Canada Gazette Part I, 10 March 2012

Telecommunications Act Notice No. DGTP-001-12

Petition of Association des Compagnies de Téléphone du Québec inc. (ACTQ) and Association (OTA) to His Excellency the Governor in Council dated 3 February 2012

Telecom Regulatory Policy CRTC 2011-291 and/or Telecom Decision CRTC 2011-733

RESPONSE OF TELUS COMMUNICATIONS COMPANY

10 April 2012

TABLE OF CONTENTS

1.0 INTRODUCTION...... 1

2.0 THE TELECOMMUNICATIONS POLICY FRAMEWORK...... 3

3.0 THE ACTQ/OTA PETITION ...... 10

3.1. THE REGULATORY FRAMEWORK WAS CUSTOMIZED FOR THE SILECS BY THE CRTC AND IS THEREFORE NOT A COOKIE-CUTTER NOR A ONE SIZE FITS ALL APPROACH ...... 14

3.2. THE APOCALYPTIC SCENARIOS DESCRIBED BY ACTQ/OTA ARE PURE FANTASY AND HIDE THEIR IMPRESSIVE DEVELOPMENT AND EXPANSION OVER THE LAST FEW YEARS ...... 19

4.0 CONCLUSIONS AND RECOMMENDATION ...... 27

ii TELUS Response to ACTQ/OTA Petition

1.0 Introduction

1. On 3 February 2012, Association des Compagnies de Téléphone du Québec inc. (“ACTQ”) and Ontario Telecommunications Association (“OTA”) (collectively, the “ACTQ/OTA”), on behalf of 30 small incumbent local exchange carriers (“SILECs”) filed a Petition seeking an order from the Governor in Council to the Canadian Radio-television and Telecommunications Commission (“CRTC”) that would be anti-competitive, anti-consumer and that would ultimately subvert the long awaited introduction of competition in the local exchange telephone markets of the remaining Canadian monopolies.

2. TELUS‟ interest in this Petition is twofold. Firstly, as an advocate for facilities- based competition and as the interconnector company on behalf of Cogeco, TELUS has been trying to help provide customers served by eight SILECs in Quebec1 a competitive alternative for the last four years so that these residents can benefit from the same advantages as the other Canadians. Secondly, TELUS strongly believes that granting the ACTQ/OTA Petition would result in a major departure from fulfilling the Canadian telecommunications policy objectives.

3. ACTQ/OTA‟s Petition is based on misleading and incomplete factual information aimed at painting a series of unfounded apocalyptic outcomes and speculative scenarios. ACTQ/OTA‟s Petition is nothing more than a self-serving attempt to protect its member SILEC companies, not their customers, from competition while the majority of these same SILECs have been operating as competitors themselves for some time in other telephone companies‟ incumbent geographic markets, including TELUS‟. Granting ACTQ/OTA‟s Petition would have the ultimate effect of isolating customers living in these areas and denying them access to a choice of local exchange service provider and all of the well-known benefits that flow from competition. This unfortunate result would clearly be a

1 Guèvremont, Sogetel, CoopTel, Milot, Upton, Lambton, St-Victor and St-Ephrem. 1

major departure from the fundamental objectives of the Telecommunications Act (the “Act”) as well as successive Government policy statements favouring the evolution of Canadian telecommunications markets towards facilities-based competition. This evolution to competition for local telephone services has taken place in every geographic region in Canada except those where the members of the ACTQ/OTA are the incumbents.

4. The threshold question for the Governor in Council in considering this Petition is whether ACTQ/OTA has made its case that the CRTC has stepped outside the telecommunications policy framework set out in the Act and the Government‟s own Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives2 (the “Policy Direction”) to rely on market forces to the maximum extent possible as a means of achieving the telecommunications policy objectives set out in section 7 of the Act and when relying on regulation, use measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary to meet the policy objectives.

5. ACTQ/OTA argues that “the Commission‟s refusal in Decision 2011-733 to review and vary Policy 2011-291 has undermined the Canadian telecommunications policy objectives in several significant ways”.

6. In this response, TELUS demonstrates that such a decision by the Governor in Council would, in fact, represent a clear departure from the policy framework. It would strip the Commission of a whole range of powers granted to it by Parliament and that it needs to fulfill its mandate. Granting the Petition would unnecessarily overprotect small carriers to the detriment facilities- based competition and hence to the detriment of consumers living in these areas.

7. In section 2 of this response, TELUS outlines the telecommunications policy framework set out by Parliament in the Telecommunications Act and the Policy Direction. In section 3, TELUS addresses ACTQ/OTA‟s unfounded complaints

2 Canada Gazette, SOR/2006-355, 14 December 2006. 2

and requests and demonstrates that the Commission crafted a sensitive and customized approach to regulating the SILECs that is the result of many years of fact gathering and analyses. TELUS also demonstrates that the apocalyptic scenarios described by ACTQ/OTA in its Petition are pure fantasy and hide the SILECs‟ impressive development and expansion over the last few years.

8. For all of these reasons, and as more fully explained below, TELUS urges the Governor in Council to reject the Petition in its entirety.

2.0 The Telecommunications Policy Framework

9. In order to more fully understand TELUS‟ fundamental objection to the ACTQ/OTA Petition, it is helpful to provide a brief overview of the telecommunications policy framework established by Parliament in the Act and some of the critical judicial decisions and CRTC decisions that have shaped the policy framework.

10. Prior to the introduction of competition, the incumbent telephone companies were regulated as public utilities. Their rates and services were regulated according to three fundamental principles.

Rates were to be just and reasonable. Rates and services were not to be unjustly discriminatory or unreasonably or unduly preferential. Carriers had an obligation to serve all customers requesting service, limited only by statutory provisions or the terms of tariffs approved by the regulatory authority. 11. The concept of just and reasonable rates was well understood. Rates had to be just and reasonable for both the company offering the service and the customers receiving the service. To be just and reasonable, rates had to be high enough to allow the company a reasonable opportunity to recover the costs of providing its

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services, including its cost of capital, and at the same time low enough to ensure that customers did not pay more than the company‟s cost to provide the services.3

12. The relationship between a rate-regulated company and the regulator was straightforward. The company invested its shareholders‟ capital in facilities and incurred other expenses necessary to provide service under the terms and conditions required by the regulator, with the understanding that the company would be provided with a reasonable opportunity to recover its costs. This relationship, often referred to as the regulatory bargain, is established at common law, is recognized in many regulated industries and its principles are embedded in the Telecommunications Act through the requirement that regulated rates be just and reasonable. The only new provision dealing with just and reasonable rates included in the Telecommunications Act permits the CRTC to use any method or technique that it considers appropriate to determine just and reasonable rates.4 Of course, this does not change the fundamental obligation to ensure that rates are sufficient to allow a reasonable opportunity to recover the company‟s costs of providing rate-regulated services.

13. In 1979, the CRTC issued the first in a series of decisions that gradually introduced competition into all telecommunications markets in Canada.5 This decision, which was affirmed by the Governor in Council6, permitted CNCP Telecommunications (now MTS Allstream) to interconnect its network with the switched local distribution network of for the purpose of providing

3 See, for example, Edmonton (City) v. Northwestern Utilities Ltd., (1961), 28 D.L.R. 125 (S.C.C.) at page 132-133, where Locke J. observes “The right of the consumers to require the respondent to supply them with gas, conferred by statute, would, in my opinion, even in the absence of any statutory provision, impose upon them an obligation at common law to pay for the services on the basis of a quantum meruit. In such circumstances, I consider that the position of the utility would be similar to that of a common carrier upon whom is imposed, as a matter of law, the duty of transporting goods tendered to him for carriage at fair and reasonable rates (Great Western R. Co. v. Sutton (1869), L.R. 4 H.L. 226 at p. 237).”[emphasis added] 4 Section 27(5) of the Telecommunications Act. 5 CNCP Telecommunications: Interconnection with Bell Canada, Telecom Decision CRTC 79-11, 17 May 1979 (“Decision 79-11”). 6 On or about 1 August 1979, the Governor in Council rejected a petition to rescind Decision 79-11: see Surtees, Lawrence. Wire Wars: The Canadian Fight for Competition in Telecommunications. Toronto: Prentice-Hall Canada, 1994, page 95. 4

public and private data services and private voice services. Three fundamental principles were established by the Commission in that decision.

1) Competitors could gain access to essential facilities so that they could compete against Bell Canada in the provision of services the CRTC chose to open to competition. The Commission, relying on the advice of the Director of Investigation and Research, Combines Investigation Act7, turned to the relevant legislation, considered in conjunction with economic and competition law principles, in order to compel Bell Canada to provide access to its local network essential facility.8 2) Just and reasonable rates to be charged to competitors for interconnection with Bell Canada‟s essential facility local network (as it was viewed at the time) should be based on the costs of providing those services plus a mark-up to recover overhead costs. 3) Bell Canada would not be compensated for the loss of business to a competitor, but, in order to maintain the system of subsidies to residential and rural customers, any lost revenue that would have been used by the rate-regulated company for subsidies would be recovered from competitors through the interconnection charge.

14. While the details of the application of these principles have changed as technological advances have made competition in all telecommunications markets possible, the principles themselves remained intact. Precisely these same principles were adopted and applied in the long distance competition decision in 1992.9 Indeed, in its application, Unitel (now MTS Allstream) proposed the adoption of precisely these same principles.

7 Decision 79-11, page 124. 8 The Commission ordered Bell Canada to provide access to its switched local distribution network to CNCP. CNCP would continue to use its long haul transmission facilities to interconnect with the Bell Canada‟s switched local distribution network. 9 Competition in the Provision of Public Long Distance Voice Telephone Services and Relate Resale and Sharing Issues, Telecom Decision CRTC 92-12, 12 June 1992 (“Decision 92-12”). 5

15. It was into this environment and public policy framework, developed by the CRTC under the terms of the Railway Act, that Parliament enacted the Telecommunications Act in 1993. In enacting the Telecommunications Act, Parliament did not change any of the fundamental common law principles of just and reasonable rates or non-discrimination that had been embodied in the Railway Act or any of the carriers‟ obligations to serve. Nor did Parliament overturn or change the way in which the CRTC had been gradually introducing competition into the telecommunications sector. What the Telecommunications Act did was to reaffirm the policy direction the CRTC had taken and to provide legislation that facilitated the continuation of those policies. Thus, in 1995, when the CRTC embarked on the complex task of introducing full competition for local telecommunications services, having already permitted resale competition in 1984,10 it turned to the fundamental principles that had guided its competition policy to that point and that Parliament had reaffirmed in the Telecommunications Act. In Decision 97-8, the Commission specifically adopted a policy permitting facilities-based competition and re-affirmed the essential facilities test to determine which services and facilities of the incumbent local exchange companies (“ILECs”) would be made available to competitors at cost-based rates. The Commission also provided that more services, in addition to essential facilities, be made available to competitors to ease entry. Since that time, the Commission has added additional services to the list of services that the ILECs must make available to competitors at cost-based rates. All of these actions are within the policy framework established by the Telecommunications Act.

16. In the Telecommunications Act, Parliament enacted a public policy framework that, for the first time in legislation, set out telecommunications public policy objectives and gave the Commission some new substantive powers to assist in achieving those objectives. Thus, there are two types of provisions in the legislative framework, general policy directions and substantive legal powers, that

10 Enhanced Services, Telecom Decision CRTC 84-18, 12 July 1984. 6

were enacted to permit the CRTC to continue to move down the road to competition.

17. The general policy provisions are set out in section 7 of the Telecommunications Act. They do not give the CRTC any new powers.11 They simply provide general guidance on the objectives to be pursued through application of the substantive legal provisions of the legislation. The general policy provisions are, for the most part, a reflection of the policy objectives for telecommunications that had been accepted and pursued by the CRTC and various provincial regulators for many years.

18. The objectives for telecommunications policy are set out in section 7 of the Telecommunication Act (or the “Act”) as follows:

7. It is hereby affirmed that telecommunications performs an essential role in the maintenance of Canada's identity and sovereignty and that the Canadian telecommunications policy has as its objectives

(a) to facilitate the orderly development throughout Canada of a telecommunications system that serves to safeguard, enrich and strengthen the social and economic fabric of Canada and its regions;

(b) to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada;

(c) to enhance the efficiency and competitiveness, at the national and international levels, of Canadian telecommunications;

(d) to promote the ownership and control of Canadian carriers by Canadians;

11 See Barrie Public Utilities v. Canadian Assn., 2001 FCA 236, at paragraph 53, where Rothstein J. observed “It is not for the Court to approve or disapprove of policy objectives expressed in legislation. They must be accepted as being the objectives Parliament had in mind in enacting the Telecommunications Act and Broadcasting Act. However, the CRTC does not have plenary power to implement these policies. The CRTC's power is established under the Acts (and other relevant legislation) and the policy objectives of those Acts may be implemented by the CRTC only in accordance with the powers and duties conferred on it under those Acts. The policies themselves do not confer jurisdiction on the CRTC and they cannot be used as a basis for exercising a power that the CRTC has not been granted by the power conferring provisions of the statutes.” 7

(e) to promote the use of Canadian transmission facilities for telecommunications within Canada and between Canada and points outside Canada;

(f) to foster increased reliance on market forces for the provision of telecommunications services and to ensure that regulation, where required, is efficient and effective;

(g) to stimulate research and development in Canada in the field of telecommunications and to encourage innovation in the provision of telecommunications services;

(h) to respond to the economic and social requirements of users of telecommunications services; and

(i) to contribute to the protection of the privacy of persons.

19. The substantive legal powers in the Act are either reaffirmations of existing policy, such as the requirement that rates be just and reasonable, or are direct expressions of specific new policies adopted by Parliament or policies that existed at the time and were reaffirmed by Parliament. Thus, the addition of a specific reference to discrimination in one‟s own favour in section 27(2) reaffirms the Challenge Communication decision12 and the CRTC‟s findings with respect to the adoption of the essential facilities doctrine in Decision 79-11.13 The addition of forbearance powers in section 34 provides the flexibility needed to achieve greater reliance on market forces and less reliance on regulation.

20. The Telecommunications Act, enacted by Parliament in 1993 and subsequently amended in 1998 by the addition of new provisions, established the policy framework for telecommunications in Canada. The Act did not seek to overturn the direction telecommunications policy had taken prior to its enactment, nor did it seek to overturn the common law requirement that regulated rates must permit each regulated company a reasonable opportunity to recover its costs of providing

12 Challenge Communications Ltd. v. Bell Canada, Telecom Decision CRTC 77-16 (“Decision 77-16”). Decision 77-16 was subsequently affirmed by the Federal Court of Appeal: Challenge Communications Ltd. v. Bell Canada, [1979] 1 F.C. 857. 13 CNCP Telecommunication, Interconnection with Bell Canada, Telecom Decision CRTC 79-11, 17 May 1979, pages 85-86, 108-109. 8

those services, including the cost of the capital that they each employ. Instead, the Act reaffirmed the direction the CRTC had already taken and the rate-setting principles embodied in the just and reasonable rates clause. It did so by establishing general policy guidelines consistent with past practices and by providing the Commission with some old and some new substantive powers to facilitate the pursuit of the general policy objectives.

21. The Commission has acted within this policy framework in rolling out competition in Canada and ensuring the orderly development of the telecommunications industry, just as it is instructed to do in the Telecommunications Act. This is a delicate balancing act. The Commission must set rates that are just and reasonable for end-user customers and also just and reasonable for the services competitors require in order to compete. It must also carefully consider which parts of the telephone companies‟ networks it will require the telephone companies to provide to competitors in order to permit the reliance on market forces in both the market for services offered to end-user customers and the market for services and facilities required by competitors to compete. The CRTC is fully aware of the multiple factors it must consider when deciding how best to achieve the telecommunications policy objectives through application of the specific statutory powers Parliament has granted.

22. In 2006, the Government issued Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives14 (the “Policy Direction”).

23. The Policy Direction stated that in exercising its powers and performing its duties under the Telecommunications Act, the Commission shall implement the Canadian telecommunications policy objectives set out in section 7 of the Act in accordance with the following :

(a) the Commission should (i) rely on market forces to the maximum extent feasible as the means of achieving the telecommunications policy objectives, and

14 Canada Gazette, SOR/2006-355, 14 December 2006. 9

(ii) when relying on regulation, use measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary to meet the policy objectives; [emphasis added]

(b) the Commission, when relying on regulation, should use measures that satisfy the following criteria, namely, those that (i) specify the telecommunications policy objective that is advanced by those measures and demonstrate their compliance with this Order, (ii) if they are of an economic nature, neither deter economically efficient competitive entry into the market nor promote economically inefficient entry, [emphasis added] (iii) if they are not of an economic nature, to the greatest extent possible, are implemented in a symmetrical and competitively neutral manner, and (iv) if they relate to network interconnection arrangements or regimes for access to networks, buildings, in-building wiring or support structures, ensure the technological and competitive neutrality of those arrangements or regimes, to the greatest extent possible, to enable competition from new technologies and not to artificially favour either Canadian carriers or resellers; and

3.0 The ACTQ/OTA Petition

24. ACTQ/OTA‟s Petition requests that the Governor in Council vary certain portions of Obligation to serve and other matters, Telecom Regulatory Policy CRTC 2011-291 (“Policy 2011-291”) and/or ACTQ/OTA/CityWest – Application to review and vary Telecom Regulatory Policy CRTC 2011-291 regarding determinations affecting small incumbent local exchange carriers, Telecom Decision CRTC 2011-733 (“Decision 2011-733”), together “the Decisions”.

25. In this paragraph, TELUS notes the specific relief requested by the ACTQ/OTA and then, immediately below each head of relief, specifies the fundamental problems with the request. Specifically, ACTQ/OTA requests that the Governor in Council vary the Decisions and order the Commission to:

(i) revert to the subsidy levels and mechanisms for calculating the subsidies paid to SILECs that were in place prior to the Decisions;

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- However, if this request were to be implemented, it would be in contrast to the regulatory framework applicable to the other Canadian ILECs because it would allow SILECs to receive a fixed annual local subsidy from the National Contribution Fund (“NCF”) regardless of the number of residential customers they actually serve after local competition is implemented.

(ii) oblige new entrant competitors in SILEC territories to pay the start-up costs associated with the introduction of local competition;

- This request ignores that, in contrast to the local competition framework applicable to the other Canadian ILECs, in the Decisions the Commission has already directed new entrants (competitive local exchange carriers or “CLECs”), to reimburse to SILECs with less than 3,000 serving telephone lines their start-up costs associated with the introduction of local competition in their territories. ACTQ/OTA„s request is that this special measure be extended to all SILECs.

(iii) fund the ongoing costs of implementation of local competition from the central fund the CRTC has established for subsidy payments.15

- In contrast to the local competition framework applicable to the other Canadian ILECs, in the Decisions the Commission has already approved that the ongoing costs of implementing local competition for all of the SILECs be funded by the NCF, up to a maximum of $2 per month per telephone line. ACTQ/OTA‟s request is that there should be no cap so that 100% of these ongoing costs would be funded by the NCF.

26. ACTQ/OTA‟s principal complaints are that:

15 ACTQ/OTA Petition, para. 3 and 50. 11

o the Commission “has misunderstood how feasible it will be to rely on market forces to ensure that the telecom policy objectives are met”16;

o the “CRTC‟s cookie-cutter approach disregards local operating conditions, fails to account uniquely high cost structures and is certain to impose crippling financial consequences on small, rural-based companies facing competition17;

o the “one size fits all regulatory approach is certain to undermine rather than promote attainment of the Canadian telecommunications policy objectives set out in section 7 of the Act”18;

o the “CRTC abandoned its historically sensitive approach to the small incumbents‟ realities of providing high-cost, local telephone service to rural Canadians”19;

o the “so-called special considerations [will not] in any way mitigate the significant financial harm brought on by the CRTC Decisions”20;

o “it will undermine the ability of these local companies to continue to provide high quality, cutting-edge services to all customers in their service area”21; and

o it “will stymie the Government‟s efforts to eliminate the digital divide between urban and rural Canadians”22.

27. TELUS submits that none of these complaints are founded and that on the contrary, the Commission has been carrying out its statutory mandate by carefully considering the interests and incentives that must be balanced, all within the

16 ACTQ/OTA Petition, para.5. 17 ACTQ/OTA Petition, para.5. 18 ACTQ/OTA Petition, para.5. 19 ACTQ/OTA Petition, para.12. 20 ACTQ/OTA Petition, para.16. 21 ACTQ/OTA Petition, para.5. 22 ACTQ/OTA Petition, para.5. 12

boundaries of the Act and the Policy Direction. The Commission has been diligent in assessing the differing circumstances in the SILEC territories and, as more fully detailed in later sections, deviated from the framework applicable to the other Canadian ILECs and approved regulatory measures specifically tailored to the SILECs.

28. The Commission is fully aware of the multiple factors it must consider when deciding how best to achieve the telecommunications policy objectives through application of the specific statutory powers Parliament has granted. ACTQ/OTA suggests that the Commission, in issuing the Decisions, has somehow stepped outside the boundaries of the telecommunications policy framework established by the Act.

29. In TELUS‟ view, ACTQ/OTA has not demonstrated that the Commission has stepped outside these boundaries. Indeed, in TELUS‟ view, the Commission‟s policy determinations found in the Decisions, and which ACTQ/OTA seeks to have overturned, are fully within the telecommunications policy framework.

30. In contrast, granting ACTQ/OTA‟s Petition would clearly be inconsistent with Parliament‟s policy objectives as expressed in the Act as it would in effect preclude facilities-based competition and increased reliance on market forces, which would also be contrary to sections a) ii) and b) ii) of the Policy Direction.

31. In fact, as it stands now, the regulatory framework crafted specifically for the SILECs has already deterred economically efficient competitive entry in the markets of four (4) SILECs in Quebec23, as evidenced by Cogeco‟s decision not to enter these territories due to the high costs it would have to reimburse these SILECs in order to compete24.

23 Upton, Lambton, St-Victor and St-Ephrem. 24 See http://www.crtc.gc.ca/public/partvii/2008/8663/u2_200813784/1668973.pdf , http://www.crtc.gc.ca/public/partvii/2008/8663/l2_200813742/1668712.pdf , http://www.crtc.gc.ca/public/partvii/2008/8663/s6_200813726/1669012.pdf , and http://www.crtc.gc.ca/public/partvii/2008/8663/s7_200813718/1668939.pdf 13

32. TELUS submits that there is simply no evidence that the Commission has not fully considered the interests of the SILECs when it issued the Decisions. To the contrary, TELUS is of the view that the current regulatory framework applicable to the SILECs is already depriving customers residing in some of the SILECs‟ territories of the benefits of local competition and that granting ACTQ/OTA‟s Petition will only exacerbate this unwarranted outcome.

33. In TELUS‟ view, ACTQ/OTA employs a fear tactic and its Petition is filled with misleading information, gross exaggerations and unsupported apocalyptic scenarios to support its unfounded complaints and to seek variance of Decisions that are already on the edge of jeopardizing the fulfillment of the Act and Policy Direction to the detriment of many Canadian citizens.

3.1. The Regulatory Framework Was Customized for the SILECs by the CRTC and Is Therefore Not a Cookie-Cutter nor a One Size Fits All Approach

34. ACTQ/OTA argues that the Commission “intends to impose in rural Canada the same competitive model that was developed to encourage competition for large urban incumbent service providers”25, qualifying it as a “cookie-cutter approach to competition”26 and as a “one size fits all regulatory approach”27.

35. TELUS submits that these statements are grossly misleading as they do not reflect the fact that the SILECs‟ regulatory framework and more specifically the Commission‟s rules to implement local competition in the territories of the SILECs were adapted and crafted specifically for them, as described below.

36. To support this fundamental clarification, it is important to understand when the framework to introduce local competition in the territories of the SILECs was first established as well as how and why it has evolved over time.

25 ACTQ/OTA Petition, executive summary, para.4. 26 ACTQ/OTA Petition, executive summary, para.5. 27 ACTQ/OTA Petition, para.5. 14

37. The Commission first allowed local competition to be introduced in the territories of the SILECs in Revised regulatory framework for the small incumbent local exchange carriers, Telecom Decision CRTC 2006-14 (“Decision 2006-14”). In that decision, the Commission had already approved special considerations for the SILECs:

o Instead of requiring all SILECs to file competition-related tariffs, it determined that a SILEC would only be required to file them, along with an implementation plan, if a bona fide request was received from a competitor to enter its territory28;

o Concerning local number portability (“LNP”), the Commission only directed the SILECs to implement porting-out of numbers and left it open to each SILEC to also implement porting-in of numbers, recognizing the significant cost savings that this flexibility could represent29; and,

o In recognition of the relative small size of the SILECs, the Commission modified its usual requirement that each ILEC establish a dedicated carrier service group (“CSG”) to deal with competitors in a confidential manner and allowed alternative arrangements for the SILECs such as the use of a third party, a joint CSG serving a number of SILECs, or the establishment of one CSG per province30.

38. Based on the rules established in Decision 2006-14, a total of 15 SILECs received bona fide requests from competitors between 2006 and 2008.

39. Local competition was successfully introduced in the territories of three SILECs, namely TBayTel, People‟s Tel and NorthernTel, as per Decision 2006-14.31 Notably, in the case of People‟s Tel, the bona fide request came from Execulink, a

28 Decision 2006-14, para.159-161. 29 Decision 2006-14, para. 164-166. 30 Decision 2006-14, para. 167-168. 31 The Commission approved the implementation plans filed by NorthernTel, Limited Partnership, People's Tel Limited Partnership, and TBayTel in Telecom Decisions 2007-93, 2008-93, and 2007-78, respectively. 15

SILEC that is now a signee to the Petition, and which also has CLEC operations. TBayTel, People‟s Tel and NorthernTel (as well as KMTS and Amtelecom) are not signees of the Petition.

40. Concerning the other SILECs that had filed implementation plans pursuant to Decision 2006-1432, in 2009 the Commission staff, in light of the information on the record filed by the SILECs, competitors and other parties, decided to withhold approval of their implementation plans until a further process was established to collect additional information because the Commission noted that there were “important policy issues raised by the parties in their submissions” on the introduction of local competition in these territories33.

41. This further process turned out to be Proceeding to review access to basic telecommunications services and other matters, Telecom notice of consultation CRTC 2010-43 (“Consultation 2010-43”), which eventually led to the issuance of Obligation to serve and other matters, Telecom Regulatory Policy CRTC 2011- 291 (“Policy 2011-291”), the main decision that is the subject of ACTQ/OTA‟s Petition.

42. In Consultation 2010-43, the Commission reviewed the entire framework for local competition in the SILECs‟ territories and called for comments on the following issues34:

o What are the major costs associated with implementing local competition in small ILEC markets? Indicate which service provider(s) should incur the costs of implementing local competition in small ILEC markets and, if appropriate, how those costs could be reasonably recovered. Provide, where available, cost estimates for implementing local competition in each small ILEC territory.

32 Tuckersmith, Mornington, Bruce Telecom, KMTS, Upton, CoopTel, Milot, Sogetel, Guèvremont, Lambton, St-Ephrem and St-Victor. 33 Commission staff letter dated 26 August 2009 - http://www.crtc.gc.ca/eng/archive/2009/lt090826.htm. 34 Consultation 2010-43, appendix 4, para. 17-21. 16

o Should local competition continue to be introduced in small ILEC markets and, if so, should there be criteria for approval? Assuming small ILECs continue to be subject to the obligation to serve, will local competition jeopardize a small ILEC's ability to fulfil its obligation to serve throughout its incumbent serving territory?

o If local competition continues to be introduced in small ILEC markets, should the requirement that small ILECs implement local number portability (LNP) be maintained?

o If local competition continues to be permitted in certain small ILEC markets, with or without LNP, should the requirement that small ILECs implement WNP be maintained? Should WNP be required if local competition is not permitted in certain small ILEC markets and, if so, should it be restricted to supporting -to-wireless number portability?

o Would it be appropriate to permit local competition in small ILEC markets without a portable subsidy regime and without the requirement to implement LNP/WNP?

43. After gathering detailed evidence from all parties, including the SILECs themselves, and following a thorough proceeding that involved written comments, an interrogatories/responses process as well as an oral hearing, the Commission determined that additional modifications were warranted to the local competition implementation framework for the SILECs compared to that applied in the rest of the country, for example :

o While aligning the subsidy distribution with the mechanism in place for the other ILECs, that is moving to a per-line subsidy mechanism, the Commission granted SILECs facing competition a 3-year transition period during which they will continue to receive 100% of their per-line subsidy on all lines they serve as well as 50% of the per-line subsidy on lines lost

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to the new entrants, which measure was not available to any other ILEC in Canada after local competition was introduced in their territories;

o The Commission directed that the new entrants reimburse the start-up costs incurred by the smaller SILECs, those with less than 3,000 local lines, to implement local competition and number portability in their territories, while no such recovery was available to any other ILEC in Canada when local competition and number portability was introduced in their territories; and

o The Commission allowed all SILECs to recover their ongoing local competition implementation costs through additional contributions from the National Contribution Fund, up to a maximum of $2 per line per month; while no such contribution was available to any other ILEC in Canada when local competition and number portability was introduced in their territories.

44. These additional special considerations35 were approved in Policy 2011-291 and they are the very same determinations that ACTQ/OTA asks the Governor in Council to vary and qualifies as a cookie-cutter and one size fits all approach.

45. This brief historical background is important for a number of reasons :

o First, it shows that even when it first allowed the introduction of local competition in the territories of the SILECs in 2006, the Commission had already put in place special measures to take into account the SILECs well-known operating realities;

o Second, local competition was introduced in the territories of three SILECs as per this initial set of rules. Notably in one case, People‟s Tel, the new entrant competitor was Execulink, one of the Ontario SILECs that signed this Petition, who operates as a CLEC in People‟s Tel‟s territory

35 Additional to those already approved in Decision 2006-14. 18

and was not required to pay any of People‟s Tel‟s costs to implement local competition);

o Third, the Commission agreed to review the rules for implementing local competition during a thorough proceeding and established, for the second time, additional special considerations available to the SILECs only; and

o Finally, in light of the above, it is evident that the Commission did not apply a one size fits all or a cookie-cutter regulatory approach to local competition implementation in the territories of the SILECs. Rather, TELUS submits that the revised rules, as established in Policy 2011-291 and confirmed in Decision 2011-733 are in fact a second adjustment and customization of the local competition rules generally applied to the large ILECs and is the conclusion of almost six years of information gathering, debates and adjustments made since the Commission first started to evaluate how to implement local competition in the territories of the SILECs in the proceeding that led to Decision 2006-14.

46. Despite all of these accommodations and proceedings aimed specifically at developing a unique and responsive regime for the SILECs over the last 6 years, consumers in these territories are still, as of today, being denied the benefits of competition as the SILECs attempt to preserve their monopolies.

3.2. The Apocalyptic Scenarios Described by ACTQ/OTA are Pure Fantasy and Hide Their Impressive Development and Expansion Over the Last Few Years

47. ACTQ/OTA attempts to paint a picture of apocalyptic scenarios while ignoring the SILECs‟ impressive development and expansion.

Competitors will “engage in anti-competitive practices like unreasonably low pricing”36

36 ACTQ/OTA Petition, para.19. 19

48. By definition, the introduction of competition in a market necessarily means that the former monopoly will incur market share losses commensurate with its willingness to compete and innovate. Competition allows customers to choose the best services and the best prices on the market. It is certainly expected that consumers will have lower priced options once competition has been permitted in the the ACTQ/OTA territories, precisely the same outcome as experienced in every other region in Canada where local telephone competition has been permitted.

49. However, to suggest, prior to the introduction of such competition, that the new entrant will inevitably engage in anti-competitive practices like unreasonably low pricing, is not only inappropriate speculation but clearly a poor accusation absent any supporting facts. It also flies in the face of over 30 years of objective experience with competition in telecommunications services in Canada. This is because entrants into new areas will be required to price in a manner that allows them to recover their substantial costs incurred with such entry. TELUS submits that such comments regarding unreasonably low pricing must only be ignored by the Governor in Council.

“[T]he likely result of these Decisions is the fostering of a new digital divide between different regions in Canada where none exist today”37

50. Over the past 15 years, local competition has been implemented by the Commission in every part of Canada, urban and rural, except in the territories of the ACTQ/OTA member companies. Local competition was also implemented in other SILEC territories38 and none of the apocalyptic scenarios presented by ACTQ/OTA in its Petition has materialized.

51. Contrary to ACTQ/OTA‟s misleading statement, TELUS submits that there exist today a divide between regions in Canada: the 130,000 or so customers in the ACTQ/OTA member companies regions are the only Canadians with no choice of

37 ACTQ/OTA Petition, para.46. 38 TBayTel, NortherTel and People‟s Tel. 20

local telephone service provider. These customers are held hostage by a group of companies that have been resisting, for over4 years, to provide their customers with that choice, hence depriving them from the benefits available to their fellow Canadians.

“[V]irtually all of the ACTQ/OTA companies facing competition from large cable companies will be entering bankruptcy, or a situation very close to bankruptcy, within 5 years”39

52. To support this fatal conclusion, ACTQ/OTA provides at paragraph 17 of its Petition forecasts of market share losses, operating revenue losses and net income losses, all of which are averaged across their 30 member companies.

53. As is the case throughout its Petition, ACTQ/OTA considers its member companies all the same, that is, as a homogenous group of companies with similar realities, similar challenges, similar limits and similar lack of resources.

54. TELUS submits that this typical way for ACTQ/OTA to represent “reality” is nothing more than dishonest misinformation. It is simply aimed at hiding the major differences amongst their member companies which, when put to light, help understand how the Commission carefully took into account the particularities of the SILECs in customizing for them the regulatory framework.

55. While the ACTQ/OTA recognizes that the SILECs vary in size40, it is silent on the impressive evolution most of these companies have shown over the last ten years and picture the 30 SILECs they represent as a homogenous group for the purpose of their arguments.

56. The ACTQ/OTA argues that its member companies are small, financially vulnerable and confined in their small rural communities with no viable option in the face of local competition.

39 ACTQ/OTA Petition para.37. 40 Petition, para.7. 21

57. TELUS submits that the reality is quite different. Over the last ten years, there have been significant changes in the SILECs‟ business. The majority of SILECs have evolved and grown in an impressive manner. Many SILECs now operate CLEC activities outside of their incumbent territories. Both within and outside their incumbent territories, a large number of SILECs have also added new services to their service offerings, including retail broadband, wireless and broadcast distribution. Some SILECs have built Fibre-to-the-Home (“FTTH”) and Fibre-to-the-Business (“FTTB”) facilities in order to provide these enhanced telecommunications services. These investments require significant capital are not undertaken by companies that are “financially vulnerable.”

58. In Quebec between 2005 and 2009, Sogetel inc. acquired many other SILECs including La Compagnie de Téléphone de Saint-Liboire-de-Bagot (2005), Téléphone Milot inc. (2005), La Corporation de Téléphone de la Baie (2007), Compagnie de Téléphone Nantes inc. (2008) and in 2009 Groupe Télécom Warwick (including La Compagnie de Téléphone de Warwick inc. and its affiliates). These acquisitions allowed Sogetel inc. to add 10 new exchanges to its incumbent territory and approximately 12,000 local telephone lines, for a total line count of 31,500 in its expanded incumbent territory. At the same time, Sogetel and its affiliates have expanded to offer local exchange services as a CLEC in 79 exchanges in the territories of Bell Canada, Bell Aliant, TELUS and Telebec.

59. At a press conference held in December 201141, Sogetel announced the inauguration of a brand new $1.2M building for its mobility operations, noting that it currently serves 6,000 mobility customers with 15 cellular sites and announced that 5 more sites will be added in the near future. Sogetel also noted that between 2010 and 2013, the Sogetel group will have invested a total of $46M.

41 http://www.cyberpresse.ca/le-nouvelliste/vie-regionale/centre-du-quebec/201112/21/01-4479865- nouvelle-place-daffaires-pour-sogetel-mobilite-a- nicolet.php?utm_categorieinterne=trafficdrivers&utm_contenuinterne=cyberpresse_lire_aussi_448917 1_article_POS5. 22

60. Sogetel is not an exception. Appendix A to this intervention is quite revealing and shows who the ACTQ/OTA member companies really are. TELUS submits that these facts show very clearly that the majority of SILECs have grown their businesses and service offerings in an impressive manner over the last number of years, both within and outside their incumbent territories.

61. Notably, 18 out of the 30 SILECs represented by ACTQ/OTA now have competitive local exchange carrier (“CLEC”) operations outside their territories, some via affiliated companies. TELUS notes that three of them compete in TELUS‟ incumbent territory, namely CityWest in British Columbia, as well as CoopTel and Sogetel in Quebec.

62. The most impressive CLEC expansions are the following:

o Execulink : 54 exchanges;

o Wightman : 40 exchanges;

o CoopTel : 27 exchanges (including Montreal and Sherbrooke);

o Sogetel/Milot: 33 exchanges

o Téléphone Guèvremont: 79 exchanges (including Montreal, Laval, Longueuil, Mirabel and Boucherville)

63. Also, 18 of these 30 SILECs, even some of the smaller ones, now offer TV services and 11 SILECs offer mobility/cellular services.

64. These facts clearly show that vast majority of SILECs have kept the pace with industry evolution and have become integrated telecommunications carriers. While delaying competitive entry in their territories, SILECs have grown their service offerings making them fierce potential competitors in their own markets. Most SILECs have also heavily invested and diversified in other geographic markets, ensuring them a broader source of income and strengthening their position in the market. 23

65. These facts are on the records of the proceedings that led to the Decisions. Therefore, the Commission was well aware of these realities when it customized the regulatory framework for the SILECs.

66. Simply put, in deciding how best to achieve the telecommunications policy objectives, the Commission carefully considered the true identity of the SILECs.

67. However, ACTQ/OTA continues to use inappropriate overall averages to picture the worst case scenarios on their member companies. They use the same average figures for Sogetel and Roxborough and plead that they are each as vulnerable.

68. This is absolutely inappropriate and far from the reality.

69. The Commission knows these differences amongst the SILECs and rightfully adapted the regulatory framework in light of today‟s realities.

70. TELUS submits that applying arguments based on lack of economies of scale and limited potential for growth and productivity are no longer compelling for the vast majority of SILECs.

71. It is becoming more and more apparent that many SILECs have followed the industry‟s broad evolution and have been able to grow, both in terms of service offerings and market size, and acquire the knowledge and expertise to operate in today‟s competitive environment. These SILECs have become fully-integrated and diversified telecommunications service providers.

72. TELUS notes that in Order in Council, C.P. 2001-220942, dated 29 November 2011, the Governor in Council refused to modify Changes to the contribution regime, Telecom Decision CRTC 2000-745 (“Decision 2000-745”), following a Petition filed by four of the largest SILECs at the time, namely Sogetel, Bruce Telecom, Prince Rupert City Tel (now CityWest) and Amtelecom, as endorsed by their associations representing all SILECs in Canada at the time43. In that

42 http://www.ic.gc.ca/eic/site/smt-gst.nsf/vwapj/cp2001-2209.pdf/$FILE/cp2001-2209.pdf. 43 See : http://crtc.gc.ca/PartVII/eng/2001/8675/A2-01.htm. 24

Petition, these SILECs complained that because the Commission moved to a national contribution regime funded by all telecommunications providers with more than $10 million of annual contribution-eligible revenues, and because they were slightly above this minimum revenue threshold and hence were required to pay a tax on their revenues to finance the newly-created national contribution fund, Decision 2000-745 would somehow undermine their ability to maintain the affordability of local telephone services in Canada’s more rural and remote areas and to introduce new, high-speed services in these regions of the country. Despite the Governor in Council‟s refusal to modify Decision 2000-745 none of the negative outcomes put forward by these SILECs in support of their Petition has materialized, as evidenced, once again, by the impressive growth and development these companies have shown over the last decade.

The “disappearance of a small independent telephone company [will] likely mark the re-emergence of a monopoly”44 and the “new cable company entrant will then remain uncontested in the market” and “would have no CRTC-mandated obligation to serve high-cost, low-density parts of the service area”45

73. As noted in the previous section, when putting to light the evolution and growth that the SILECs have shown over the last couple of years, arguing that the introduction of local competition in their territories will lead to their disappearance is clearly unfounded.

74. What ACTQ/OTA is in fact trying to do is to over-protect a group of companies that have found the resources and abilities to develop impressive and diversified service offerings within and/or outside their incumbent territories, positioning themselves as fierce competitors in these areas.

75. ACTQ/OTA‟s requests and complaints are nothing more than an attempt to make competitive entry in their member companies‟ territories uneconomical and

44 ACTQ/OTA Petition, para.41. 45 ACTQ/OTA Petition, para.38. 25

inefficient and most probably inexistent. Granting the Petition will likely isolate these territories and create permanent monopolies, clearly contrary to the Act and the Policy Direction.

76. Moreover, to suggest that a region could ultimately be served by a carrier with no obligation to serve all customers is a misunderstanding of the Commission‟s duties under the Act.

77. ACTQ/OTA presented this exact same unlikely scenario in its application to the Commission to review and vary Policy 2011-291. The Commission‟s analysis and determination in that regard confirms that such an outcome is very unlikely and will be monitored closely by the Commission. Therefore, if the situation presented by the ACTQ/OTA were to have the prospect of materializing, the CRTC has already acknowledged that it would be prepared to intervene to ensure that all consumers will have the ability to obtain local telephone service.

The Commission considers that the introduction of local competition into small ILEC markets will provide benefits to consumers while maintaining reasonable access to reliable basic phone service. The Commission intends to monitor the availability of such services from both the small ILECs and the competitive providers entering their markets, to ensure that this objective continues to be met. [emphasis added]46

78. At this point, TELUS submits that it is also appropriate to note that some 70 years ago there were more than 500 small independent telephone companies operating in Canada. There are today just over 30 and during this consolidation not a single customer was left without access to phone service.

46 Decision 2011-733, para.51. 26

The disappearance of these companies “is certain to result in families migrating to larger centres”47 and will “accelerate the demise of these communities themselves”48

79. TELUS does not intend to respond in great details to these statements, aside from noting that they are perfect examples of the doomsday and apocalyptic arguments ACTQ/OTA have brought before the Governor in Council in this Petition.

80. TELUS respectfully submits that the Governor in Council can only discard these unfounded and highly speculative scenarios.

4.0 Conclusions and Recommendation

81. ACTQ/OTA‟s Petition is based on an incomplete set of facts, misleading information and highly speculative and unfounded apocalyptic scenarios.

82. Not only would a rejection of ACTQ‟s Petition be consistent with the Telecommunications Act and the Policy Direction but more importantly granting the Petition would represent a major departure from the fundamentals of the Act as well as the long standing evolution of Canadian telecommunications markets towards facilities-based competition.

83. What ACTQ/OTA has been trying to do before the CRTC over the last four (4) years, and now before the Governor-in-Council with this Petition, is to put in place disproportionate regulatory measures and barriers to entry that will ultimately make it uneconomical and inefficient for facilities-based competition to foster and flourish in certain areas of this country, thereby isolating and depriving residents of these areas of the same well-known benefits of competition.

84. The regulatory framework currently applicable to SILECs is not a cookie-cutter or one size fits all approach, but rather has been tailored specifically for them by the

47 ACTQ/OTA Petition, executive summary, para.8. 48 ACTQ/OTA Petition, executive summary, para.9. 27

Commission after extensive analyses and public proceedings spread over the last six years.

85. ACTQ/OTA has not provided any new evidence to support their case that was not already available before the Commission when it issued the Decisions.

86. The Commission took great care in balancing the interests of all stakeholders in order to fulfill its duties under the Act and the Policy Direction.

87. In fact, ACTQ/OTA‟s application to review and vary Policy 2011-291 provided with yet another opportunity for the Commission to re-evaluate its findings. The Commission concluded that “the special considerations adopted for the small ILECs in Telecom Regulatory Policy 2011-291 should attenuate potential adverse financial impacts of implementing local competition, particularly in relation to the regulatory frameworks that existed before that decision was issued and in contrast to the regulatory regime that applies to the large ILECs. The Commission also considers that, in increasingly competitive small ILEC markets, any additional special considerations may inappropriately distort the market. [emphasis added]

88. TELUS submits that there can be no evidence to suggest that the Commission has not been diligent in establishing regulatory measures for the SILECs that interfere with the operation of competitive market forces to the minimum extent necessary to meet the policy objectives.

89. TELUS urges the Governor in Council to reject all parts of the ACTQ/OTA Petition. By doing so, the Governor in Council will send a strong message that the industry can and must deal with its own challenges in competitive markets and that the Governor in Council will allow the CRTC to retain the tools provided to it to pursue the telecommunications policy objectives within the boundaries of the telecommunications policy framework established by Parliament in the Telecommunications Act and the Policy Direction.

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