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ROGERS COMMUNICATIONS INC.’S
        REPLY TO THE
 TELECOMMUNICATIONS POLICY
       REVIEW PANEL




         Filed: September 15, 2005




                                      1
                              REALITY CHECK



“In telecommunications, it is clear that Canada is doing much better than
other countries in terms of quality, availability and price of both basic and
advanced telecommunications services. One of the major reasons for this
is the regulatory framework that the Government of Canada and the CRTC
have put in place. This framework is designed to foster competition based
on sound economic principles rather than regulatory interference with
market forces.”

                          - BCE Submission to Industry Canada, August 2002



…Canada is one of the leading OECD countries in terms of its performance
in the telecommunication sector. Its best practice performance is largely
due to its regulatory processes and frameworks and policy structures. The
development of competition in the telecommunication service sector has
shown good progress but, as is the case for other OECD countries, is still
insufficient for local telephone service and local access and in the short
distance leased line market. But many of the contentious regulatory
problems that have marred performance in other OECD countries have
been largely resolved in the Canadian telecommunication context. Low
prices, good quality service and relatively rapid diffusion of new
technologies characterize the Canadian telecommunication landscape.
The regulatory framework is transparent and allows for full participation of
all interested parties. Consensus building has been a key factor in the
development and implementation of regulations.

                          OECD Regulatory Reform in Canada, 2002, at p. 6



BCE – Canada’s Largest Telecom Company; Key BCE Differentiators;
Regulatory Environment Based on Sound Economic Principles

                          BCE Presentation, slide 4, Smith Barney Citigroup
                          Entertainment, Media and Telecommunications
                          Conference, January 11, 2005, Appendix 3




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OVERVIEW

1.   In its Consultation Paper the Telecommunications Policy Review Panel
     raised many important issues regarding the future of Canada’s ICT
     development in general and in respect of the telecommunications sector in
     particular. A review of parties’ initial comments indicates agreement on
     many of these issues – in particular the need to keep Canada ahead on
     the ICT front, the role of telecommunications in ICT development, and
     ways in which the government can and should play a more active role in
     stimulating ICT development and usage in Canada.


2.   The main area of disagreement in the Review relates to the extent to
     which reforms are needed to the current telecommunications policy,
     regulatory framework and institutions, including the CRTC, Competition
     Bureau and Cabinet, in order to continue to foster ICT development and
     growth in Canada.


3.   In its initial comments on June 22, 2005, Rogers Communications Inc.
     (Rogers) expressed its views on the full range of issues raised by the
     Panel. In this reply, Rogers has focused on areas of disagreement with
     other parties. These include:


          Canada’s ICT performance in relation to other countries;


          The ICT performance of the Canadian telecommunications
           industry;


          Whether regulatory policies and our regulatory framework are
           helping or hindering our ICT performance; and


          What, if any, regulatory changes are required to address this issue.



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4.   As discussed in detail in the body of this reply, Rogers is not convinced
     that Canada is in fact lagging its major trading partners in innovation and
     ICT development. The evidence on the record is not clear in this regard.


5.   In particular, there is conflicting evidence from Bell Canada and Statistics
     Canada on the size of any labour productivity gap that might exist
     between Canada and the United States.


6.   Bell Canada has relied upon a report which it commissioned by Professors
     Fuss and Waverman to support its contention that there is a significant
     gap between our two countries. However, that report, which pegs the gap
     at 18% in 2000 and 21% in 2003, acknowledges that there is conflicting
     evidence on this point – and does not refute the 7% figure derived by
     Statistics Canada for 2002 and the average 5.8% figure derived from 1994
     – 2002.


7.   More importantly, however, is the fact that Professors Fuss and
     Waverman do not support Bell Canada’s contention that blame for this
     productivity gap lies with the regulatory policy or framework. No evidence
     is provided by Bell Canada or Fuss and Waverman to establish a causal
     link between Canada’s telecommunications performance or regulatory
     regime and lower productivity levels in comparison to the United States.
     To the contrary, the evidence submitted shows that any productivity gap
     that might exist is not related to the telecommunications service industry
     and hence cannot be blamed on telecommunications regulatory policies.


8.   Confirming this is the factual evidence that abounds on the record of this
     Policy Review to the effect that Canada enjoys a combination of greater
     basic telephone and high-speed Internet penetration, with lower prices,
     than its major trading partners. In Appendix 1 to this Reply, Rogers has
     assembled comparative data of Canada’s telephone and high speed



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          Internet penetration and pricing relative to the US, OECD countries and
          other developed countries that confirms Canada’s enviable position. In
          comparison with the United States, for example, Canada’s residential and
          business tariff basket is less expensive than the U.S. baskets (Figures 1
          and 2); Canada has more access channels per 100 inhabitants than the
          U.S. (Figure 3); Canada has higher broadband penetration than the U.S.
          (Figure 8), as well as lower unit costs (Figure 9); and while U.S. prices for
          international services are lower than Canada’s (Figures 4 and 5),
          Canada’s mobile phone rates are lower (Figure 6).1


9.        The fact that the telecommunications industry is not to blame for any
          productivity gap that might exist is buttressed by Fuss and Waverman’s
          proposals for reform:
              What can the government do? Two possibilities emerge. The first is to
              eliminate barriers to ICT adoption and ensure that general policy is
              consistent with expanding the ICT Base to maximize spillovers to
              productivity. Many other countries have implemented changes to tax
              codes to allow faster write-offs of ICT. This also could be beneficial in
              Canada. The second possible response depends on gaining a deeper
              understanding of why ICT is not as diffused in Canada as it is in the
              United States.2


10.       Despite being at odds on the root causes for any productivity gap, Rogers
          does agree with Bell Canada that Canada must continually strive to
          improve its position in the world in respect of innovation and ICT
          development. In addition, Rogers agrees with Bell Canada and other
          parties that the federal and provincial governments can do more to
          achieve this goal through the following measures:

          a) Research and Development – Canadian policymakers should make it
             a goal to surpass the U.S in R&D intensity in the ICT sector within 5
             years;


1
    Appendix 1.
2
    Bell Canada’s ―Appendix E-1‖, at pages 6 and 7.


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        b) Boosting Investment – Government should address ICT investment
           challenge through targeted taxation and expenditure policies, and
           economic incentives; and

        c) Government as Model ICT User – Government must set a leadership
           example and stimulate further ICT development and adoption through
           greater deployment of ICT in key sectors such as healthcare and
           education.3

11.     However, as discussed in detail in the body of this submission, Bell
        Canada’s attempt to link the Canadian telecommunications regulatory
        framework to the productivity gap between Canada and the United States
        is little more than a thinly disguised ploy to seek premature forbearance
        from regulation in the local telecommunications market – a market where
        Bell Canada enjoys overwhelming dominance with an overall 94%4 market
        share comprised of a 97% share in residential and 88% share in
        business.5


12.     The very dramatic reforms proposed by Bell Canada, which are roughly
        modeled on the Australian approach, would strip the CRTC of many of its
        more important powers and allow the laws of general application, including
        the Competition Act, to apply in its stead. This would allow Bell Canada
        and the other ILECs to engage in widespread price discrimination,
        targeting lower prices where competitors seek to enter the market, and
        higher prices where they do not. This strategy, which the CRTC has taken
        steps to prevent, will not only hurt consumers in rural and remote areas –
        but will help perpetuate a de facto monopoly in other regions as well.


13.     Bell Canada’s proposal must be subjected to a reality check.




3
  Bell Canada’s Submission, paras. 93-110.
4
  Telecom Public Notice CRTC 2005-11 30 August 2005.
5
  Moreover, much of the business share is in the form of simple resale of the ILECs’ Centrex
services under which the bulk of the revenues stays with the ILEC.


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14.   There is little in the Australian model to recommend to the Panel. From
      the point of view of outputs, the Australian telecommunications industry is
      not in the same league as Canada. As indicated in Figure 1 and 2 of
      Appendix 1, the OECD ranks Australia last in terms of both residential and
      business tariff baskets – with prices considerably above those that prevail
      in Canada; Australia trails Canada in access channels per 100 inhabitants
      (Figure 3); has higher international charges than Canada (Figures 4 and
      5); and higher mobile phone charges (Figure 6); it has fewer broadband
      subscribers per 100 inhabitants than Canada (Figure 7); and has higher
      high-speed Internet rates, with significantly lower bandwidth than Canada
      (Figures 8 and 9).


15.   In these circumstances, the only conceivable reason for choosing the
      Australian model would be because it entails less regulation of the
      dominant carrier. From a consumer’s perspective, or from the perspective
      of national productivity, however, the Australian model produces terrible
      results compared with Canada.


16.   Bell Canada’s position before the Policy Review Panel is also diametrically
      opposite to the view it took in 2002 on the same subject. At that time,
      BCE praised the Canadian regulatory system for encouraging competition
      based on ―sound economic principles.‖


17.   With the kind of market share enjoyed by the ILECs in the local market,
      there is no competition law framework and no regulatory regime in any
      developed country that would fail to find the ILECs dominant based on
      economic principles.


18.   Rogers agrees with the CRTC and the Competition Bureau. Rogers
      favours: (1) regulatory forbearance where competitive market forces are
      sufficient to replace regulation as the best means to safeguard consumer



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      interests and to protect competitors from abuse of dominance; (2) removal
      of price regulation and marketing safeguards when the telephone
      companies lose their dominance; and (3) maintenance of the CRTC as the
      regulatory body that is best equipped to deal with the technical and
      economic issues raised by our competitive ―network of networks‖ model.
      That model relies extensively on economically efficient and technically
      advanced interconnection arrangements between carriers, as well as fair
      and non-discriminatory access to those networks by service providers, in
      order to achieve increased choice and lower prices for consumers.


19.   The Competition Act is not equipped to handle these types of
      interconnection and access issues effectively. This approach was tried in
      New Zealand and was abandoned after it spawned years of litigation and
      proved to be both a cumbersome and ineffective solution. On the other
      hand, the Competition Act does have a role to play in markets that have
      been forborne from regulation in ensuring that retail pricing is not
      predatory and that no player abuses its market power.


20.   It is very telling that the Competition Bureau has not sought the jurisdiction
      to regulate the ILECs. Neither the Competition Bureau, nor the
      Competition Tribunal, are ―regulators‖. They administer an Act that
      assumes competition to exist and creates certain penalties and remedies
      for anti-competitive behaviour. The Competition Act is totally unequipped
      to handle a market which is not competitive to begin with and where the
      goal is to make it more competitive. Such a market requires far more on-
      going supervision than a competitive market and requires intervention in
      circumstances that would not give rise to criminal or civil sanctions under
      the Competition Act. Bell Canada is only too well aware of this fact, which
      underlies its position in this policy review. Just as the Competition Bureau
      found that the Stentor cartel did not significantly diminish competition in a
      market where none existed, the Competition Bureau would not likely find



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      SaskTel with a market share of 100% to violate the Act. A premature
      move to the Competition Act, before forbearance is justified, would
      therefore likely result in a perpetuation of the status quo – rather than
      movement towards a more competitive market.


21.   In the remainder of this reply, Rogers has addressed all of these points in
      greater detail.


I.    CANADA’S INFORMATION AND COMMUNICATIONS TECHNOLOGIES
      (ICT) PERFORMANCE

22.   One of the key issues raised by the Panel is the state of Canada’s ICT
      development today in comparison with other countries. Parties’ comments
      on this issue have tended to address two broad questions: (a) can the
      government do more to encourage ICT development and usage in
      Canada? and (b) do the current telecommunications policy, regulatory
      framework and institutions impair Canada’s ICT development?


23.   With respect to the first of these issues, Rogers is in agreement with other
      parties that ICT is crucial to the future of our knowledge-based economy
      and the government must do more to enhance ICT development and
      usage. Rogers notes that Bell Canada has identified three broad areas
      that Government policy should focus on in order for Canada to get ahead
      of the ICT curve:

      d) Research and Development – Canadian policymakers should make it
         a goal to surpass the U.S in R&D intensity in the ICT sector within 5
         years;

      e) Boosting investment – Government should address ICT investment
         challenge through targeted taxation and expenditure policies, and
         economic incentives; and

      f) Government as Model ICT User – Government must set a leadership
         example and stimulate further ICT development and adoption through



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         greater deployment of ICT in key sectors such as healthcare and
         education.

24.   Rogers is in general agreement with Bell Canada that taking these steps
      will further enhance the development and diffusion of ICT in Canada.


25.   Where Rogers fundamentally disagrees with Bell Canada (and the other
      ILECs) is with respect to their attempt to link what they perceive as
      weaknesses in Canada’s ICT development to the current
      telecommunications policy, regulatory framework and institutions.
      According to the ILECs, unless they achieve their objective of local
      deregulation, investment in telecommunications infrastructure will suffer
      and consequently the development and diffusion of ICT in Canada will lag
      behind other comparable countries.


26.   There are several assumptions underlying this argument:

      a) that Canada’s ICT performance is in significant decline relative to other
         comparable countries, in particular the United States.;

      b) that the ILECs are the primary drivers of innovation and ICT in Canada
         and the continued regulation of the ILECs is detrimental to Canada’s
         ICT development; and

      c) that unless fundamental changes are made to the current regulatory
         regime (including deregulation of the ILECs’ retail local services),
         innovation in and use of ICT in Canada will decelerate and Canada will
         fall even further behind the United States.

27.   This argument simply does not hold up when compared with the facts. To
      begin with, the available studies are inconclusive as to whether or not a
      significant gap exists between labour productivity and ICT development
      levels in Canada and the United States. Secondly, the ILECs are not in
      fact the primary drivers of ICT development in Canada. Finally, regardless
      of whether or not there is a significant ICT gap, there is absolutely no
      basis for linking it to Canada’s current telecommunications policy,



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       regulatory framework and institutions. To the contrary, the current
       telecommunications policies have worked extremely well to spur
       innovation and ICT development and usage in Canada. These points are
       elaborated on below.



Canada’s Relative Position in ICT

28.    At the outset, Rogers notes that TELUS and Bell Canada do not actually
       agree on the state of Canada’s ICT development. In its response to Panel
       question E3,Telus made the following observations:

           It is not clear that Canadian businesses and governments are under-
           investing in ICT relative to some socially optimal level of investment. 6

           In terms of the appropriate basis by which the Canadian level of ICT
           investment can be assessed, one cannot measure the extent of under-
           investment without a theory of why under-investment might occur.7

           Because the optimal level of ICT investment in another country will be
           different than the optimal level of ICT investment in Canada, ICT
           investment in the United States is not the appropriate comparison
           point. For the same reason, ICT investment in the European Union,
           the G7, and the OECD are not appropriate comparison points.8

           [O]ne cannot conclude on the basis of the available research that
           Canada is ―under-investing‖ in telecommunications or that other
           countries are ―over-investing‖ in telecommunications.9

29.    However, despite stating that there is no evidence that Canada is lagging
       other countries in ICT diffusion, TELUS still somehow concluded that:
           The greatest barriers to ICT adoption in Canada are policies and
           legislation that stand in the way of allowing competitive forces to
           operate freely.10




6
  TELUS para. 588.
7
  TELUS para. 589.
8
  TELUS para. 591.
9
  TELUS para. 593.
10
   TELUS Submission, at para. 79.


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30.    It is difficult to see how blame can be allocated if there is in fact no
       problem.


31.    In contrast, in responding to the same question, Bell Canada says there is
       a problem:

           It is clear that Canada has an ICT investment challenge relative to the
           U.S. economy. This is evidenced by our national productivity, which is
           directly tied to the productivity of the ICT-producing sector and the
           adoption of ICTs by entire sectors of the economy. Canada’s
           productivity substantially lags that of the United States…11

32.    Bell then goes on to cite a study by Professors Fuss and Waverman,
       commissioned by Bell, which estimates that 56 percent of their measured
       labour productivity gap between Canada and the U.S. can be attributed to
       inferior ICT production and usage in Canada. Bell explains that:

           There are many reasons for this relative under-investment in ICT vis-à-
           vis the United States. They relate to the [sic] Canada having harsher
           corporate tax rates and fewer incentives; a weaker dollar for much of
           the past decade; less government funding and support for research
           and development; and lesser resources and capabilities among the
           business community and particularly among SMEs.12

33.    Despite the fact that none of these factors have anything to do with the
       current telecommunications policy or regulatory framework, Bell Canada
       goes on to blame it for the problem:

           Liberating the telecommunications industry from needlessly restrictive
           regulation will spell short- and long-term benefits for Canada. In the
           near-term, Canadian consumers and businesses will gain better
           access to high quality, affordable and innovative telecommunications
           services. And, over time, a more competitive and robust
           telecommunications sector will help strengthen Canada’s entire ICT
           industry.13



11
   Bell Canada, Answer E3.
12
   Bell Canada, Answer E8.
13
   Bell Canada Submission, para. 76.


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              [T]he telecommunications marketplace must be liberated from
              regulations that have stifled innovation and hampered progress. Given
              the central role of telecommunications in ICT, Canada must adopt a
              regulatory framework that would rekindle the dynamism of the sector.
              Thus in its submission to the Telecommunications Policy Review
              Panel, Bell Canada has proposed a next-generation regulatory
              framework that would eliminate red tape, uncertainty and other
              impediments to the entrepreneurial spirit. It would reinforce the
              vibrancy of the sector, and extend tangible and immediate benefits to
              Canadian consumers and businesses.14

34.       Bell Canada’s ―cause and effect‖ argument is completely unsupported by
          the evidence. Moreover, this argument is inconsistent with Bell’s previous
          pronouncements on the issue and appears designed for the sole purpose
          of repackaging Bell’s self-serving arguments for premature deregulation
          as somehow being in the public interest.

35.       For example, in August of 2002, BCE made a submission on innovation to
          Industry Canada. In explaining the perception that there is a lag in
          telecom-sector productivity between Canada and the U.S., BCE cautioned
          that ―Productivity and innovation are complex concepts not always fully
          reflected in the available statistics‖. BCE then went on to cite various
          factors that could be responsible for the perceived lag between Canada
          and the U.S. Notably, none of these factors included the current
          telecommunications policy, regulatory framework or institutions. To the
          contrary, BCE stated that:

              It is important to recognize that innovation is at the root of Canada's
              success, both in the telecommunications and broadcasting fields. And
              there is no doubt that the regulatory and legal framework for
              communications in Canada has played a key role in achieving this
              success.

              In telecommunications, it is clear that Canada is doing much better
              than other countries in terms of quality, availability and price of both
              basic and advanced telecommunications services. One of the major
              reasons for this is the regulatory framework that the Government of
              Canada and the CRTC have put in place. This framework is designed
14
     Bell Canada Submission, para. 128 & 129.


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              to foster competition based on sound economic principles rather than
              regulatory interference with market forces.15

36.       In short, Bell Canada seems to have done a complete about face from
          praising the government’s telecommunications policy direction and the
          CRTC’s regulatory framework as key drivers of ICT development, to
          faulting them for alleged lapses in Canada’s productivity and ICT in
          relation to the United States.


37.       These inconsistencies in the positions taken by Bell Canada and TELUS,
          and Bell Canada’s reversal of position, cast serious doubt on the credibility
          of their submissions.

Competition and competitors drive innovation – not monopoly and
incumbency

38.       The Panel should also be careful not to marginalize the significant
          contributions that new entrants have made to innovation and the
          development of ICT in Canada. In fact, innovation in the
          telecommunications sector is primarily driven by new entrants seeking
          new ways to gain operating and capital efficiencies over the incumbent
          monopolies with their comfortable position of market dominance. As
          TELUS and Bell Canada acknowledged many times in their submissions,
          innovation in the telecommunications sector has been a key driver of ICT
          diffusion in Canada. However, an objective look at the sector shows that
          innovations do not generally originate with the ILECs. An incumbent with
          market power has no particular incentive to invest in new technology. Its
          incentive is usually to maximize profits from existing assets and only to
          invest in new technologies when they feel the heat from new entrants.

39.       In contrast, new entrants need new and often ―disruptive‖ technologies to
          have a chance to compete against the incumbents. In its submission to
          the Panel, MTS/Allstream provided a detailed description of many of the
15
     See http://www.innovation.gc.ca/gol/innovation/site.nsf/en/in02239.html, emphasis added.


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       disruptive technologies that have shaped our ICT development in Canada
       and the relative responses of the incumbents and new entrants thereto.16

40.    Take for example broadband. In this Review the ILECs have praised
       Canada’s leading position in broadband connectivity. But the truth is that
       ADSL technology had been sitting in the ILECs’ labs for years as an
       unused technology. It was not until new entrants began to use ADSL to
       compete in the new Internet world of the mid to late 1990s that the ILECs
       suddenly realized they would have to embrace this new technology in
       order to stave off competition. More importantly, it was not until Cablecos
       invested billions in high speed Internet that the ILECs suddenly decided to
       put more investment into developing ADSL’s potential as a broadband
       technology. Even today, Rogers is forcing the issue with Bell Canada by
       making broadband available to over 96% of the homes in its serving
       territories versus Bell’s lesser 84% coverage in its serving area.17 The
       conclusion is simple: competition and entrepreneurship, not the protection
       of incumbency and market share, drive innovation and ICT development.

41.    Perhaps even more telling in the context of the current Review is the rise
       and development of IP technology itself. Reading the ILECs’ submissions
       and listening to their statements in various public fora, one might conclude
       that, but for the ILECs’ adoption of IP technology, applications such as
       VoIP would not occur – or at least would not occur at the pace that is
       generally being anticipated. Again, this is not true. In the absence of
       competition, the ILECs had no incentive to embrace VoIP services. Their
       incentive was to continue to use existing legacy systems and technologies
       to provide the same voice services to a relatively inert customer base.
       VoIP as a consumer and business application only became a ―must have‖


16
  See MTS/Allstream Submission, Appendix A, pages 9 to 13.
17
  Rogers 2004 Annual Report, Page 32. Broadband service is available from Rogers in all its
Ontario locations from Toronto to Midland to Strathroy to Carp, etc. The only gaps in Rogers’
coverage are in very small systems in more remote areas of New Brunswick and Newfoundland.
                       th
See Rogers’ August 15 response to Question D.5 posed by the Panel.


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          for the ILECs when resellers and CLECs began to develop it as a
          potentially more capital and operationally efficient strategy to challenge
          the ILECs dominance in the local market. Only after Primus, Vonage,
          Sprint Canada and others began offering competing VoIP services did the
          ILECs feel moved to offer their own services. It was not the regulatory
          framework that prevented early adoption by the ILECs – it was lack of
          motivation by the dominant carriers. The CRTC in fact approved Bell
          Canada’s tariff for flexible competitive rates 13 days after it was filed – but
          it wasn’t filed until 17 months after the first of the new entrants, Primus,
          had launched its VoIP services.


42.       An examination of Bell’s new VOIP services is also instructive. While Bell
          Digital Voice Lite appears to be a genuine VOIP service, the same is not
          true of Bell Digital Voice. Although it is promoted as a VOIP service, it
          uses an analog, circuit-switched twisted pair connection with the central
          office. While some of the features appear to be IP based, many are not.
          Bell is using the analog nature of the service to its advantage by pointing
          out that no premises visits or installation is required for their ―VOIP‖
          service. In the case of an incumbent with a reliable, low cost, ubiquitous
          network, ―disruptive‖ technologies are not that disruptive.

43.       This view regarding the role of new entrants in stimulating innovation is
          echoed by the Coalition for Better Competition:

               In all sectors of the telecommunications market in which the members
               of the Coalition participate, new entrants have pioneered innovations
               which, in turn, have resulted in increased customer choice, greater
               supplier responsiveness, lower prices, and a rapid distribution of the
               benefits of competition to residential and small and medium-sized
               enterprise (SME) markets.18

44.       Both MTS/Allstream and the Coalition also chronicle how, once the
          incumbents decide to ―follow‖ the competitors by adopting the new

18
     See Coalition for Better Competition’s Submission, par. 22; generally par. 20 to 33.


                                                                                            16
        technology, they quickly find a way to use their market power and other
        relative advantages to dominate adoption of the new technologies, thereby
        ensuring that their adoption results in minimal market share loss to the
        incumbents.19

45.     This is a crucial lesson for the Panel to bear in mind as the ILECs clamor
        for deregulation of retail PES and VoIP services on the basis that the
        ―disruptive‖ forces of IP technology have all but eliminated their market
        dominance. Experience strongly suggests that the ILECs will use the new
        technology (IP) and the increased regulatory flexibility they seek to
        preserve their market dominance and head off the development of
        competition.


46.     Therefore, it would be a monumental mistake for the Panel to take
        seriously the ILECs’ threat that investment in IP technology and ICT will
        suffer if their VoIP services are not deregulated. The truth is that IP
        technology and VoIP were born and will flourish in spite of the ILECs – not
        because of their early adoption of the technology.

Regulation of the ILECs’ Local services have had no perceptible negative
impact on their Investments in IP or other technologies

47.     Rogers urges the Panel to base its recommendations on the facts – not on
        conjectures, prognostications or fear-mongering. In the context of this
        Policy Review, the ILECs have asserted that the current policy, regulatory
        framework and institutions encumber their incentives and ability to invest
        in IP. Yet this assertion contradicts Bell Canada’s earlier position on this
        issue and is unsupported by the evidence. The ILECs are now well on
        track in converting their networks to IP and rolling VoIP services out to




19
  See in particular the Coalition’s Submission at pars. 25 to 33; MTS/Allstream’s Appendix 1; and
par. 85 of this Reply.



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        consumers and businesses. 20 The ILECs have not relented in their efforts
        to match competitors in bringing to market new consumer and business
        communications applications and technologies once the threat of new
        entry is apparent. According to BCE’s January 11, 2005 presentation to
        the annual Smith Barney Citigroup Entertainment, Media and
        Telecommunications Conference,21 Bell Canada now has ―ubiquitous IP
        connectivity‖, has more advanced high-speed Internet penetration than its
        U.S. peers, coupled with slower NAS erosion and superior cash flow and
        profitability. These are hardly the indicators of a policy and regulatory
        environment that discourages or hampers investment in and diffusion of
        ICT, or is hobbling Canada’s largest telecommunications carrier’s ability to
        compete in the market.

48.     Rogers would note that contrary to Bell’s assertions, the current policy and
        regulatory framework – especially the policy of facilities-based competition
        – has provided Rogers with the incentive and opportunity to make
        significant investments in Canada’s ICT. Over the past 10 years, Rogers
        has invested $10 billion to expand and upgrade its wireless and cable
        networks to provide leading edge digital video, high-speed internet and
        state-of-the-art voice and data services. Rogers has invested 19.5% of its
        total revenue in capital expenditures to improve and expand its networks
        and services in the last two years with even higher numbers in earlier
        years. Just two examples of Rogers’ pioneering innovation are its path
        breaking efforts in the introduction of high-speed internet service and
        Blackberry™ wireless data service in Canada.


20
   For example, BCE reported in its 2005 Second Quarter Shareholder Report that: ―Capital
expenditures were $914 million in Q2 2005, or 18.4% of revenues. This was 10.7% higher than
the capital expenditures of $826 million, or 17.3% of revenues in Q2 2004. … The increases
reflect the strategic investments in the Consumer segment which include the FTTN rollout, VDSL
deployment, IPTV platform, the acquisition of spectrum licenses and a return to more normal
spending levels at Aliant after its labour disruption in 2004.‖ Page 27. In its December 15, 2004
Business Outlook Conference, Bell Canada announced its plans to invest $1.2 Billion over 4
years to deploy fibre deeper into the local network to provide very-high speed digital subscriber
line (VDSL) functionality to the 4.3M homes in the Quebec City-Windsor corridor.
21
   Appendix 3 to this Reply Argument.


                                                                                               18
49.     Canada’s position as one of the leaders in broadband deployment (first
        among the G-8 and fifth in the world) totally undermines Bell Canada’s
        argument. It clearly is not the telecommunications sector or policies that
        are impeding ICT development in Canada. We are in fact leading the
        way.



Fuss & Waverman’s Report

50.     As discussed above, Bell Canada has filed a report by Professors Fuss
        and Waverman that it claims supports its position with respect to the
        productivity gap.22 However, the study does not in fact say what Bell
        Canada suggests.


51.     Bell Canada’s argument is that Canadian labour productivity levels 23 lag
        behind the United States by 21%, and that 56% of this gap can be
        explained by differences in our adoption and use of ICT. According to Bell
        Canada these ―facts‖ require dramatic action to drive adoption and use of
        ICT. Aside from a recommendation to accelerate capital cost allowance
        for computers for business and to establish various studies and advisory
        groups, the focus of Bell Canada’s proposals to redress the problem is to
        deregulate the local telephone market.


52.     However, no evidence is provided by Bell Canada or Professors Fuss and
        Waverman to establish a causal link between Canada’s
        telecommunications performance, telecommunications regulatory regime,
        and lower productivity levels in comparison to the United States. To the
        contrary, the evidence submitted shows that any productivity gap that
        might exist is not related to the telecommunications service industry and

22
   Appendix E-1, ―Canada’s Productivity Dilemma: The Role of Computers and Telecom‖ by
Melvyn Fuss & Leonard Waverman (hereafter Bell Canada’s ―Appendix E-1‖).
23
   Appendix E-1 addresses a ―partial‖ productivity measure, namely labour input. Total factor
productivity measures capture how much output is produced relative to a bundle of several
inputs.


                                                                                                19
          hence cannot be blamed on Canadian telecommunications regulatory
          policies. Confirming this is the factual evidence that abounds on the
          record of this Policy Review to the effect that Canada enjoys a
          combination of greater basic telephone and high-speed Internet
          penetration, with lower prices, that is unmatched in the world.


53.       In Appendix 1 to this Reply, Rogers has assembled comparative data of
          Canada’s telephone and high speed Internet penetration and pricing
          relative to the US, OECD countries and other developed countries that
          confirms Canada’s enviable position. In comparison with the United
          States, for example, Canada’s residential and business tariff basket is less
          expensive than the U.S. baskets (Figures 1 and 2); Canada has more
          access channels per 100 inhabitants than the U.S. (Figure 3); Canada has
          higher broadband penetration than the U.S. (Figure 7), as well as lower
          bandwidth prices (Figures 8 and 9); and while U.S. prices for international
          services are lower than Canada’s (Figures 4 and 5), Canada’s mobile
          phone rates are lower than those charged in the United States (Figure
          6).24 This state of affairs is confirmed in the evidence of the Consumers
          Group:

              The telecommunications industry in Canada (excluding broadcasting
              communications) generated almost $25 billion in value added Gross
              Domestic Product (GDP) in 2004, that amount being 2.4% of the
              Canadian total for GDP. The industry has been achieving penetration,
              price and connectivity levels for key services of basic telephone and
              Internet that are the envy of the developed world. The Decima survey
              filed, while potentially indicating issues requiring further policy
              development has not shown a public appetite for a whole scale change
              in the operating environment for telecom services that has been
              created by legislation and Commission decision. The Panel should
              make certain that these achievements are the minimum baseline which
              any reform should not adversely affect or compromise.25



24
     Appendix I.
25
     Consumer Groups Submission, para. 6.


                                                                                      20
54.    A careful review of Bell Canada’s ―Appendix E-1‖ reveals that there is no
       connection between Fuss and Waverman’s study and Bell Canada’s
       arguments for radical policy and regulatory reform. Indeed, the authors of
       the study very clearly deny any such connection stating that:

       ―Policy conclusions are beyond the scope of this paper.‖26

55.    The authors do propose that the government take two initiatives to
       improve Canada’s productivity:

           What can the government do? Two possibilities emerge. The first is to
           eliminate barriers to ICT adoption and ensure that general policy is
           consistent with expanding the ICT Base to maximize spillovers to
           productivity. Many other countries have implemented changes to tax
           codes to allow faster write-offs of ICT. This also could be beneficial in
           Canada. The second possible response depends on gaining a deeper
           understanding of why ICT is not as diffused in Canada as it is in the
           United States.27

56.    There is no mention of telecommunications regulatory reform being a
       solution to the problem perceived by Fuss and Waverman.

57.    In addition to the fact that the Fuss and Waverman Study does not make a
       connection between any perceived ICT weakness and the current
       telecommunications policy, regulatory framework and institutions, the
       authors caution at the beginning of their paper that there is conflicting
       evidence as to the size of the productivity gap. The Study identifies the
       gap at 18% in 2000 and 21% in 2003. Recent Statistics Canada
       Research and Analytical Papers28 released in January 2005 and cited in
       the Study, identified the Canada/US productivity gap at a much lower 7%
       in 2002 and an average of 5.8% over the 1994-2002 period. Statistics

26
   Bell Canada’s ―Appendix E-1‖, at page 6.
27
   Bell Canada’s ―Appendix E-1‖, at pages 6 and 7.
28
   Baldwin, John, Jean-Pierre Maynard and Fanny Wong (2005), ―The Output Gap Between
Canada and the United States; The Role of Productivity (1994-2002)‖, Statistics Canada
Analytical Paper 11-624-MIE No. 009, January and Baldwin, John, Jean-Pierre Maynard, Marc
Tanquay, Fanny Wong and Beiling Yan (2005), ―A Comparison of Canadian and U.S. Productivity
Levels: An Exploration of Measurement Issues‖, Statistics Canada Economic Analysis (EA)
Research Paper 11F0027MIE No. 028, January.


                                                                                        21
          Canada has now prepared a more developed measure of American labour
          hours for comparison to Canadian figures, for the first time correcting for
          differences between the way the statistics are measured in Canada and
          the United States to obtain consistent data. Previous researchers have
          used the inconsistent data-sets. The Fuss and Waverman Study does not
          refute Statistics Canada’s work.29 This issue of conflicting data may help
          explain one of the paradoxes in the analysis raised in the paper,
          specifically, how is it that Canada had amongst the highest GDP growth
          rates in the developed world over the 1995-2000 time-period, yet
          apparently lagged behind in productivity performance.

58.       The paper puts the dilemma as follows:

              Some observers suggest there is no problem – Canada’s GDP growth
              rates were high; they were above the growth rates of many countries.
              However, we observe Canada lagging behind many countries in
              productivity performance and unable to match world leaders in ICT
              contribution to the economy, there are, indeed, profound reasons to be
              deeply concerned.30

59.       Part of the solution may well be as simple as the fact that Canadian
          productivity was only 7% lower in 2002 rather than 21% as measured in
          Fuss and Waverman’s Study.

29
     The authors simply state,

          We cannot study the implications of Baldwin et al’s work for several reasons. Their
          adjustments to hours worked begin only in 1995 and our required data begin in 1980,
          The adjustments are made for only one country – the U.S. – and we have no way of
          knowing whether similar adjustments should be made for the European countries in our
          sample.‖ Fn 14, page 11.

Rogers notes as well in regard to the impact of the Statistics Canada work that in addition to
changing the comparative labour productivity levels between Canada and the U.S., upwardly
corrected U.S. labour hours would increase the scale difference between the U.S. and Canada
impacting the scale variable in the analysis of the source of labour productivity differences.

Rogers further notes in regard to the results presented in Table 4.4 of E-1 concerning Canada
vs. Europe (in this case the population-weighted average of Finland, France and the United
Kingdom) that ―the ICT factor provides a labour productivity advantage to the Canadian economy
that partially offsets the disadvantages associated with a lower level of non-ICT capital
deepening.‖ Page 46.
30
   Page 12 of Appendix E-1.


                                                                                                 22
60.       The Fuss and Waverman Study goes on to estimate (in a complex
          econometric model of simultaneous equations) that 56% of the alleged
          21% gap can be explained by a lower diffusion of ICT in the economy.
          Four ICT variables are included in the model: the capital stock of ICT, the
          penetration level of mainline and mobile telephones, the penetration level
          of personal computers (PCs) and the percentage of basic telephone lines
          that are digitized. Three quarters of the 56% figure is associated with
          lower penetration of PCs in Canada than in the United States. Indeed the
          penetration of basic lines and mobile lines does not provide an
          explanation of the gap as only 2% of the gap is attributed to this variable.


61.       In short, the model can say no more than that a lower level of PC
          deployment in Canada can be statistically shown to explain three quarters
          of the ICT gap estimated in regard to a 21% lower Canadian productivity
          level. The model as constructed identifies a hardware deployment issue –
          not a telecommunications services issue, let alone a regulatory issue.

62.       Third, footnote 17 of the Study makes a very important point that should
          not be overlooked. This footnote emphasizes that the statistical
          techniques employed are unable to normalize ―for important differences
          such as industry mix between countries that may explain part of ICT
          contribution.‖ This point is made in the main text on page 48 where the
          authors discuss possible explanations why more PCs are deployed in
          large businesses in the US than in Canada. The authors’ state:

              Does Canada have an industry mix in which PC use is not as prevalent
              at best practice levels as it is in other industries?31

63.       The paper goes on to say that ―what is required is a better understanding
          of the reasons for the ICT gap [as measured by the lower use of PCs]




31
     Bell Canada’s ―Appendix E-1‖, page 48.


                                                                                     23
        between Canada and the U.S. for large enterprises.‖ but, ―that analysis is
        beyond the scope of this paper.‖32


64.     Fourth, in Rogers’ view, it is very significant, but rather unfortunate, that
        the model does not use the penetration levels of high-speed Internet
        service as an explanatory variable representing the diffusion of
        technology. Even by the ILECs’ own accounts, Canada is at the forefront
        of high speed Internet adoption. The model used in the Fuss and
        Waverman Study includes both PC penetration and basic line digitization
        variables in an attempt to capture ―the interaction between computing and
        telecom developments‖. High-speed Internet penetration levels directly
        capture this interaction. The authors presumably do not wish to use this
        variable in the model because data will only exist since 1995 and the
        model employed requires a larger number of data points provided by the
        1980-2003 time period.

65.     The explanatory power in the model of the PC ratio between Canada and
        the U.S. rests entirely in the business, government and education sectors
        as shown in Table 5.1 of the Study.33 As the authors’ state, ―as can be
        seen, the residential sector in Canada uses more PCs (per capita) than
        does the U.S. This may be surprising to some, but is consistent with other
        data, namely the greater use of broadband in Canadian households than
        American households.‖34 Again, it is unfortunate that a broadband
        penetration variable could not have been used in the model.


66.     In summary, comparisons of cross-country productivity levels are fraught
        with data measurement and estimation complexities. In particular, as
        noted by Statistics Canada:


32
   Page 15 of Appendix E-1.
33
   This table is simply described in the text as coming from IDC Canada. No reference is provided
in the Bibliography for this data.
34
   Page 47 of Appendix E-1.


                                                                                              24
               For example, different statistical sources for measuring labour inputs
               produce quite different estimates of productivity levels across countries
               and of the relative productivity of two countries.35

67.        Recent data advances in the area need to be considered and reflected in
           the analyses. This may be difficult for models with large data
           requirements since the consistent data series is only available back to
           1994. However, inconsistent data cannot simply be accepted because the
           model needs more data. In addition, the fact that Canada is in the
           forefront of broadband deployment, in a world where broadband is
           expected to drive applications and services, should be recognized in the
           model explaining productivity levels.


68.        In Rogers’ submission, the evidence put forward by Bell Canada does not
           provide support that Canadian labour productivity levels are much less
           than American levels, nor that Canadian telecommunications industry
           performance is a cause of any shortfall. No evidence presented by Bell
           even remotely suggests that the Canadian regulatory regime is linked to
           the purported lower labour productivity level.



Conclusion on the alleged linkage between ICT and Telecommunications
Policy and Regulatory Framework

69.        There is no doubt that government must give continuous attention to the
           position of Canada’s ICT relative to the United States and our other
           trading partners. Rogers is in general agreement with many of the
           observations and recommendations made by parties to that effect in
           relation to tax policy, R&D, and government’s use of ICT. However, the
           attempt by Bell Canada and TELUS to justify their demand for radical
           changes to our telecommunications policy, framework and institutions by
           linking them to perceived weaknesses in Canada’s ICT development is
           totally without merit.
35
     Ibid, Page 9.


                                                                                      25
70.       As BCE noted in an earlier submission to Industry Canada, the current
          telecommunications regime has fostered – not deterred – ICT
          development in Canada. The focus of the Panel attention should be on
          how the recommendations made by the ILECs and various parties for
          fostering ICT development can be accommodated without embarking on a
          radical re-engineering of the telecommunications sector-specific policy
          and regulatory framework.




II.       THE STATE OF LOCAL COMPETITION

71.       Judging by the ILECs’ relentless attack on the current regulatory
          framework, a casual observer might think that Canada has the most
          regulated telecommunications sector in the world. In fact, the reality is
          that over 70% of the ILECs’ services (measured by revenue) is already
          forborne from economic regulation – something that few other countries
          can boast. The CRTC’s Submission to the Panel chronicles the long
          history and wide scope of ILEC deregulation in Canada.36 The CRTC has
          not hesitated to deregulate the ILECs’ services whenever competitive
          forces become strong enough to protect consumers from the ILECs’
          market power.


72.       Today, the focus of regulation is on the local exchange market where the
          ILECs still have an overall 94% market share. However, even in the local
          market, the CRTC has recently implemented several streamlined
          procedures that have lightened the regulatory burden and provided
          additional pricing flexibility to the ILECs. As is well-known, the CRTC is
          also currently examining an application for local forbearance filed by Aliant
          Telecom and is in the midst of a proceeding to establish criteria for




36
     For a summary, see CRTC Submission, pars. 78 to 82.


                                                                                       26
       determining when local markets may be forborne from regulation pursuant
       to section 34 of the Telecommunications Act.37


73.    Rather than see this regulatory process through, the ILECs appear intent
       on short-circuiting the CRTC process and the standard economic tests for
       forbearance. They are asking the Review Panel to recommend changes
       to the statutory and institutional framework that would remove the CRTC
       from its role in determining when forbearance is justified. They are also
       asking the Review Panel to substitute its judgment for that of the CRTC on
       the issue of local forbearance.


74.    The ILECs’ demand for ―deregulation‖ in this context involves:

       (a) removal of sector-specific economic regulation by the CRTC (ex ante
       approval of rates, terms and conditions of the ILECs retail local services
       pursuant to the tariff approval process under the Telecommunications
       Act); and

       (b) immediate removal of the competitive safeguards that the CRTC has
       established in the retail local market such as the winback, promotions,
       bundling and price floor rules.


       (c) elimination of the requirement to charge average rates within
       designated rate bands, thereby allowing for price discrimination within
       existing rate bands.

75.    To begin with, Rogers would note that the mandate of the Panel is to
       assess the adequacy of Canada’s telecommunications infrastructure to
       meet the future needs of our consumers and businesses and to consider
       whether our current telecommunications policy, regulatory framework and


37
  Telecom Public Notice CRTC 2005-2, Forbearance from Regulation of Local Exchange
Services, 28 April 2005.


                                                                                     27
          institutions need any improvements in order to ensure that we are well
          positioned to meet our future requirements. The Panel has not been
          asked by the Governor in Council to evaluate the competitiveness of the
          retail local market or to determine whether the local exchange market
          should be deregulated at this time. Rogers submits that to do so would be
          beyond the mandate of the Review Panel.


76.       Nevertheless, because the ILECs have turned this review process into yet
          another platform to demand immediate local deregulation, it is imperative
          that the Panel have all of the facts before it.


The ILECs have Significant Market Power in Retail Local Market

77.       By any definition, the ILECs have significant market power (SMP) in the
          local exchange market. Their market shares range from as high as 100%
          in SaskTel’s market to 85% in Nova Scotia (the only province below
          91%).38 Indeed, as the CRTC pointed out in its submission to the Panel,
          by any measure of SMP (including the so-called ―International best
          practices‖ that the ILECs reference repeatedly), the ILECs would be
          presumed to have SMP in the Canadian local exchange market.39


78.       Given these market conditions, how can the ILECs claim that there are
          sufficient countervailing forces to discipline their market power in the retail
          local market? As noted below, the ILECs’ claims are not new. They have
          made the same predictions about imminent competition in the local
          telephone market for close to 10 years now. What is breathing new life
          into these well-worn ILEC arguments is the emergence of IP technology
          and particularly VoIP application, which the ILECs claim now offer new
          justification for immediate local deregulation and radical changes to the
          regulatory framework.

38
     Telecom Public Notice CRTC 2005-11, 30 August 2005.
39
     CRTC Submission, par. 120.


                                                                                       28
79.   A review of the ILECs’ submissions to the Panel on this issue, and their
      comments in the ongoing CRTC Local Forbearance proceeding, indicates
      a two-pronged argument: (a) ILEC VoIP offerings are not part of the retail
      local voice market and therefore ILECs do not have market power with
      respect to VoIP; and (b) even if the ILECs VoIP offerings are determined
      to be part of their retail local market and the ILECs are found to have
      market power, IP technology and VoIP applications have changed market
      dynamics to such a degree that the ILECs’ current market share is
      irrelevant. What is relevant, according to the ILECs, is that VoIP has
      rendered the local market completely contestable and that the current
      regulatory model is no longer justified.


80.   Rogers will respond to each of these claims.

      (a)    The VoIP Enigma

81.   Realizing the futility of arguing that they have no SMP in the traditional
      circuit-switched local service - primary exchange service or PES – the
      ILECs have come up with a technology-based argument that posits that
      VoIP is an ―Internet Application‖ and not a local service. In particular,
      TELUS continues to maintain that the so-called ―access independent‖
      VoIP cannot be included in any analysis of ILECs’ local market share and
      therefore is irrelevant to any consideration of the existence of SMP. In
      short, the ILECs’ argue that VoIP service should not be subject to either
      sector-specific ex-ante economic regulation or the competitive safeguards
      established by the CRTC to curtail the ILECs’ SMP in the retail local
      market (winback rules, bundling, price floor and promotions rules).


82.   The CRTC soundly rejected these arguments in Telecom Decision CRTC
      2005-28 - Regulatory framework for voice communication services using
      Internet Protocol, 12 May 2005. In its decision, the CRTC correctly
      concluded that:



                                                                                   29
              Based on the record of this proceeding, the Commission concludes
              that local VoIP services satisfy, or will satisfy, the same general user
              requirements of consumers of circuit-switched local exchange
              services. The Commission therefore finds that local VoIP services are
              close substitutes for circuit-switched local exchange services, and
              therefore are part of the same relevant market as these circuit-
              switched services.40

              …

              While market share may not always be determinative of market power,
              it is clear that the ILECs are the dominant providers of local exchange
              services in Canada. The Commission's 2004 Competition Report
              indicated that the ILECs accounted for 98% of local residential
              revenues and 92% of local business revenues in 2003 and that
              competitors, including ILECs out-of-territory, accounted for 2% of local
              residential revenues and 8% of local business revenues.

              The Commission notes that there was no evidence presented in this
              proceeding to demonstrate that those market shares have altered
              materially since the end of 2003 or that the ILECs do not have market
              power in relation to local exchange services. The Commission
              therefore determines, based on the Decision 94-19 framework, that it
              would not be appropriate to refrain, at this time, from the exercise of
              any power or the performance of any duty under sections 24, 25, 27,
              29 and 31 of the Act in relation to local VoIP services offered by the
              ILECs.41


83.       Following the CRTC’s decision, the ILECs immediately attacked the
          CRTC’s decision in the press and public fora and followed up with a
          petition to the Governor in Council and an appeal to the Federal Court of
          Appeal. The thrust of the ILECs’ attacks and their petition has been that
          the CRTC’s conclusion is wrong, that the Commission itself is outdated
          and unable to see into the future, and that unless both the CRTC and the
          current regulatory framework are radically changed, we are poised on the
          brink of permanently damaging innovation and ICT development.




40
     Decision at par. 126.
41
     Decision 2005-28, at par. 131, emphasis added.


                                                                                      30
84.       Although the ILECs have attempted to position these criticisms of the
          CRTC as being in defense of ―innovation‖ and ―competition‖, and therefore
          in the public interest, this is very transparent. It is obvious that the ILECs’
          objective is to avoid economic regulation of their VoIP services so that
          they can use VoIP as a counter-measure to protect their market share and
          stem meaningful local competition.


85.       The ILECs do not intend to use VoIP to provide their customers with
          productivity enhancing tools or lower prices. They intend to use their VoIP
          offering (called Bell Digital Voice or ―BDV‖) in a targeted way to retain
          customers that are considering switching to a competitor’s service. This
          strategy was made clear by Bell Canada’s President of Residential
          Services, Kevin Crull, on September 14, 2005:

              ‖We will target customers and use BDV as a save tool for customers
              on their way out to a cable offering.‖
              …

              ―This isn’t a big-bang product introduction for Bell. This is the voice
              product of the future for us. It does give us [a service to] very tactically
              have the ability to respond to cable.‖42
              …

          Mr. Crull also stated at the BMO Nesbitt Burns Conference on September
          13, 2005 that:
              ―Needlessly giving discounts is not something we are interested in
              doing.‖



86.       In this respect, Rogers notes recent research into the management of
          disruptive technologies by Clayton Christensen of Harvard University
          which was referenced in the material submitted to the Panel by
          MTS/Allstream.43 The strategic position of the Canadian ILECs is



43
     Reference MTS/Allstream, Appendix 1.


                                                                                        31
      consistent with the strategies postulated by Professor Christensen and are
      to be expected of an incumbent in reaction to new and potentially
      ―disruptive‖ technologies. Disruptive technologies do not create
      competition in and of themselves. Professor Christensen’s research
      indicates that firms entering established markets with a new unproven
      (disruptive) technology have virtually no chance of success unless they
      can both be a leader in introducing the new technology and at the same
      time can create a market for it.


87.   In our industry, that is a daunting task, considering the formidable
      incumbency advantages of the ILECs, the inertia of customers switching
      to a new entrant, the historical strategy of the ILECs to target significant
      resources to win back those customers who dare switch by any means,
      and the ability of the ILECs to replicate the new technology and offer it
      themselves if they view it as a threat. This means that if the incumbent is
      able to pre-empt the new entrant on any of these fronts, the mere
      existence of the disruptive technology is unlikely to materially change the
      status quo of the market structure.


88.   We have witnessed this cycle time and again in the Canadian
      telecommunications sector. New entrants have sought to use new
      technology to disrupt the ILECs’ dominance in a market, the incumbent
      has in turn adopted the technology, quickly exploiting it to negate the new
      entrant’s initiative. At the same time the incumbents predictably laud their
      own use of the new technology as heralding a new era of competition, in
      turn providing the basis for regulatory relief (lighter regulatory treatment)
      as a result of the ―imminent demise‖ of their position in the market. Yet, as
      soon as the incumbent succeeds in co-opting the new technology, the
      technology’s so-called ―disruptive‖ prospects quickly fizzles and the
      incumbent can settle back into its comfortable dominant position –
      perhaps now with less regulatory oversight.



                                                                                      32
89.   Such experiences in the Canadian telecommunications sector are
      illustrated in the submissions of MTS/Allstream and the Coalition for Better
      Competition. The lesson of past history suggests that the Panel should
      be particularly wary of basing its recommendations on future predictions
      about VoIP and its anticipated impact on market structure. VoIP is just
      another product that the ILECs sell to customers in the retail local market
      where they hold SMP. The risks of not regulating the ILECs’ VoIP service
      far outweigh any other concerns that the ILECs have raised in this
      Review. They include:

         co-opting VoIP to further their market share retention strategy and
          neutralizing the much anticipated prospects of VoIP as a ―disruptive‖
          technology;

         using unregulated VoIP to avoid sector-specific economic regulation
          and competitive safeguards in a market in which they undoubtedly
          have SMP;

         impairing Canada’s ICT development and usage as the ILECs
          dominate the market for VoIP services.


90.   Finally, the Panel must be wary about the ILECs’ so-called International
      ―best practices‖ examples in relation to VoIP regulation. It is very common
      for the ILECs to make statements claiming that no other developed
      country ―rate regulates‖ VoIP or imposes economic regulation on dominant
      firms with respect to their VoIP services. Other countries have
      proceedings pending to consider the issue. The fact that Canada is ahead
      of the curve in considering whether to regulate VoIP should not be taken
      as an indictment of the policy. VoIP only becomes an important regulatory
      issue when broadband access is widely available. Canada may be one of
      the first countries to consider regulation of VoIP because of our advanced
      broadband networks. As other countries begin to catch up, we certainly
      will not be the last. It is simply inaccurate to claim that only Canada has



                                                                                    33
          made a decision to discipline its ILECs’ market power in the local market
          by regulating their VoIP services. Indeed, in a Report released in August
          2005 by the OECD, it is reported that among the OECD countries:

                There has been heightened interest in Voice over Internet Protocol
                (VoIP) services in recent years. A number of regulators are beginning
                to examine how new emerging voice services using the Internet should
                be treated, and whether there should be regulatory forbearance
                allowing these services to develop unhindered in the market without
                being subject to the obligations required by voice services provided
                over public switched networks. … Whereas in the early days when
                VoIP was emerging regulators for the most part viewed this service as
                a data service, there now appear to be a number of regulators who,
                using technological neutrality arguments, are ready to subject VoIP
                providers to the same obligations as PSTN operators. Nevertheless,
                there is recognition that treatment of VoIP will very much depend on
                how such services are classified and on the way in which they are
                provided in the market. PSTN operators using IP networks to transmit
                their traffic are likely to still be considered as public
                telecommunications operators, whereas other service providers
                without ubiquitous networks and without using PSTN numbering
                resources may likely be treated differently.44

91.       The report describing the developments in the OECD countries appears to
          closely track the CRTC’s policy framework and considerations, contrary to
          what the ILECs would have us believe. While the specific rules in each
          country are not necessarily identical, all the major countries in the OECD
          have adopted a technology-neutral regulatory regime that regulates VoIP
          on the basis of service characteristics, market conditions and market
          power, just like the CRTC. Canada’s policy and regulatory framework is
          the ―best practice‖ that other countries are emulating, rather than the
          converse.45



          (b)      The “Contestable Market” Theory




44
     OECD Communications Outlook 2005, at page 35.
45
     OECD Communications Outlook 2005, Table 2.9.


                                                                                    34
92.    Although the ILECs have spent a considerable amount of time and energy
       attempting to distinguish VoIP from PES, and arguing that the former is
       not a retail local service with respect to which they have SMP, and
       therefore should not be regulated, it would appear from TELUS’
       submission to the Panel that the ILECs have retrenched somewhat from
       that position.46 TELUS seems to now argue that even if VoIP offering is
       considered the same as or a close substitute for PES, IP technology and
       the emergence of VoIP has all but completely dismantled any barriers to
       successful entry into the retail local market, and that it should be irrelevant
       that an ILEC holds a 95% or 100% market share. What is relevant,
       according to Telus, is that IP has wrought such changes in industry
       structure that anyone can enter the local market and take market share
       from the ILECs at any time.


93.    This argument is summed up in the Evidence submitted for TELUS by Dr.
       Charles L. Jackson. In the Consultation Paper, the Panel had opined that:

           [T]here is reason to be optimistic about increased competition in the
           local exchange market. There is every indication that Voice over IP
           (VoIP) and entry by the cable telecommunications carriers will
           significantly increase competition in the local market.47

       In responding to this statement, Dr. Jackson stated that:

           This paragraph appears to equate competition with market share loss
           by the incumbent. Today every household that can purchase cable
           modem service or ADSL service has the alternative of substituting
           VoIP service for their traditional telephone service. Even if few
           households of these adopt VoIP, all of them have the option of doing
           so. The widespread availability of competitive alternatives transforms
           a market. Competition must be measured by rivalrous behaviour; not
           by market shares. Market share is a poor surrogate for the real object
           of interest — a competitive outcome that meets consumer needs.


46
   Indeed, in its submission in the CRTC Local Forbearance proceeding, Bell Canada now clearly
accepts that VoIP is a close substitute to PES …. Ref …
47
   TPR Panel, June 6, 2005, Section A (The Changing Telecommunications Environment), Part 1
(Changing Markets and Technologies), Canadian Developments, paragraph 2.


                                                                                            35
              …

              VoIP offers a new model of telephone service, one in which provision
              of the telephone service can be completely separate, organizationally
              and financially, from the provision of access. I note that the CRTC
              chose to regulate the provision of VoIP by ILECs even though there
              are no reasonable grounds for concern regarding any VoIP provider
              possessing market power. VoIP is provided independent of access —
              indeed access independence is one of the benefits of VoIP. Such
              regulation by the CRTC exerts a drag on the industry — a drag that is
              damaging even if it is not easily seen. Regulation increases the costs
              and uncertainty faced by the ILECs — thus weakening them as VoIP
              competitors and weakening competition. Because the ILECs are
              rendered weaker competitors, the other VoIP suppliers will have an
              easier time of it and will have less incentive to please customers.
              Although historic policy choices in favour of competition can foster
              decades of gains to consumer welfare, ill-advised decisions can just as
              significantly curtail such gains. Advancements in technology can
              facilitate competitive alternatives, but regressive regulation can restrict
              them. To give full effect to the potential of technological developments,
              they must be married with the power of open markets.48


94.       The danger with ―contestable market‖ theories, especially when based on
          prognostications of future technology trends, is that they ultimately tend to
          entrench the structural status quo in the market. Contestability creates an
          unfounded sense of competition and distracts the regulator from making
          appropriate choices that are critical at the time. It was barely five years
          ago when the ILECs declared the end of their local monopoly as a result
          of ―disruptive‖ fixed and mobile wireless technologies which they asserted
          were poised to replace the ILECs’ loop-based local services. Today not
          only do over 95% of households in Canada continue to buy local services
          from the ILECs, the ILECs are also significant players in the much touted
          ―disruptive‖ wireless applications market.


95.       Attached as Appendix 2 to this Reply is a submission made by Rogers in
          the ongoing CRTC proceeding on Local Forbearance. Appendix 2 details


48
     TELUS’ Submission, pars 90 to 93.


                                                                                        36
          the many instances in the past in which the ILECs had incorrectly
          predicted or assumed the existence of a vibrant, competitive local market.
96.       As Call-Net Enterprises Inc. observed in its submission to the CRTC in the
          Forbearance Proceeding:
                At the end of the day, however, the Commission must look for
                evidence of competition – not of contestability, not of promise of
                competition, but actual competition from viable competitors who have
                been in the market for a significant period of time, have gained
                significant market share, have increased output and have successfully
                introduced new services and innovation to the market. Unless and
                until the Commission forbears only as a result of real, viable,
                sustainable entry, competition sufficient to protect the interests of users
                will remain illusory and the conditions for forbearance will remain
                unattainable.49


          (c)      The Cablecos’ Entry into the Local Telephone Market

97.       The ILECs have made it clear that what is really driving their angst against
          the current policy and regulatory framework is the entry this year of
          several cable companies (cablecos) into the retail local voice market. In
          the CRTC’s Local Forbearance proceeding, the ILECs position is that
          whatever one might have thought about the prospects of VoIP as a
          disruptive technology, the entry of the cablecos has changed everything.
          Despite the ILECs’ SMP in the local market, cableco entry somehow
          justifies the immediate roll-back of sector-specific economic regulation of
          the ILECs’ local services and associated competitive safeguards.


98.       The entry of cable into the local voice market has been anticipated for
          many years, but it is only now starting to make economic sense in part
          because of the fact that the CRTC’s sector-specific regulation of the ILECs
          and the establishment of competitive market safeguards provides an
          environment in which viable entry now has a reasonable chance of
          success.


49
     Call-Net’s Submission of June 22, 2005, at par. 10.


                                                                                        37
99.    In Rogers’ view, it would be a monumental mistake to immediately end or
       make radical changes to this regulatory regime based on the assumption
       that now that the cablecos have entered, competition will endure in the
       market as the cablecos will immediately provide the effective market
       forces required to discipline the ILECs’ SMP in the Local market. This
       assumption flies in the face of market economics, our experience with
       competition in the sector and the history of the evolution of competition in
       the sector. Unless the current framework and regulatory safeguards are
       retained for some time yet, competition will not succeed in the retail local
       market.


100.   Rogers agrees in general that IP technology has the potential to hasten
       the development of competition in the local market, but only if the other
       regulatory safeguards that are currently in place to discipline the ILECs’
       SMP are kept in place. Significant barriers and market structure problems
       remain in the local market despite the promises of IP technology and
       Cableco entry. The CRTC in its submission to the Panel has documented
       how, in addition to the natural barriers to entry, new entrants have to cope
       with strategic anti-competitive behavior by the ILECs, designed to frustrate
       entry and retain market share:

          Competition did not materialize from some of the anticipated sources.
          For example, the largest Canadian cable companies are only entering
          the local market this year. Not unexpectedly, the ILECs also resisted
          loss of any market share with all the tools at their disposal, including
          ―winback‖ campaigns targeted at individual customers who decided to
          switch carriers, as well as various promotions and targeted price
          reductions designed to recapture any lost customers. While new
          entrants had to penetrate a market already one hundred percent
          served by the ILECs, the ILECs could target their marketing efforts in
          respect of individual customers that chose to leave them, thereby often
          reversing a customer’s decision to switch by offering them a new deal.
          This conduct, which was impeding the development of a competitive
          market, prompted the Commission to implement a number of
          regulatory safeguards designed to restrict the ILECs’ retaliatory
          marketing efforts until competitors managed to get a foothold in the



                                                                                    38
              market. Floor prices were also established to prevent the ILECs from
              dropping rates below cost to undermine new entry.50

101.      The CRTC’s statement referenced above is a warning to the Panel.
          Strategic behavior on the part of the ILECs to retain market power may be
          ―understandable‖ and even ―predictable‖, but it could thwart the
          development of a competitive market. As the CRTC has stated on many
          occasions, the nascent entry of cablecos has not changed that. The
          CRTC is well positioned to understand this given that it has had to
          adjudicate repeated complaints of anti-competitive behavior by the ILECs
          in the local market and had itself found the ILECs to be in violation on
          several occasions. Those risks need to be hedged by regulation and
          market safeguards until conditions are such that market forces can take
          over. We do not yet know if or when that will happen.


102.      Rogers urges the Panel to be very careful not to be bullied into making
          recommendations for radical changes to the current policy, regulatory
          framework and institutions on the unfounded contentions of the ILECs that
          VoIP applications and IP technology will discipline the ILECs’ market
          power in the local market. History has shown that new technology alone
          does not guarantee successful entry into monopolized markets. Public
          policy and committed regulatory discipline of incumbents’ market power
          are what open up monopoly markets to competition; technology may
          hasten the development of enduring competition but only if policy and
          regulatory tools permit competition to first take root.


103.      The Panel must recognize that the potential harm of premature regulation
          far outweighs any concerns that the ILECs have raised regarding their
          desire for more flexibility. Premature deregulation will not benefit
          Canadian consumers and businesses and will significantly impair the



50
     CRTC Submission, par. 75.


                                                                                     39
       ability of facilities-based competitors like Rogers, who are investing billions
       in infrastructure to use their facilities to compete in the retail market.



III.   ISSUES SPECIFIC TO THE REGULATORY FRAMEWORK AND
       INSTITUTION

104.   The Panel has asked a number of specific questions with a view to
       assessing whether our current policy and regulatory framework and
       institutions may need to be improved in order for our ICT to meet the
       future needs of individuals and businesses throughout the country.
       Rogers’ comments on each of these issues are contained in its August 15,
       2005 submission.


105.   By and large, other parties’ recommendations on these issues reflect their
       views on how well the current framework and institutions, including the
       Telecommunications Act and the CRTC, can continue to facilitate
       competition in light of the changing technological and industry structure.


106.   Rogers remains of the view that the current policy and statutory framework
       and the CRTC’s facilities-based approach to competition work well and
       are beginning to produce very positive results. These results are
       independently substantiated by the OECD which regards Canada’s
       regulatory framework as one embodying ―best practices‖, as well as
       Canada’s position atop the G-8 in broadband access. Proposals for
       drastic changes to this structure, advanced by the ILECs, could prove to
       be counterproductive and could result in retrenching the gains made thus
       far in the local telephony market.

107.   While Rogers acknowledges that some fine-tuning of the
       Telecommunications Act, and the policy objectives enshrined in it, would
       be beneficial at this time, it objects to the fundamental dismantling of the




                                                                                      40
       framework and institutions that are helping Canada achieve these
       outstanding results.




1.     Amendments to the Telecommunications Act

108.   The general position advanced by the ILECs is that the policy objectives in
       the Telecommunications Act are outdated, provide ―too much discretion
       and too little guidance‖ to the CRTC and do not provide the CRTC with the
       direction necessary to ensure that the ILECs are provided the flexibility
       that they believe is necessary to achieve local deregulation immediately.
       The ILECs argue that the policy objectives do not accord reliance on
       ―market forces‖ sufficient primacy among the other objectives in section 7
       of the Act and do not provide sufficient guidance to the regulator. The
       ILECs would like to see the policy objectives in section 7 changed to
       create a presumption in favor of ―no regulation‖ and to place the onus on
       the CRTC to justify regulation on a case-by-case basis.


109.   Accordingly, the ILECs have generally argued that section 7 should be
       amended to explicitly enshrine competition and reliance on market forces
       not only as tools to help achieve other policy objectives but in fact as ends
       in themselves.


110.   While the Competition Bureau has not gone as far as the ILECs in arguing
       for competitive market forces to replace other public policy objectives in
       the Telecommunications Act, it does favour a minimalist approach to
       regulation that would mandate the CRTC to ―adopt the regulatory
       measure, or take decision, that is least intrusive in the marketplace.‖

111.   In contrast with the ILECs and the Bureau, Rogers believes that the
       Telecommunications Act currently contains the appropriate balance
       between the policy-making role of the federal government and the



                                                                                    41
       implementation and administration functions carried out by the CRTC.
       The purpose of such policies is to ensure that the CRTC has sufficient
       guidance and direction in carrying out its mandates, but policies should
       not be so detailed as to undermine the expertise that the CRTC brings to
       bear on the subject. The current policy objectives are broad enough to
       allow the CRTC to adapt the regulatory framework to the rapidly changing
       telecommunications sector. This enables the CRTC to use its expertise
       to interpret and apply the policy objectives to a wide range of fact
       situations and evolving developments in the industry.


112.   At the same time, the policy objectives in the Act are specific enough to
       provide guidance to the CRTC. In this respect, they have the effect of
       limiting the scope of discretion that the CRTC has for developing a
       regulatory framework that is inconsistent with the interests of Canadians,
       as defined by Parliament. Moreover, the Act provides the Governor in
       Council with the authority to issue policy directions to the CRTC if it is
       determined that more detailed guidance on broad policy issues is
       warranted. The act also provides the Governor in Council with the ability
       to review and vary decisions or orders of the CRTC, if it considers that the
       CRTC has strayed from the policy objectives set forth in the Act.


113.   It should be noted in this regard that section 34(3) of the Act currently
       requires the CRTC to forbear from regulation where it finds as a question
       of fact that competition is sufficient to protect the interest of users. This is
       not a discretionary provision, as the ILECs appear to suggest. When the
       facts justify forbearance, the CRTC must forbear. What the ILECs are
       really arguing for is premature forbearance, before the facts justify it and
       before market forces are sufficiently strong to protect the interest of users.
       This is clearly contrary to public policy, and extremely self-serving.




                                                                                      42
114.   The fact that the CRTC has already forborne from regulation of
       approximately two-thirds of the telecommunications market (on a revenue-
       basis), and is currently considering tests to apply to forbearance in the
       remaining third of the market, is cogent evidence that section 34 of the Act
       and the policy objectives in section 7 are working as intended. For ILECs
       with an average 94% market share in the remaining regulated residential
       and business local markets to argue that the CRTC is failing to deregulate
       fast enough would be laughable, if the ILECs were not in fact mobilizing all
       of their considerable resources to achieve this end.


115.   As regards the Bureau’s call for a minimalist approach to regulation,
       Rogers believes that this objective is already enshrined in section 7(f),
       which requires the CRTC to foster increased reliance on market forces
       and to ensure that regulation, where required, is efficient and effective.


116.   Rogers does not believe that the policy objectives in section 7 can or
       should be prioritized. Universal service objectives, for example, cannot be
       sacrificed for competition. In Canada, we have a long and enviable record
       of independent regulators being called upon to balance sometimes
       competing policy objectives within a statutory framework. Issues are
       rarely black or white and other policy objectives should not be sacrificed in
       order to give the ILECs a free hand in a market they continue to dominate.


117.   As regards measures to bring the policy objectives in section 7 up to date,
       Rogers made a number of recommendations in response to Panel
       question B.1. For example, section 7(e) reflects Canada’s position prior to
       the implementation of the WTO agreement. All international routing
       restrictions have now been removed and this objective could be deleted.
       Section 7(g) begs the question of whether the CRTC really has a role in
       stimulating research and development in Canada, as opposed to
       encouraging innovation – which it does do through its pro-competitive



                                                                                    43
       policies. Finally, section 7(i) respecting privacy was put in place prior to
       the passage of the comprehensive federal and provincial privacy
       legislation, which now applies to Canadian carriers. Rogers is of the view
       that this objective is no longer needed in light of those laws of general
       application and in light of the presence of section 41 of the Act respecting
       nuisance communications (ADADs, SPAM, Do not call lists etc.).


118.   In addition to modifying or deleting the policy objectives identified above,
       the Panel should consider adding new policy objectives that reflect the
       changes that have occurred in our telecommunications industry over the
       past 12 years. Specifically, consideration should be given to the following
       objectives: (i) to promote the concept of a network of networks; (ii) to
       develop technologically neutral regulation; (iii) to respond to the
       emergency and security requirements of users of telecommunications
       services; and (iv) to promote fair access to underlying rights of way and
       infrastructure.


119.   These proposals by Rogers have support from a number of parties
       including the CCTA, the CWTA and the Consumer Groups.


120.   A number of parties also make recommendations in the areas of
       enforcement, penalties and increasing the CRTC’s powers over rights of
       way, multi-dwelling units (MDUs), and support structures.


121.   With respect to rights of way, Rogers believes that section 43 of the
       Telecommunications Act gives the CRTC adequate jurisdiction. The
       CRTC and its predecessors have had these powers for 100 years and
       they ensure that telecommunications carriers and broadcast distribution
       undertakings gain access to municipal rights of way without paying rents
       or excessive fees. Without these powers, Canada would not have a
       ubiquitously deployed high tech telecommunications infrastructure. The



                                                                                      44
       review panel should reject requests by municipalities for amendments to
       the Telecommunications Act to allow them to charge rent for access to
       their rights of way. The current CRTC regime gives the municipality the
       full power to recover their costs, which is an equitable and efficient
       outcome.


122.   With respect to access to support structures current provisions in the
       CRTC’s decisions give competitors appropriate access to telephone
       company poles. However, following the decision of the Supreme Court of
       Canada in the Barrie Utilities case the CRTC no longer has jurisdiction
       over access to electric utility poles. This legislative gap should be fixed by
       amending the Telecommunications Act to give the CRTC jurisdiction over
       access to all support structures regardless of their ownership.
       Specifically, Rogers proposes that the Telecommunications Act should be
       amended by adding the following after subsection 43(1):

          43(1).1 In this section, ―support structure‖ means any structure of a
          Canadian carrier, distribution undertaking or electric utility that is used
          or capable of being used to support the transmission line of a
          Canadian carrier or distribution undertaking.

          ―electric utility‖ means a person who owns or operates equipment or
          facilities used by that person or another person for the delivery or
          provision of electricity to the public for compensation.


123.   Furthermore, subsection 43(5) should be repealed and replaced with the
       following:
          43(5)        Access to support structures – Where a Canadian carrier or
          distribution undertaking cannot, on terms acceptable to it, gain access
          to a support structure, the carrier or distribution undertaking may apply
          to the Commission for a right to access the support structure for the
          purpose of constructing, installing, altering, moving, operating, using,
          repairing, or maintaining a transmission line, and the Commission may
          grant the permission subject to any conditions that the Commission
          determines.




                                                                                    45
124.   With respect to access to MDUs, Rogers recommends that the
       Telecommunications Act be amended in order to give the CRTC a clear
       right to order access to multi-unit buildings. Just as section 43 of the
       Telecommunications Act grants the CRTC these powers for both
       telecommunications carriers and broadcast distribution undertakings,
       Rogers submits that the building access jurisdiction should equally apply
       to both types of providers. Given that BDUs now provide telecom services
       and that telephone companies also provide BDU services, it only makes
       sense that the access jurisdiction should apply to both networks.

125.   The CRTC supports amendments to the Act that will ensure a ―unified
       federal jurisdiction over telecommunications‖ and the Coalition for Better
       Competition has made similar submissions.



2.     New Regulatory Model

126.   Not only do the ILECs want the Telecommunications Act amended to
       declare competition and reliance on market forces as the overriding
       objective, they have also argued for a new framework that is governed
       primarily by the Competition Act. Bell Canada has gone one step further
       to argue that this new framework should be administered primarily by the
       competition authorities, rather than by the CRTC.

       (a)    Telecommunications Act vs. Competition Act

127.   Bell Canada has called for all aspects of the economic regulation of
       telecommunications to be shifted to the Competition Act and for the social
       and technical aspects to be retained in the Telecommunications Act.


128.   In contrast, the CRTC, Telus and the Competition Bureau favour only
       forborne services being brought under the Competition Act. (Telus does,
       however, favour a diminished role for the CRTC in economic regulation




                                                                                    46
       with a presumption against regulation, except when significant market
       power is found to exist.)


129.   Rogers agrees with the CRTC and the Competition Bureau. Rogers
       favours: (1) regulatory forbearance where competitive market forces are
       sufficient to replace regulation as the best means to safeguard consumer
       interests and to protect competitors from abuse of dominance; (2) removal
       of price regulation and marketing safeguards when the telephone
       companies lose their dominance; and (3) maintenance of the CRTC as the
       regulatory body that is best equipped to deal with the technical and
       economic issues raised by our competitive ―network of networks‖ model.
       That model relies extensively on economically efficient and technically
       advanced interconnection arrangements between carriers, as well as fair
       and non-discriminatory access to those networks by service providers, in
       order to achieve increased choice and lower prices for consumers.


130.   The Competition Act is not equipped to handle these types of
       interconnection and access issues effectively. This approach was tried in
       New Zealand and was abandoned after it spawned years of litigation and
       proved to be both a cumbersome and ineffective solution. On the other
       hand, the Competition Act does have a role to play in markets that have
       been forborne from regulation in ensuring that retail pricing is not
       predatory and that no player abuses its market power.


131.   The 1993 Telecommunications Act recognized that we were headed into a
       mixed market consisting of some sectors that were more or less
       competitive and some sectors that were still subject to a monopoly
       structure. It therefore equipped the CRTC with the tools necessary to
       open market segments to competition and to lighten up or forbear from
       regulation as those segments became sufficiently competitive to do so.
       This has resulted in approximately two-thirds of the total



                                                                                 47
       telecommunications market (by revenue) being forborne from rate
       regulation in the past twelve years and all segments being opened up to
       competition.


132.   The problem is that in the remaining third of the telecommunications
       market, which is essentially comprised of the local telephone market
       including competitive access services, the ILECs remain dominant with
       94% of the national residential market and an even higher percentage in
       some regions. The latest CRTC report to the Governor in Council on the
       status of competition in Canadian telecommunications markets still paints
       a picture of overwhelming dominance with the ILECs’ share of telephone
       lines varying from a low of 85% in Nova Scotia to a high of 100% in
       Saskatchewan . While Rogers has every intention of trying to change
       these statistics over the next few years, the incumbent telephone
       companies remain overwhelmingly dominant in most, if not all, local
       markets in Canada and there is no basis in economics or public policy to
       stop regulating what is still a de facto monopoly. It is simply premature to
       consider forbearance. It will hopefully happen – but not yet.


133.   It is very telling that the Competition Bureau has not sought the jurisdiction
       to regulate the ILECs. Neither the Competition Bureau, nor the
       Competition Tribunal, are ―regulators‖. They administer an Act that
       assumes competition to exist and creates certain penalties and remedies
       for anti-competitive behaviour. That legislation is totally unequipped to
       handle a market which is not competitive to begin with and where the goal
       is to make it more competitive. Such a market requires far more on-going
       supervision than a competitive market and requires intervention in
       circumstances that would not give rise to criminal or civil sanctions under
       the Competition Act. Bell Canada is only too well aware of this fact, which
       underlies its position in this policy review. Just as the Competition Bureau
       found that the Stentor cartel did not significantly diminish competition in a



                                                                                   48
       market where none existed, the Competition Bureau would not likely find
       SaskTel with a market share of 100% to violate the Act. A premature
       move to the Competition Act, before forbearance is justified, would
       therefore likely result in a perpetuation of the status quo – rather than
       movement towards a more competitive market.

       (b)    Roles of CRTC vs. Competition Bureau

134.   Bell Canada appears to be alone in calling for the CRTC to immediately
       cede jurisdiction over economic regulation to the Competition Bureau in a
       manner that is similar to the Australian approach. There appears to be
       general agreement among other parties that there is no apparent need in
       Canada to do this. Indeed, the Bureau itself has recommended a
       ―cooperative‖ relationship with the CRTC on all matters dealing with
       competition in the sector.


135.   Bell has provided no compelling reason for its recommendation, which
       Rogers views as a ploy to evade regulation.


136.   There is little in the Australian model to recommend itself to the Panel.
       From the point of view of outputs, the Australian telecommunications
       industry is not in the same league as Canada. As indicated in Figures 1
       and 2 of Appendix 1, the OECD ranks Australia last in terms of both
       residential and business tariff baskets – with prices far above those that
       prevail in Canada; Australia trails Canada in access channels per 100
       inhabitants (Figure 3); has higher international charges than Canada
       (Figures 4 and 5); it has higher mobile phone charges (Figure 6); it has
       fewer broadband subscribers per 100 inhabitants than Canada (Figure 7);
       and has significantly higher high-speed Internet rates than Canada for
       significantly lower bandwidth offerings (Figure 8 and 9).




                                                                                    49
137.   In these circumstances, the only conceivable reason for choosing the
       Australian regulatory model, would be because it entails less regulation of
       the dominant carrier. From a consumer’s perspective however, or from
       the perspective of national productivity, the Australian model produces
       terrible results compared with the Canadian model. This simply serves to
       substantiate with empirical data the OECD’s previous reports citing
       Canada for ―best practices‖ in the telecommunications regulatory arena.


138.   Rogers agrees with the recommendations made by the Bureau to improve
       the cooperative relationship between the Bureau and the CRTC. In
       Rogers’ view, there is no need to remove the forbearance decision from
       the CRTC’s jurisdiction. As matters currently stand, the CRTC uses
       competition law principles to define relevant markets and assess market
       power when it does its analysis pursuant to section 34 of the Act. The
       Telecommunications Act does not prevent this and in fact the Commission
       has stated on a number of occasions that this is its approach. Other
       telecommunications regulators, such as the FCC in the United States and
       Ofcom in the United Kingdom, similarly make their own determinations on
       whether to forbear from regulation, again applying competition law
       principles.


139.   At the present time, the Commissioner of Competition can intervene in
       CRTC proceedings that address competition issues and this is done on a
       regular basis . If greater participation by the Competition Bureau is
       desired in CRTC forbearance decisions, it would be more efficient to
       create an avenue for this form of greater input, and to combine the
       resources and expertise of the CRTC and the Bureau, rather than
       removing this issue from the CRTC.

140.   The Telecommunications Policy Review Panel should also take note of
       the institutional factors that weigh against making drastic changes to the



                                                                                    50
       current allocation of responsibility between the sector-specific regulator
       and the competition authorities in Canada:

       •      As noted by the Bureau, the Competition Act does not seek to
       introduce competition into markets where little or none exists – it seeks to
       protect competition from degrading due to anti-competitive conduct once it
       is established;

       •      The ex post approach under the Competition Act results in lengthy
       proceedings to resolve complaints and correct behavior which, in a market
       just opening to competition, would require urgent correction;

       •      While the Bureau has expertise in respect of general competition
       law principles, it has not developed the same level of expertise as the
       CRTC on sector-specific market structure problems such as those in the
       telecommunications sector;

       •      In the few instances in which the Bureau has had the opportunity to
       examine structural issues in the telecommunications sector (other than in
       mergers and acquisition analyses) the Bureau has been powerless to take
       action because of the way the offences in the Act are defined. (The
       Stentor example described above is a prime example.)


141.   Rogers agree that forborne services should come under the Bureau’s
       purview as is currently the case. However, it may be necessary for the
       Bureau to consider whether the complaint-based process enshrined in the
       Competition Act is adequate in a newly forborne market or whether some
       more expedited processes needs to be put in place. To that end, Rogers
       recommends that there be a thorough public review of the Competition Act
       with a view to identifying whether changes are required to enable the
       competition authorities to effectively oversee a forborne
       telecommunications market and whether expedited processes, sector-
       specific remedies and remedies that are more suited to a newly forborne
       market are needed.



       (c)    Ex Ante vs. Ex Post Regulation




                                                                                    51
142.   TELUS and Bell have both proposed that in the limited cases where
       regulation is deemed necessary (TELUS: where non-transitory SMP exists
       with respect to ―essential facilities‖; Bell: where SMP remains with respect
       to ―wholesale services‖), ex post regulation should be adopted in place of
       ex ante regulation.
143.   Rogers remains of the view that ex ante regulation of prices and
       conditions of service is necessary not only for essential facilities but also
       for retail local service, until such time as they are forborne from regulation.


144.   Rogers believes that the ILECs have exaggerated the extent to which they
       are subject to ex ante regulation and the extent to which this form of
       regulation constrains their pricing flexibility. Since the advent of price
       caps, the ILECs have been able to file retail price changes that are
       compliant with the regime on an ex parte basis and receive automatic
       approvals. Recent regulatory reforms have further streamlined this
       process.


145.   Indeed, TELUS’ proposal for a mixed use of ex ante and ex post
       regulation through the use of ―price ranges‖ is very similar to the approach
       that the CRTC recently adopted in disposing of Bell Canada’s tariff for
       VoIP service, and is not dissimilar in outcome to the CRTC’s current
       practices of ―interim‖ and ―ex parte‖ tariff approvals. In Telecom Order
       CRTC 2005-223, the CRTC approved on an interim, ex parte, basis Bell
       Canada’s new tariff for VoIP service. This tariff, which was approved
       within 13 days of filing, contains an upper and lower range of prices that
       Bell may charge without further approval. Furthermore, this price range is
       unknown to Bell’s competitors.


146.   In examining whether an ex ante approach is more appropriate than an ex
       post approach, it should also be recalled that in many instances, the
       regulatory safeguards imposed by the CRTC (floor prices, bundling rules,



                                                                                       52
       win-back and promotions rules) were originally promulgated in response to
       complaints about abuse of dominance by the ILECs. If one were to
       examine the attempts by the ILECs to evade these rules through
       loopholes or narrow construction of the rules, one would find that in many
       cases, the CRTC had to revisit the issue and fill the loophole discovered
       by the ILEC . The ILECs’ conduct in exploiting their dominance over the
       years provides full justification of an ex ante approach when significant
       market power is found to exist. The opportunities for the ILECs to exploit
       their dominance arise on such a frequent basis, and have such a
       potentially damaging impact on their competitors, that we cannot afford to
       rely on an ex post approach. To do so after the damage is done is simply
       too late.


       (d)    Reliance on Wholesale Regulation


147.   The Panel’s Questions on Wholesale Regulation consist of two
       components: (1) whether, and under what circumstances, should the
       wholesale services and facilities underlying an otherwise competitive retail
       service continue to be regulated; and (2) whether and under what
       circumstances, can wholesale regulation render retail regulation
       unnecessary where the retail market is not yet effectively competitive. For
       purposes of the Panel’s questions on this matter, ―wholesale regulation‖
       includes the mandatory ―unbundling‖ of network components and the
       regulation (including tariff and rates regulation) at wholesale level of
       services and network components used by competitors in downstream
       retail markets.




       (i) Wholesale Regulation where Retail Market is Competitive

148.   The ILECs generally are of the view that once the downstream market is
       effectively competitive, the wholesale services and underlying facilities


                                                                                   53
       should no longer be regulated.51 Rogers disagrees and submits that there
       are two important conditions that must be fulfilled before abandoning
       wholesale regulation in a competitive retail environment. First, there must
       be competition at the facilities-based level – that is, among separate and
       competing owners of facilities. Second, the facilities-based competition
       must be broad-based in the sense that the alternative facilities are as
       ubiquitous as the ILECs’. To the extent that certain wholesale and
       network components or capabilities are available from only the ILECs,
       such wholesale services and network components must be regulated in
       order for the associated retail services to be competitive.

149.   The Commissioner for Competition captures these conditions succinctly
       when she stated in her submission that:

           Generally speaking, the Bureau believes that competition at the retail
           level is likely to reduce the need for continuing to regulate wholesale
           services and facilities, provided that retail competition is among
           separate facilities-based providers. However, competition only among
           stand-alone retailers that rely on access to a single facilities-based
           provider will not eliminate any market power that such a facilities
           supplier possesses.52

150.   In this regard Rogers reiterates its earlier submission that:

           Where retail competition is partially a result of the presence of
           regulated bottleneck essential facilities, then there will be a continuing
           need to regulate the wholesale services and facilities underlying the
           retail service. The regulation would set rates, ensure that there is no
           unjust discrimination and ensure that there is quality of service and
           appropriate terms and conditions. For example, the CRTC’s CDNA
           tariff may encourage competition in the local private line voice and data
           market. However, if that competition leads to retail deregulation, the
           tariff would need to be maintained. Failure to maintain the tariff would
           likely result in the elimination of the very retail competition that
           permitted deregulation. Given that market participants have based
           their business plans on these tariffs, they will be required until market

51
   See generally Bell Canada Submission, Appendix D-7; and TELUS Submission pars. 294 to
302.
52
   Bureau’s submission, paragraph 53 (emphasis added).


                                                                                           54
            forces lead to the availability of wholesale services at comparable
            rates.53

151.    Similarly, Rogers notes that even the most vocal proponents of wholesale
        regulation in this Review - MTS/Allstream and the Coalition for Better
        Competition – do not dispute the Bureau’s views with respect to the need
        for strong facilities-based competition to exist in order for wholesale
        regulation to have any possible impact on the behavior of the dominant
        firm in the retail market. For example, in seeking ―bolder‖ wholesale
        regulation, MTS/Allstream chronicles the economic and technical barriers
        that limit competitors’ ability to build networks and facilities that have
        comparable reach and ubiquity to the ILECs.54 Likewise, while the
        Coalition is of the view that the CRTC’s ―pre-occupation with facilities-
        based competition‖ had resulted in less attention being paid to wholesale
        regulation55, the Coalition does not dispute that facilities-based
        competition is the optimal approach to competition.


152.    As discussed below, Rogers does not support the general position taken
        by MTS/Allstream and the Coalition that the pursuit of facilities-based
        competition is futile. Rogers believes that facilities-based competition is
        both doable and the best option for Canada. However, Rogers does
        agree with the premise that wholesale regulation is necessary where the
        available competing or alternate network does not have the physical reach
        of the ILECs’ networks.


153.    Therefore, in making its recommendations on the question of whether or
        not unbundling and wholesale regulation continues to be important even
        when the retail market has become competitive, the Panel should consider
        the following:


53
   Rogers Submission, par. 131.
54
   See generally MTS/Allstream par. 136 and 138.
55
   See for example Coalition submission at par. 124.


                                                                                      55
       a)      Facilities-based competition is the optimal approach to ensure the
               continuing development and diffusion of ICT;


       b)      Wholesale regulation is one of many tools that can facilitate the
               attainment of facilities-based competition but it is not a substitute
               for it;


       c)      Even if the retail market is competitive, there will continue to be a
               need for wholesale tariffs where resellers that rely on those tariffs
               cannot obtain facilities from alternate providers;


       d)      It also follows from the foregoing that as multiple facilities providers
               become established, and a market for wholesale facilities is
               established, further wholesale regulation and network unbundling is
               unnecessary.

Wholesale Regulation where the Retail Market is NOT Competitive

154.   Bell Canada proposes that where an ILEC has SMP and if sector-specific
       economic regulation is determined to be warranted, then there should be a
       rebuttable presumption that ―wholesale remedies‖ are sufficient.
       ―Wholesale remedies‖ involve providing third-party access to essential
       facilities and services. According to Bell, retail remedies should be used
       only where it is clearly demonstrated that wholesale remedies will not be
       adequate. TELUS’ proposes essentially the same approach.56


155.   Rogers interprets the notion of retail regulation to include the regulation of
       the ILECs’ rates and terms and conditions of providing services in the
       market, including the requirements to file tariffs.



56
  See generally Bell Canada Submission, Appendix D-7; and TELUS Submission pars. 294 to
302.


                                                                                          56
156.      Rogers’ understanding is that the Panel seeks comments on whether or
          not mandatory unbundling of the ILECs’ essential and near essential
          facilities and the filing of wholesale tariffs is effective in disciplining the
          ILECs’ current SMP in the local market, such that the CRTC should no
          longer require the ILECs to file tariffs for their local services and the CRTC
          should no longer apply the winback, promotions, bundling and price floor
          rules to the ILECs’ retail local services.


157.      Rogers’ answer to this question is an emphatic ―no‖.


158.      The Bureau has stated clearly in its submission that:

              If the retail market would not be competitive despite such [wholesale]
              regulation, wholesale regulation will not in and of itself produce ideal
              results.57


159.      The CRTC began the process of wholesale regulation of the ILECs’ local
          access and transport facilities in 1997 when it mandated the first set of
          unbundled components in Telecom Decision 97-8. Almost ten years later,
          although the CRTC has on a few occasions expanded the initial set of
          unbundled components, there is not yet any significant competition in the
          local retail market. In sum, to use the Bureau’s own words, the retail local
          market has not become effectively competitive despite wholesale
          regulation. Similar results have been obtained in other countries.
          Therefore wholesale regulation is not a surrogate for market forces
          capable of disciplining the ILECs’ SMP.


160.      Wholesale regulation will not prevent anticompetitive pricing and conduct
          directed against facilities-based entrants. It will only imperfectly protect
          consumers from monopolistic pricing by the incumbent. Accordingly,
          Rogers submits that the Panel should recommend that the CRTC continue

57
     Bureau’s submission at par. 63


                                                                                            57
       to regulate the pricing and behavior of the ILECs in the retail local market
       via the existing tariff requirements and the competitive safeguards, until
       such time as adequate facilities-based competition exists.
       (ii)      Facilities-Based Competition versus Resale Competition

161.   Rogers notes that MTS/Allstream and the Coalition have gone to great
       length to argue in favor of a more aggressive wholesale regulatory regime.
       Neither MTS/Allstream nor the Coalition actually claims that resale
       competition is superior to facilities-based competition. Instead they seem
       to suggest that facilities-based competition is only an ideal which is
       virtually impossible to attain. As such, the CRTC and government should
       settle for ―second best‖ by aggressively promoting Resale competition via
       even more expansive and bolder network unbundling and wholesale
       regulation:

              The members of the Coalition believes that promoting facilities-based
              entry is a laudable objective, but experience has shown that it is not a
              successful way to kick-starting competition in the market if it is
              promoted to the exclusion or detriment of all other forms of competitive
              entry. This is particularly so in the market for local telephony services
              where, after more than seven years of facilities-based competition, the
              ILECs continue to hold 98% of the residential market and an equivalent
              market share in the large and very large business market.58


162.   Rogers agrees with MTS/Allstream and the Coalition that there remain
       significant barriers to new service providers seeking to enter the market as
       facilities-providers . Rogers also agrees that resale competition is a useful
       tool to initiate and even accelerate facilities-based competition. However,
       Rogers disagrees with MTS/Allstream on two key points: (a) that facilities-
       based competition has failed or at best is an ideal that cannot be attained;
       and (b) that the practicable and optimal solution to the absence of retail
       competition in local services is to aggressively promote resale
       competition. These points are discussed further below.

58
  Coalition’s Submission at paragraph 37. See generally MTS/Allstream Submission paragraphs
92 to 140; and Coalition’s Submission at paragraphs 35 to 46.


                                                                                         58
163.      While Rogers agrees with MTS/Allstream and the Coalition that the road
          to facilities-based competition has been extraordinarily difficult and
          frustrating, Rogers submits that today the industry has arrived at an
          inflection point where we can now say that this objective is achievable. In
          particular, the continuing build-out of the cablecos’ broadband facilities
          and the anticipated development of fixed wireless access and transport
          networks will usher in considerably more potential competition at the
          facilities-provider level than MTS/Allstream and the Coalition seem to
          acknowledge.


164.      Nevertheless, as Rogers has emphasized previously, that is not to say
          that alternative facilities today have the same footprint, ubiquity and
          network capabilities as the ILECs’ networks. There are also carriers, such
          as Rogers Telecom, that rely heavily on resold ILEC facilities. This means
          that the ILECs’ facilities should continue to be unbundled and their
          wholesale services regulated, to the extent to which they constitute
          ―essential‖ or ―near essential‖ facilities and/or services as currently defined
          by the CRTC. Cablecos’ facilities are still limited in their reach compared
          with the ILECs’ ubiquitous facilities. As Rogers noted in its original
          submission:

              The regulation of wholesale services and facilities can be a useful way
              of providing increased competition in the marketplace. For example, a
              facilities-based provider such as Rogers is restricted to providing
              wireline services to the 29% of Canadians that receive its cable
              television service. By using regulated wholesale services and facilities,
              it can with its Rogers Telecom division (formerly Call-Net) provide
              services to the other 71% of Canadians. The regulation of the
              wholesale services and facilities is therefore important, but cannot be
              relied upon as a substitute for direct regulation of the retail service. 59




59
     Rogers Submission, at paragraph 136.


                                                                                       59
165.      The overriding objective must be to encourage investment in the building
          of facilities that are comparable to those of the ILECs. The only way to
          achieve that goal is by continuing to focus on facilities-based competition.
          Rogers reiterates its original submission that:
              It is important for the Panel to recognize that competing networks will
              continue to develop and some of those networks will be better suited to
              provide certain applications than others (e.g. wireless for mobile
              applications; satellite for remote regions; fibre and fixed wireless for
              large business applications; co-axial cable and DSL to homes and
              smaller businesses).

              Service providers and network operators will continue to use these
              different technologies to meet their customers’ needs as network
              efficiencies and characteristics dictate. Rogers believes that
              competition will continue to drive new network developments and
              innovation.60


166.      It is very important for the Government and the CRTC to stay the course
          on facilities-based competition in order to finally reap the benefits of the
          many years of capital investment and frustration that MTS/Allstream and
          Coalition described in their submission.


167.      Resale competition has not been an effective deterrent to abuse of market
          power in the retail local market. Even if the CRTC were to further expand
          the scope of network unbundling and wholesale regulation, resale
          competition will not control the ILECs’ market power and generate a level
          of competitiveness equivalent to facilities-based competition. The reasons
          for these limitations have been discussed extensively.


168.      In order for Resale competition to endure, the regulator will have to
          guarantee a large enough margin between the wholesale and retail rates
          to encourage entry and then to maintain the semblance of rivalrous
          behavior after entry. Since the wholesale rate will be based on the
          carrier’s costs, and the retail rate will be left up to the carrier in a forborne
60
     Rogers Submission, pars. 86 and 87.


                                                                                          60
          environment, the only room for price competition is on the additional costs
          of providing service over a common network. This gives very limited room
          for resellers to operate and is a recipe for on-going disputes over the
          wholesale rate and potential price squeezes by the carrier. This would not
          get the CRTC out of rate regulation – it would guarantee it in perpetuity.


169.      In order for Wholesale Regulation to have any meaningful impact, the
          regulator must get it right from the beginning – which is almost impossible.
          As the Bureau notes, ―it is important to remember the difference between
          the benefits of wholesale regulation in theory and benefits in practice,
          recognizing the difficulties in implementation‖.61 Because the ILECs have
          little or no incentives to voluntarily unbundle their networks or establish
          wholesale tariffs that allow resellers sufficient margin to operate,
          wholesale regulation is prone to gamesmanship which only tends to
          perpetuate the need for closer and more regulation and aggravates
          implementation problems. For example, as MTS/Allstream and the
          Coalition have documented, the ILECs have used every trick in the book
          to frustrate wholesale regulation in Canada: they have failed to unbundle
          unless forced to by the CRTC; when they did unbundle they tended to do
          it haphazardly, leaving competitors to initiate lengthy and costly regulatory
          proceedings; and when the ILECs did eventually unbundle to the extent
          required by the CRTC, they then played more games with the costs of the
          unbundled components, leading to more regulatory proceedings,
          regulatory lag and a major drag on the development of competition.62


170.      Resale competition tends to foster ―pockets‖ of competition rather than
          broad-based competition, as the new entrants pick and choose markets
          where there is sufficient margin between the wholesale costs and the retail
          price to yield meaningful returns. As such, resale competition will be of


61
     Bureau’s Submission, par. 69.
62
     See in general the Coalition’s submission, pars. 82 to 98.


                                                                                        61
       little use to consumers in rural and remote areas where low population
       densities and associated higher input costs make margins very small or
       non-existent and hence competitive entry by local resellers very unlikely.
       Consumers in these areas would be at the mercy of the ILEC’s
       unregulated pricing. This is not consistent with the goal of fostering broad-
       based ICT diffusion in Canada.


171.   Resellers who do not own facilities tend to have little or no opportunity to
       differentiate themselves and the principal way they show benefits to end
       users is through price discounts. As such, they remain tethered to the
       facilities owner’s network efficiencies and have little room to increase
       these efficiencies. Accordingly, it will be counterproductive to Canada’s
       ICT objectives for our telecommunications policy and the regulatory
       framework to place its hopes on resale competition rather than full-fledged
       facilities-based competition.

172.   In conclusion, Rogers strongly cautions the Panel against making any
       recommendations that will derail the current facilities-based competitive
       model. Particularly on the issue of the wholesale regulation model, the
       Panel must be wary of so-called ―international best practices‖ that are
       often referenced by the ILECs either out of context or without offering the
       complete information relevant to objective evaluation of such ―practices‖.
       Canada has the distinction of being one of the very few countries where
       facilities-based competition has a real long-term potential. Many of the
       countries that have adopted rigorous wholesale regulation to foster resale
       competition have experienced significant problems with it. For example
       the amount of effort required to manage the FCC’s UN-P model in the
       U.S. has not been justified by the level of competition that it yielded and
       the FCC has largely abandoned the approach.




                                                                                      62
IV.       IMPLEMENTATION OF PANEL RECOMMENDATIONS

          (a) Transitional Steps

173.      The mandate of the Panel is primarily to review and submit a report on the
          adequacy of our telecommunications infrastructure to continue to deliver
          national ICT objectives and to consider if and how our policy and
          regulatory model may be improved to better position us in the next ten
          years to achieve these objectives. Rogers notes, however, that the ILECs
          have tried to turn this review into a forum to extract radical and immediate
          regulatory relief and substantial deregulation of their retail local service,
          based primarily on conjecture about technologies and future market
          structure and their loathing of the CRTC’s discipline of their market
          behavior. To that end, both Bell and TELUS have made proposals for
          radical ―transitional‖ measures which Rogers submits are inappropriate,
          unnecessary and counterproductive to the Panel’s mandate. Rogers
          urges the Panel to recognize these proposals for what they really are:
          thinly veiled attempts to protect the ILECs’ local market share and stave
          off competition.

          (a)      BELL’s and TELUS Transitional Proposals:

174.      In its submission, Bell Canada stated that:

                The need for reform of Canada’s telecommunications regulatory
                policies and institutions is urgent. Without change, the competitive
                nature of Canada’s telecommunications sector will be compromised,
                not only in the short term but in the long term as well. … In light of the
                urgent need for reform, … Bell Canada proposes certain transitional
                changes which can be implemented in an expeditious manner, pending
                enactment of a more complete legislative renewal of Canada’s
                telecommunications regulatory regime.63

175.      As Rogers has noted above, there is a glaring lack of evidence to support
          either the alleged need for reform or the urgency for reform.


63
     Bell Canada’s Submission, pars. 49 and 50


                                                                                          63
          Nevertheless, Bell Canada has proposed the following transitional
          changes:64

              (1) Cabinet to issue a Policy Directive under section 8 of the Act to
              the CRTC ordering that:

                 a)      the CRTC must immediately cease and desist from dealing
                         with ―concerns regarding anti-competitive pricing and
                         marketing restrictions‖;

                 b)      these matters be immediately taken over by the Competition
                         Bureau under the Competition Act;

                 c)      the CRTC must immediately begin making decisions only in
                         accordance with Bell’s seven ―guidelines‖;

              (2) Cabinet to make an order pursuant to section 14 of the Act for the
              CRTC to report back to cabinet within 6 months on steps it has taken
              to implement the Cabinet Directive above (that is, divest itself of much
              of its current statutory responsibilities); and

              (3) Cabinet to appoint a competition authority (possibly Competition
              Commissioner or member of the Competition Tribunal) under section
              70(2) of the Act to inquire into and report on the state of competition in
              all telecommunications markets still subject to tariff regulation with a
              view to identifying those markets for which sector-specific economic
              regulation may still be required (it appears but not clear that this
              investigation is independent of, or additional to, the immediate
              assumption by the Bureau of CRTC duties, proposed by Bell with
              respect to ―anti-competitive pricing and market restrictions‖ above).

176.      Similarly, TELUS stated that:

              A challenge for the TPR Panel is to find a way to implement its
              recommendations in a timely fashion. Waiting until a new Act can be
              brought into force may well take years. This is too long to wait and
              could cause irreparable harm to TELUS and other market participants.

              Under the circumstances, the quickest way to implement the
              recommendations would be for the government to issue a direction to
              the CRTC.65


64
     See Bell Canada’s Submission at paragraph 51
65
     TELUS Submission, par. 73 and 74


                                                                                      64
177.      Although TELUS indicated that it has no precise suggestions for what
          transitional steps should be included such cabinet directive, it
          nevertheless proposed that any such directive should order the CRTC to
          ―begin implementing an approach that will allow competition and market
          forces to guide development of the telecommunications industry‖.66 Telus
          would like to:

              1. replace the presumption of regulation with the presumption of no
                 regulation;

              2. change from ex ante to ex post regulation of services and rates;

              3. phase out requirements for ILECs to provide non-essential facilities
                 over 5 years;

              4. eliminate the principles of ―just and reasonable‖ rates and ―unjust
                 discrimination‖ from the Act;

              5. treat ILECs and Cablecos the same for VoIP regulation.


178.      In short, Bell Canada and TELUS want the Panel to recommend ―interim
          deregulation‖.


179.      Rogers submits that these proposals should be rejected and that the
          Panel should not make any recommendations for ―interim‖ or ―transitional‖
          steps that could result in premature and sweeping changes to the current
          framework.


180.      There is no urgency to embark on radical changes to the current
          regulatory framework. None of the evidence and arguments provided by
          the ILECs supports their contention that the current framework requires
          immediate radical changes. To the contrary, the evidence shows that the
          current framework has worked well to produce a competitive



66
     TELUS Submission at par. 74


                                                                                       65
       telecommunications sector for Canada.


181.   The evidence does not show that the ILECs’ market power in the retail
       local market could justify any recommendations for ―interim‖ or
       ―transitional‖ deregulation. Indeed, by asking the Panel to make
       recommendations that presume ―no regulation‖, it is clear that Bell Canada
       and TELUS are asking the Panel to disregard reality and presume that
       they have no market power in the local market.


182.   Recommending ―interim‖ or ―transitional‖ steps pre-judges other
       proceedings that are currently evaluating the state of competition in the
       local market and the appropriate manner of regulation for the ILECs’ local
       service. For example, the CRTC is currently in a proceeding not only to
       establish conditions and criteria for local forbearance but also to determine
       if and under what circumstances interim relief from market safeguards can
       be provided prior to full forbearance. As well, the ILECs have directly or
       indirectly challenged many of the CRTC’s regulatory safeguards in a
       Cabinet appeal. By asking the Panel to recommend the specific
       transitional steps described above, the ILECs are essentially asking the
       Panel to prejudge and bypass these matters by recommending the ILECs’
       position to Cabinet.


183.   Finally, the Panel must focus on the facts it has available to it from the
       submissions with respect to the state of local competition. None of the
       submissions seriously dispute that today the retail local market is far from
       competitive and that the current regulatory framework has been necessary
       to ensure the modest level of competition that we have in the local market
       today. Accordingly, any interim proposal to make radical changes to the
       current framework is harmful to the development and enduring growth of
       competition in this market.




                                                                                    66
       (b)    Implementation – Timing and Priorities

184.   The Panel and all the participants in this Review are in general agreement
       that the current policy and regulatory framework have been successful in
       establishing competition in the telecommunications sector in Canada. The
       fundamental disagreement is with respect to whether or not this policy and
       framework remains relevant and valid in the face of what some perceive
       as new ―disruptive‖ technological developments that they claim the
       existing policy and framework was not designed to accommodate. The
       Panel should in our view exercise caution and not throw out the current
       model in a blind rush to embrace that future.


185.   It is for these reasons that Rogers cautioned the Panel in its original
       submission that in prioritizing its recommendations the Panel must bear in
       mind the following as broad guiding principles.


186.   New technologies promise greater competition in the local market in the
       future, but the reality is that the ILECs undoubtedly have SMP in that
       market today. Our hope in new technologies does not change that fact
       and hope alone does not discipline market power.


187.   In the face of the ILECs SMP, it is even more imperative during this
       transition to a more competitive local market to have market safeguards
       that can act as surrogates for market forces to discipline the natural
       incentive of a firm with SMP to retain market share and frustrate
       competition.


188.   If we do not put in place adequate competitive safeguards in order to
       ensure that the seeds of competition actually germinate and flourish and
       that new entrants who have invested in networks and facilities - actually
       have a chance to make a viable business of their entry into the local



                                                                                   67
       market, only the ILECs will be able to take advantage of the much-
       heralded ―disruptive‖ technologies.


189.   No service providers should be accorded ―national champion‖ status in the
       telecommunications sector; it should be constantly remembered that non-
       traditional service providers have done significantly more to get our
       industry to the point of excellence that it is today.


190.   The singular goal is to establish enduring broadly based competition, not a
       semblance of competition.

191.   Following from these guiding principles, Rogers’ position is that priority
       should be accorded to providing the CRTC with the tools that are
       necessary to complete its job of establishing enduring competition in the
       local market. Many of these tools are already in the existing regulatory
       framework and need only be fine-tuned to reflect issues discussed in this
       Review. This includes ensuring that the ex post competitive safeguards
       that the Commission has used to date (winback, promotions, bundling and
       price floor rules) and which have been responsible for lowering entry
       barriers and sustaining entry in the local market, are not prematurely
       removed while the ILECs continue to have SMP.


192.   Rogers submits that the foregoing approach will produce an environment
       in which the transition to competition in the local market can be achieved
       in a manner that does not jeopardize the anticipated ―disruptive‖
       possibilities of IP and the long-term health of competition in that market.




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