --
7072 MS BENDFELD: That's right. I believe, and I think I am correct on this, Occupational Health and Safety legislation in Alberta has designated a certain space that the electrical has to be from the communication points and then so much space between communication points.
7073 COMMISSIONER MENZIES: You certainly raise a sort of fascinating dilemma, because typically cities like Calgary often become among the least of our worries in other areas because development and build is driven by market forces in those areas. You are asking us to mandate access to fibre-to-the-prem and leave the dark fibre or your fibre network alone, right, or to mandate it through what you were talking to Commissioner Shoan about, right?
7074 MS BENDFELD: Yes.
7075 COMMISSIONER MENZIES: Which more or less is turning the framework for provision of Internet services into a public utility in a sense.
7076 MS BENDFELD: Well, I don't think we --
7077 COMMISSIONER MENZIES: Why would I be wrong to come to that conclusion or that might be a path that people are contemplating, or is this more of a fit with a cooperative model such as the one mentioned earlier this week?
7078 MS BENDFELD: I don't think we have any intention of being a public telecommunication utility provider. All we want -- in the process of installing dark fibre throughout the city to all of our streetlights and bus stops and everywhere else, it only makes sense when we are in the process of construction to install excess capacity.
7079 And other TSPs have come to the city and said they can't license dark fibre anywhere, so we did start licensing to them and that's really how all of this started. There isn't any intention to be a monopoly. In fact, it is actually to increase the number of TSPs that could provide services which is what would happen if we licensed to other TSPs.
7080 COMMISSIONER MENZIES: Right. So you are acting essentially is a wholesaler --
7081 MS BENDFELD: Yes, I guess.
7082 COMMISSIONER MENZIES: -- in terms of that. But I guess people might argue that you had market power, too, but you are providing access --
7083 MR. BASTO: We are providing a service that is not provided today, which is --
7084 COMMISSIONER MENZIES: You are providing service.
7085 MS BENDFELD: And it wouldn't be available otherwise if we did not do that.
7086 COMMISSIONER MENZIES: What about Calgary has a lot of huge new build areas. Is this congestion the same issue there in the new subdivisions?
7087 MS HESS: Yes, it is.
7088 COMMISSIONER MENZIES: Okay.
7089 MS HESS: There was the slide that was the cross-section of the road design, that is the current cross-section within the City of Calgary for streets designs for greenfield development and you can see that's a typical residential road in a community with no lanes and it is 16 metres across from property line to property line. So that has to get your sidewalks, your trees, lighting, deep utilities, shallow utilities.
7090 COMMISSIONER MENZIES: Okay. I know you have touched on it in your presentation, but I would just like to sort of as a last point, you have heard and you have seen the submissions and you have heard throughout the week, companies and others speak about the high risk of the business case for fibre, fibre-to-the-home, but also others criticize Canada for not having a more extensive fibre-to-the-home sort of network.
7091 How do you balance the sense -- I mean I understand the City of Calgary's particular corporate needs in terms of this, but in terms of the development of the city aren't you concerned that the providers in your area have indicated that mandating access to fibre-to-the-home would have a negative impact on the provision of that service so that in the long run Calgary might end up being not as well served as other municipalities when it comes to fibre-to-the- premise?
7092 MS BENDFELD: There is that concern, of course. The other side to that is five years down the road there may be only one provider in the right-of-way who can supply dark fibre or two at most and that that situation will never change.
7093 COMMISSIONER MENZIES: That provider you are speaking of would be one of the incumbents?
7094 MS BENDFELD: Yes.
7095 COMMISSIONER MENZIES: Okay. Well, in that sense, wouldn't a five year moratorium, as suggested by others and the Competition Bureau for instance, be appropriate?
7096 MS BENDFELD: But then in that case, if you are looking -- you mean a five year moratorium before regulation?
7097 COMMISSIONER MENZIES: Before mandating fibre-to-the-home access. I mean there is --
7098 MS BENDFELD: Well, there is a scenario --
7099 MS BENDFELD: Well, there is a scenario --
7100 COMMISSIONER MENZIES: There is no shortage of regulation --
7101 MS BENDFELD: Yes, okay.
7102 COMMISSIONER MENZIES: That would be an expansion of that.
7103 MS BENDFELD: So there is a scenario where within five years that fibre build would be complete and another TSP would never get in those right of ways or get access.
7104 COMMISSIONER MENZIES: In which case it would fail the capacity essentiality test because it would be non-duplicable.
7105 MS BENDFELD: Yes, that's right.
7106 COMMISSIONER MENZIES: All right.
7107 Okay, thank you, those are my questions. Interesting.
7108 THE CHAIRPERSON: Just a few more questions before let you go. You didn't participate in 2008-17, if I'm not mistaken, right? What is different?
7109 Is it that you feel that you need to be engaged in this issue in this case? I'm wondering, is it something unique to Calgary? I know you have a long history of being quite active in utility proceedings, provincial and federal levels, and that's good. It's great because it brings a different perspective, but I'm sort of wondering if you are not just the tip of the iceberg of concerns other municipalities should be thinking about and they just haven't done so?
7110 MS BENDFELD: Well, I suspect we are. We didn't participate in 2008. We only became a non-dominant carrier a year or so ago.
7111 THE CHAIRPERSON: Right.
7112 MS BENDFELD: And we actually wouldn't have even known about this hearing, had we not received a cc letter from Bell Canada supporting TELUS' procedural request to bring all the non-dominant carriers into the proceeding, which started us thinking and looking at the issues and decided that it was important for us to participate.
7113 As well, within the last two, three years we've had the flood, which was significant for us, raised many issues concerning right of ways and infrastructure in the right of ways, and we have also had recently two separate billion-dollar applications for installations in our right of ways which has called into question -- or require very significant right-of-way management, one of which is an ATCO Pipelines urban rebuild.
7114 So it's a big issue for us right now on many fronts, not just telecommunications.
7115 THE CHAIRPERSON: But you would agree perhaps. I don't want to put words in your mouth that you're not unique. Perhaps the fact that you connected with the issue is -- the events you talked about brought to you be aware of them and think about them.
7116 MS BENDFELD: Right.
7117 THE CHAIRPERSON: But you are not unique in your infrastructures and the way that you operate from other Canadian cities?
7118 MS BENDFELD: That's right. Mr. Dave Basto can also respond to your question.
7119 MR. BASTO: I think we are seeing there is urbanization occurring in a lot of urban centres. As we increase in density and the cities there is more stress on the existing infrastructure, utility infrastructure that has to support that population density.
7120 So I think a lot of urban centres are going to start feeling the stress of their rights of ways as a need to have those rights of ways more agile to accommodate the changes for the utility infrastructure and the services they provide.
7121 THE CHAIRPERSON: Right. Not unlike what happened when the Commission opened up competition a number of years back more broadly.
7122 Is this being discussed at the -- for instance, in associations like the Federation of Canadian Municipalities?
7123 MS BENDFELD: It was discussed with FCM. FCM acts on behalf of all municipalities and takes up positions which they can address for all municipalities. Rights of ways are not an issue for smaller centres. They have lots of capacity and they are --
7124 THE CHAIRPERSON: They have more space, right. Right, okay.
7125 Well, very interesting and thank you for participating. I don't know if you are flying back home over the weekend, but safe travels.
7126 MS BENDFELD: Thank you.
7127 THE CHAIRPERSON: Thank you. Thank you.
7128 So we are adjourned until nine o'clock Monday morning. Merci.
--- Whereupon the hearing adjourned at 1515, to resume on Monday, December 2, 2014 at 0900
- Date modified: