Primus opposes Bell s petition and respectfully urges the GIC to swiftly reject it in its entirety.

Transcription

1 21 December 2015 To: Ms. Janice Charette Clerk of the Privy Council and Secretary to the Cabinet Langevin Block 80 Wellington Street Ottawa, Ontario K1A 0A3 Subject: Canada Gazette, Part I, 21 November 2015, Notice No DGTP Petition to the Governor in Council concerning Telecom Regulatory Policy CRTC Comments of Primus Telecommunications Canada Inc. Dear Ms. Charette, Primus Telecommunications Canada Inc. ( Primus ) hereby submits its comments on the petition to the Governor in Council ( GIC ) filed by Bell Canada ( Bell ) regarding Telecom Regulatory Policy CRTC (the Decision ), issued by the Canadian Radiotelevision and Telecommunications Commission ( CRTC ) on 22 July The CRTC s Decision correctly recognizes that Canada s fullest potential as a leader in the global digital economy can only be realized through unified wholesale policies that harness the state-of-the-art fibre of incumbents, together with the agility and innovations of independent competitors. The Decision achieves this balance, which is necessary to fuel job-creation and ensure an inclusive digital economy for all Canadians. Primus opposes Bell s petition and respectfully urges the GIC to swiftly reject it in its entirety. Yours truly, Kyle Mitchell Regulatory Counsel c.c. John Knubley, Deputy Minister, Industry Canada Danielle May-Cuconato, Secretary General, CRTC Via ic.telecomsubmission-soumissiontelecom.ic@canada.ca. Enc. Primus Telecommunications Canada Inc Dundas St. West Suite 400 Toronto, Ontario M9B 6K5 Canada T: E: kmitchell@primustel.ca Fax

2 Comments of Primus Telecommunications Canada Inc. Petition to the Governor in Council concerning Telecom Regulatory Policy CRTC Canada Gazette, Part I, Vol. 149, No. 47 Notice No. DGTP November December 2015

3 Comments of Primus Canada 1 Table of Contents EXECUTIVE SUMMARY & INTRODUCTION THE CRTC S WHOLESALE RULES Independent competition in the post-monopoly era Primus Canada and the ladder of investment THE CRTC S DECISION AND BELL S REQUEST Bell s fundamental misrepresentations Comprehensive public proceeding Access to fibre maintains principled rules Progressive reforms to strengthen Canada s digital economy PETITION REFUTED BY BELL S OWN STATEMENTS Post-Decision Representations to Shareholders.20 A. No material changes in regulations affecting our wireline business.20 B. Not possible to assess the financial impact if any...20 C. Increased spending substantial completion.further expansion..21 D. We are unique in a wireline sense on a North American basis Pre-Decision Testimony on Rural Broadband CONCLUSION..25

4 Comments of Primus Canada 2 EXECUTIVE SUMMARY & INTRODUCTION Independent competition in the post-monopoly era ES1. For a century, Bell operated a state-protected wireline monopoly over most of the Canadian population. The sector was opened to competition in the mid-1990s and the CRTC set out rules for new market entrants to interconnect with Bell s essential facilities. 1 ES2. Today, Canadians benefit from a competitive network of networks that supports connectivity with choice. Under the CRTC s rules, Bell earns fail-safe profits from wholesale access to its last-mile 2 wiring so that competitive service providers ( CSPs ) like Primus can invest in independent networks that bring price discipline, innovative products and targeted services to consumers and small and medium-sized businesses ( SMBs ). ES3. This petition to the GIC arises because Bell is replacing its existing last-mile with wires that are made of fibre. Bell s continued dominance and control over last-mile wiring give it the power to prevent competition by denying access to its network. The CRTC s principled rules for access and interconnection safeguard the integrity of the Canadian telecommunications system during periods of technological change. The Decision is the unanimous result of a comprehensive public proceeding ES4. In October 2013 the CRTC began an open proceeding to decide whether wholesale access to fibre-to-the-premises ( FTTP ) 3 facilities is essential to continued competition in broadband Internet markets. 4 In July 2015 the CRTC released Telecom Regulatory Policy ( TRP or the Decision ). 5 1 Essential facilities, or bottleneck facilities, are incumbent-controlled network components that cannot feasibly be duplicated, but are necessary to provide retail service to customers. 2 The last-mile is the wire that delivers broadband Internet to the home. 3 Fibre-to-the-premises refers to both fibre-to-the-home and fibre-to-the-business last-mile wiring. 4 Telecom Notice of Consultation CRTC , Review of wholesale services and associated policies 27 October 2013 ( TNC ) 5 Telecom Regulatory Policy CRTC , Review of wholesale wireline services and associated policies, 22 July 2015 ( Decision )

5 Comments of Primus Canada 3 ES5. The Decision is a cohesive set of policies that will secure Canada s future as a world-class digital economy. The CRTC noted that Bell is leveraging historic advantages to replace its legacy wiring, scrutinized Bell s evidence and correctly concluded that access to fibre posed no threat to investment. The CRTC applied its principled rules to confirm that fibre is an essential facility and that access is integral to innovation, investment and choice. ES6. This Decision was unanimous: the result of years of written and oral hearings by which an independent tribunal weighed the evidence and arguments of all stakeholders: industry, consumers, government agencies and individual Canadians. It balances competing commercial interests with technology-neutral rules that serve the public interest. Progressive reforms to strengthen Canada s digital economy ES7. The CRTC s decision on access to fibre merely upholds and reinforces longstanding rules. The truly ground-breaking part of the Decision is that it reforms the old resale rules for broadband. In fact, CSPs can only obtain access to fibre via a new method of interconnection that will spur innovation through investments in digital infrastructure. ES8. Unlike in the past, this Decision enables direct access to the broadband transmission path, without interference. This empowers CSPs to build original, fullycontrolled products from the ground-up, such as IPTV video services, as well as new modes of connectivity to position Canada as a leader in the Internet of Things. ES9. The CRTC s rulings dovetail to establish competitive broadband markets as a key driver of Canada s digital economy: access to fibre is inseparable from this cohesive vision. Indeed, the prospect of direct access to fibre is the core incentive for CSPs to invest in networks that will deliver innovative new services, tailored for their target markets. This will propel job-creation and an inclusive digital economy for Canadians. Petition will extinguish innovation, investment and choice ES10. In a nutshell: the petition alleges that wholesale access to fibre is a surprising break from past policy. Bell attempts to assert that the CRTC has passed radical new regulations that are injurious to Bell s wireline business and to Canada s global standing.

6 Comments of Primus Canada 4 Bell claims it is now reviewing all of its fibre projects across the nation, threatening to delay and cancel many especially in rural Canada unless the GIC grants this petition. ES11. In other words, Bell asks the GIC to discard the public s input, overrule the decision of an arms-length watchdog and remove the linchpin of a progressive policy that supports innovation, investment and choice. All this, so that Bell may possess unchecked market power over the very facilities just proven by an exhaustive, evidence-based public inquiry to require tariffed access as an essential safeguard against anticompetitive practices. ES12. Bell s petition cloaks this request in the language of global failure, regional division 6 and resale over investment. 7 Otherwise, it recycles the same expert evidence and cynical arguments that were carefully scrutinized and wisely rejected by the CRTC. ES13. Overall, the petition focuses exclusively on investment in last-mile wiring and maligns CSPs for not building their own. 8 These claims ignore the fact that Bell s ability to rewire its network is the product of the advantages that were conferred upon Bell during its century of monopoly privilege. Petition fully refuted by Bell s own sworn statements and written testimony ES14. Bell s evidence and arguments are undeniably and directly refuted by Bell s statements to shareholders and testimony in other CRTC proceedings published before and after the release of the Decision. A. No material changes in regulations affecting our wireline business ES15. To the GIC, Bell claims that radical new regulations 9 expropriate its most valuable network assets: 10 To investors, Bell swears there has been no material change in 6 Petition, This will further increase the digital divide between rural and urban communities and hamper the development of Canada's digital and knowledge-based economy at 7 7 Petition, at E7 8 Petition, ISPs have not translated the benefits they get from regulation into any material investment in next-generation Internet access facilities like fibre-to-the-home at 56 9 Petition, rules changed unfairly in the midst of our plans at E17 10 Petition, expropriates new fibre-to-the-home networks for the benefit of other companies at E7

7 Comments of Primus Canada 5 regulations affecting its wireline business. 11 Only one of these statements can be true. The reality is that wholesale access to fibre merely re-confirms principled rules that have always applied to last-mile wires. ES16. B. Not possible to assess the financial impact...if any To the GIC, Bell claims it is impossible for the CRTC to set correct wholesale rates. 12 To investors, Bell states that there will be no financial impact if the CRTC sets the wholesale rates correctly. 13 Only one of these statements can be true. The reality is that TRP upholds longstanding and principled rules which grant Bell guaranteed profits that defray the cost and risk of its rewiring projects. 14 ES17. C. Increased spending substantial completion further expansion To the GIC, Bell claims that TRP disrupts investment 15 and that many fibre projects are being delayed and dropped. To shareholders, Bell states it is accelerating investment and that its deployment is ahead of schedule. 16 Only one of these statements can be true. The reality is that Bell is fast-tracking its roll-out and that fibre will cover 90% of its existing last-mile footprint within 10 years BCE Q2 Shareholder Report, 5 August 2015 ( Q2 Report ) at pg 21; BCE Q3 Shareholder Report, 4 Nov 2015 ( Q3 Report ) at pg Petition, It is impossible for the CRTC to set a wholesale rate that adequately compensates at Q2 Report, the nature of such [financial] effect, if any, will only be ascertainable once the CRTC has completed its costing models and set the wholesale access rates to be charged at Decision, FTTP access [is] predicated on wholesale rates that are compensatory and that provide a reasonable rate of return, resulting in profit on the associated investment... at Petition, CRTC released a decision that has created significant investment instability in the midst of the deployment... at E17 16 Q3 Report, increased spending on [Bell s] continued rollout of broadband fibre and further expansion of our fibre-to-the-home (FTTH) footprint at pg The Wire Report, FTTH to cover 90% of Bell footprint in 10 years: Cope 12 November 2015

8 Comments of Primus Canada 6 ES18. D. We are unique on a wireline sense on a North American basis 18 To the GIC, Bell claims its fibre network is entirely new and that all potential providers begin from the same starting point. 19 To investors, Bell trumpets the fact that its fibre investments are quite frankly quite easy 20 due to Bell s singular ability to subsidize incremental builds with pre-existing fibre and free wireline cash flow from its entrenched legacy base. 21 The reality is that Bell is leveraging monopoly assets to rewire its network. ES19. E. simply no business case to build the necessary infrastructure 22 To the GIC, Bell claims the Decision eliminates the business case 23 for billions in private investment in rural Canada. 24 Yet when the CRTC began its proceeding 25 to ensure rural Canada fully participates in the digital economy, Bell conversely argued there is simply no business case to build rural fibre due to our country s size and challenging geography. 26 in rural and remote regions. 27 The reality is that Bell employs taxpayer subsidies to undertake fibre builds 18 BCE Inc. Q2 Investor Conference Call, 5 November 2015 ( Q2 Call ) at pgs 13 & Petition, fibre networks are different all potential service providers start from the same starting point at E15; completely new networks built under competitive conditions at pg Q2 Call, George Cope: In every single market we have fibre versus where we have fibre to the node. So that makes the investment for us quite frankly quite easy...we are unique in a wireline sense on a North American basis at pgs 13 & BCE Inc. Q3 Investor Presentation, Wireline cash flow generation providing ample support for ongoing fibre build at pg Intervention of Bell Canada and its affiliates, TNC ,14 July 2015 ( Bell Intervention ) at 6; due to our country's size and challenging geography at Petition, in smaller towns and rural areas, fibre-to-the-home deployment will be delayed or not take place at all, as mandated access eliminates the business case for investment at Petition, the [GIC] can propel Canada's broadband leadership by supporting billions of dollars in investment entirely from private resources including in [rural] communities at CRTC Telecom Notice of Consultation , Review of basic telecommunications services ( TNC ) 26 Bell Intervention, at Bell Intervention, Government funding (i.e., general tax revenues ) should continue to be used Private sector players should not always be expected to further subsidize the deployment of broadband at 58

9 Comments of Primus Canada THE CRTC S WHOLESALE RULES 1.1 Independent competition in the post-monopoly era 1. For most of the 20 th century the Canadian telecommunications system was the sole domain of state-protected monopolies. Core network infrastructure is capital intensive and the monopoly system was thought necessary to exploit economies of scale and to avoid the economic waste generated by the duplication of bottleneck facilities Incorporated in 1880 by an Act of Parliament, Bell s Royal Charter granted it the right to build wireline telecommunications facilities along all public rights of way across Canada. 29 Until 1993, Bell controlled its monopoly over most of the Canadian population as the incumbent carrier in Ontario, Quebec, Atlantic Canada and Canada s north. Today, Bell remains Canada s largest carrier and Bell s wireline division (local voice, high-speed Internet and television) is Bell s largest in terms of subscribers and revenue. As of 2014, Bell s wireline division accounted for approximately 60 percent of its $21 billion annual operating revenue Enacted in 1993, the Telecommunications Act (the Act ) 31 laid the foundation for the industry to begin its gradual evolution from a system of entrenched monopolies, to a more dynamic system of large incumbent carriers, resellers and other facilities-based competitors under the independent regulatory authority of the CRTC. In section 7, Parliament defined the various policy objectives that the CRTC must consider when shaping the direction of the telecommunications system. The CRTC has described its role in balancing these policy objectives as follows: 28 CRTC Discussion Paper, Canadian Telecommunications Policy Review, 17 August 2005 ( Discussion Paper ), at An Act to incorporate the Bell Telephone Company of Canada, 43 Vict c 67 (Dom) Assented to 29 April 1880, The said company may construct, erect and maintain construction its line or lines of telephone along the sides of and across or under any public highways, streets, bridges, watercourses or other such places, or across or under any navigable waters, either wholly in Canada or dividing Canada from any other country 30 BCE Inc., 2014 Annual Report, at pg 5 31 Telecommunications Act (SC 1993, c 38)

10 Comments of Primus Canada 8 What Parliament has expressed in section 7 are a number of broad policy objectives that it considers should be pursued by and for the Canadian telecommunications sector. It is explicit in the legislation that the Commission is required to take these objectives into account when deciding issues before it. Since the different objectives may collide in particular cases, it is implicit that the Commission, as the independent regulatory authority, will exercise its judgment in weighing up and balancing these objectives. This is the essence of the of the Commission s role in the regulatory process. When the Governor in Council disagrees with the manner in which the Commission has exercised its judgment, it has the power to review and vary the Commission s determination. Judging from the very few Orders in Council varying the Commission s decisions over the years, this process seems generally to be working To begin the transition, the CRTC set out principled rules to allow new market entrants to interconnect with incumbent infrastructure. 33 Under the Liberal government of the 1990s, all major telecommunications markets were opened: the local exchange market, 34 the overseas long distance market, 35 the operator services market 36 and the pay telephone market As the CRTC explained in TRP , wholesale access to essential facilities is the basis for independent competition in the post-monopoly era: Conceptually, facilities-based competition is best achieved by requiring incumbent carriers to make available facilities that are essential for competition. These facilities, sometimes referred to as bottleneck facilities, are, generally speaking, network components that cannot be readily duplicated and that are controlled by incumbent carriers, which gives them the market power to 32 Discussion Paper, paras Telecom Decision CRTC 94-19, Review of the regulatory framework, 16 September Telecom Decision CRTC 97-8, Local competition 1 May Telecom Decision 98-17, Regulatory regime for the provision of international telecommunications services, 1 October Telecom Order CRTC , Consumer safeguards for operator services, 15 March Telecom Decision CRTC 98-8 Local pay telephone competition, 30 June 1998

11 Comments of Primus Canada 9 substantially prevent or lessen retail competition if they were to deny competitors access to those facilities Wholesale access enables competition and safeguards the integrity of the Canadian telecommunications system. 39 As a former-monopoly, Bell retains the market power to eliminate competition by denying access to its network or by charging punitive rates. The CRTC s wholesale tariffs ensure Bell receives guaranteed profits 40 while allowing competitors to enter the market, interconnect and invest in the independent network infrastructure required to deliver products and services to market: Wholesale telecommunications services (hereafter referred to as wholesale services) are the services that telecommunications companies provide to each other, and are integral to the overall development of the Canadian communications system. The provision of wholesale services primarily supports competition in various retail service markets, such as local phone, television, and Internet access service markets, by enabling competitors to access certain telecommunications facilities and network components from incumbent carriers, such as incumbent local exchange carriers (ILECs) and cable companies, so that competitors can extend their networks where necessary to provide their own services to consumers. 7. Notwithstanding Bell s claims to the contrary, 41 the CRTC s principled wholesale rules have long effectively promoted facilities-based investment, innovation and choice. 1.2 Primus Canada and the ladder of investment 8. Wholesale access to essential facilities is necessary to enable Primus continuing growth and evolution as Canada s largest facilities-based CSP with over 500 employees at offices in Toronto, Ottawa, Vancouver, Edmundston, Markham and London. 38 Decision, para 6 39 Decision, by ensuring the efficient interconnection of competing networks, by ensuring public safety.and by optimizing the use of support structures... at 2 40 Decision, at Petition, The CRTC's decision is premised on the assumption that mandated access will encourage Reseller ISPs to invest in their own facilities. But this has not happened in Canada... para E19

12 Comments of Primus Canada Primus well-established track record of Canadian innovation and investment includes the construction of network infrastructure, transmission facilities, research and development, patented technologies, as well as substantial investments in hiring and training employees. Primus and other CSPs deliver value to Canadian consumers and businesses in the form of choice, price discipline, innovative, differentiated product offerings and targeted services that respond quickly to the changing needs of vital market segments too often overlooked by the large vertically-integrated incumbents. 10. Primus entered the Canadian market in 1997 as a long-distance resale provider with no network facilities of its own. Today, Primus offers a wide selection of consumer and business telecommunications services including high-speed broadband Internet, traditional Home Phone, Long Distance, Voice over Internet Protocol ( VoIP ) products, and Hosting and Managed Services over its national facilities-based network infrastructure. 11. As a reseller, Primus invested in switching equipment, leased facilities and a backbone network with points of presence in major Canadian cities. This expansion continued into the dedicated Internet access market with its 2004 acquisition of Magma Communications. 12. An industry pioneer, Primus was the first telecommunications company in Canada to introduce VoIP services. Since this groundbreaking launch in 2004, the technology's evolution and adoption across Canada has been significant. Driven by growth in broadband networks, continued advances in technology and cost effectiveness for customers, VoIP is now widely accepted by businesses and consumers alike. In 2006, Primus began construction of a co-location network in order to directly offer telephone and Internet services using unbundled incumbent facilities. This ONNET network has grown to include 83 co-locations covering over 3.5 million households and businesses across 15 major Canadian markets. 13. In 2007, Primus invented and launched its Telemarketing Guard service: an industry leading, algorithm-powered anti-telemarketing and robocall technology for which Primus holds exclusive patents in Canada and the United States. 42 Primus is the only 42 CBC News, Endless telemarketing calls, scams and how the big telcos could stop them 25 November 2015 Available online:

13 Comments of Primus Canada 11 carrier in the world to design and implement this technology on its own network and Primus regularly communicates with legislators and regulators concerning the nature and value of its technological protections for consumers. 14. Primus executives were invited to advise the United States Senate Commerce, Science and Transportation Subcommittee on Consumer Protection, Product Safety and Insurance throughout its 2013 inquiry into market-based protections from unwanted telemarketing and robocalls. Counsel to the U.S. Senate Special Committee on Aging consulted with Primus regarding its experience with Telemarketing Guard while preparing for recent hearings into telemarketing protections for senior citizens. Primus continues to invest in research and development regarding potential technological solutions to the problem of illegitimate caller-id spoofing. 15. In 2013, Primus sold its recently constructed cloud-based data centers to an incumbent carrier for $200 million. In 2014, Primus completed construction of its own fibre transport ring deployments in Ottawa and Vancouver. 16. Primus has delivered many innovative and valued services well ahead of large incumbents. These include first to market services (e.g. a nationwide local VoIP and highspeed Internet services based on ADSL2+ technology) and innovative value-added services (e.g. the unique Telemarketing Guard service, and Primus My Home Phone Portal that allows customers to fully manage their telephone service from any Internet connection). Primus also offers tailored services to important market segments. For example, Primus hosted PBX solutions utilize cloud-based technology specifically designed to affordably connect SMBs to their remote offices, telecommuters and travelling staff via one seamless phone system that can be easily scaled to support corporate growth. 17. In light of the forgoing, it is clear that the CRTC s principled wholesale rules for access and interconnection enable independent CSPs to deliver affordable choice to consumers and compelling solutions to key drivers of the Canadian economy. These valued products and services in turn generate innovation and investment in network facilities that strengthen the Canadian telecommunications system.

14 Comments of Primus Canada THE CRTC S DECISION AND BELL S REQUEST 2.1 Bell s fundamental misrepresentations 18. Bell s petition to the GIC is premised on fundamental misrepresentations about the nature of Bell s fibre access network and of the CRTC s wholesale access rules. 19. The petition claims that Bell s century as a monopoly provider of wireline services has provided Bell with no advantage in its ongoing project to rewire its existing copper lastmile with fibre: Since 1880, Bell has been an incumbent in communications services delivered over legacy copper networks. But fibre networks are different. All potential service providers wishing to offer these new fibre-to-the-home Internet services, whether they are traditional telephone companies, cable companies, resellers, utilities, or other technology companies, begin from the same starting point. Specifically, fibre-to-the-home requires a brand new build using no legacy components. In fact, for Bell, the build out of fibre-to-the-home is a completely new build to replace our 135 year old legacy copper plant The petition further claims the CRTC s Decision has applied old wholesale access rules that properly apply to copper wires but not fibre, thereby expropriating Bell s fibre investments: Nevertheless, in July the CRTC decided to apply the old regulatory rules applicable to legacy networks to these brand new fibre-to-thehome networks. In effect, this decision hands over to Reseller ISPs the most expensive parts of the new fibre-to-the-home networks in which Bell and others must invest billions of dollars, contrary to the Policy Direction and long-standing Canadian policy supporting facilities-based competition Petition, at E15 44 Petition, at E16

15 Comments of Primus Canada In reality, given the interconnected nature of the Canadian telecommunications system and the rate of technological change, the CRTC s regulation of essential facilities is inevitably an ongoing and dynamic process, such that the CRTC reviews its wholesale regulations on a regular basis. 22. If, as a result of these reviews, the CRTC determines that an essential service or facility has become sufficiently competitive, that facility will be forborne, or deregulated as no-longer essential. 23. On the other hand, where markets become less competitive or the integrity of the system is at risk, the CRTC may determine 45 that new facilities are essential and thus subject to wholesale access. 24. Therefore, the fact that fibre wires are becoming the prevailing means for broadband delivery in Canada actually supports the case for wholesale access. This is particularly so, given that Bell is leveraging advantages conferred by the state to run new wires that block access and deny consumer choice. 25. In this regard, the CRTC s long-standing and principled wholesale access rules simply reflect the reality of Canada s marketplace, which is that the barriers to duplicating last-mile wiring are as real in 2015, as they were in 1880 when Bell received its Royal Charter to develop the capital, economies of scale, operational capacity and municipal rights of way that are required to extensively run wires to the home. 26. Relative to former monopolies like Bell, CSPs do not enjoy the ability to leverage ubiquitous pre-existing wireline network infrastructure and municipal access agreements to undertake incremental large-scale builds. 27. Similarly, CSPs do not enjoy vast market shares that allow for the spreading of billions in investment costs over entrenched bases of wireline customers retained from the 45 Decision, The Commission has endorsed the concept of essential services in the context of wholesale regulation since the late 1990s. More recently, in Telecom Decision , the Commission established an essential services test at 15

16 Comments of Primus Canada 14 monopoly-era, or the related benefits of high expected penetrations levels when introducing new services and facilities across millions of subscribing households. 28. As detailed below, the CRTC s Decision to require wholesale access to fibre is the unanimous result of a regularly scheduled, exhaustive, evidence-based public inquiry. 29. This public inquiry was opened specifically to assess how the CRTC may apply its principled wholesale access rules to ease the threat to competition and interconnection posed by the growing denial of access to networks rewired with fibre. 2.2 Comprehensive public proceeding 30. The CRTC s Decision is the product of an exhaustive review of the competitiveness of markets for high-speed broadband Internet services with a particular focus on the growing significance of fibre to Canada s digital economy. 31. In a letter dated 15 October 2013, the CRTC set out the scope of its public proceeding. 46 The CRTC noted that it has long-regulated last-mile wires as essential facilities and that since certain carriers are rapidly replacing copper wires with fibre and eliminating access to consumers homes, wholesale access to fibre may be required: Recently, certain carriers have begun to deploy fibre-to-the-premises (FTTP) facilities, which in some cases may be replacing traditional copper facilities as the technology used to access end-customers. In light of past decisions concerning access to customer premises, and the fact that FTTP is in its relative infancy, the Commission intends to use this proceeding as an opportunity to study FTTP in Canada. Issues to be examined include: the current state of deployment; the economic and social impacts this technology will have on consumers, competitors, and incumbent carriers; the drivers for investment by incumbent carriers; and ultimately whether regulatory intervention is needed Access services (i.e. the last mile to the customer premises) have long been mandated by the Commission TNC Decision, at Decision, FN 11

17 Comments of Primus Canada This lengthy proceeding involved numerous detailed written and oral submissions from the entire spectrum of interested and impacted stakeholders. 33. Participants included all of the large incumbent telephone carriers such as Bell, Telus, MTS, Allstream and the large incumbent cable companies such as Rogers, Shaw, Cogeco, Videotron and Eastlink. 34. Many individual CSPs, such as Primus, participated directly while many others participated through Primus industry association, Canadian Network Operators Consortium Inc. ( CNOC ), which itself represents over 30 member CSPs. 35. The proceeding also saw full participation from various consumer advocacy and public interest groups, such as the Public Interest Advocacy Centre ( PIAC ), Consumers Association of Canada ( CAC ) and OpenMedia. 36. Various governmental institutions such as the Competition Bureau, numerous municipal governments and academics tendered evidence and submissions, as did many individual Canadians. 2.3 Access to fibre merely maintains principled rules 37. The extensive evidence generated by this comprehensive proceeding conclusively proved that wires made of fibre possess no unique characteristics to justify dismantling the principles and policies for interconnection and access that apply to all other wires which connect Canadian homes to the telecommunications system. 38. Thus, when the CRTC released its Decision in July 2015, it merely re-confirmed that last-mile wires (whatever the material) are essential facilities subject to wholesale access This principled outcome reflects the continuing and unanimous consensus of the independent regulatory authority, garnered from a complete review of the most current economic evidence, that CSPs cannot possibly duplicate Bell s last-mile wiring: 49 Decision, the Commission finds that there would be a substantial lessening or prevention of competition in the downstream retail Internet services market, in all incumbent carrier serving regions, by denying access to wholesale HSA services, including those over FTTP access facilities at 130

18 Comments of Primus Canada 16 The Commission remains of the view that competitors cannot feasibly or practically duplicate last-mile HSA facilities on a scale sufficient to compete effectively with incumbent carriers within their serving regions. There continue to be significant barriers to duplicating access facilities, including securing sufficient capital, securing rightsof-way, and construction challenges that require significant lead time to complete In other words: overwhelming barriers to duplicating Bell s last-mile exist, regardless of whether the wires are copper or fibre. As noted, Bell was conferred a monopoly precisely to obtain the economies of scale, capital and municipal rights of way that are required to construct these bottleneck facilities, on the theory that society should not waste money running two wires where one wire will do. 41. Likewise, the CRTC correctly concluded that Bell s ability to rewire its last-mile with fibre derives from the unique advantages Bell gained as an incumbent provider of wireline services since 1880: With respect to FTTP access facilities, the barriers to duplicating such facilities are also present in all incumbent carrier serving regions. For example, the capital investment required by competitors to reproduce the deployment of an ILEC s FTTP access facilities in their serving territory would be very significant, excluding the additional challenges associated with the myriad of other network facilities, infrastructure, office facilities, and back office support staff and systems that would be required. To that end, the incumbent carriers ability to deploy such facilities is largely based on their decades of incumbency in the provision of wireline services, with all the associated advantages, including established brands and customer bases, existing network infrastructure including support structures, national fibre backbone networks, pre-existing municipal access agreements, various economies of scale, and greater access to capital markets In light of these facts, the CRTC rightly determined that without wholesale access to fibre, most customers in Canada would eventually be left with a very limited choice of Internet service providers Decision, at Decision, para Decision, para

19 Comments of Primus Canada Finally, the extensive economic evidence conclusively showed that wholesale access poses no threat to Bell s ongoing deployment or continued investment. 44. The CRTC correctly determined that Bell must deploy fibre to meet rising consumer demand for higher speeds and to prevent being overtaken by cable companies. 53 The CRTC correctly found there is no risk to Bell s investment because wholesale access is conditional upon lucrative tariffed rates which defray the costs and risks associated with its rewiring project: In addition, mandating the provision of disaggregated wholesale HSA services over FTTP access facilities would be predicated on wholesale rates that are compensatory and that provide a reasonable rate of return, resulting in profit on the associated investment Accordingly, the CRTC s Decision to require wholesale access to fibre merely reconfirms the continued application of long-standing and principled rules that form the basis for interconnection and independent competition in the post-monopoly era and which are proven to promote facilities-based investment, innovation and consumer choice. 2.4 Progressive reforms to strengthen Canada s digital economy 46. The truly ground-breaking aspect of the Decision is that it completely overhauls the old resale rules to ensure that competitive broadband markets and innovative products and services will help power Canada s digital economy. 47. With this Decision, the CRTC has restricted fibre access to those CSPs that enter a vibrant new wholesale model that deregulates much of the incumbents networks, enables a powerful method of interconnection and imposes major incentives for CSPs to invest in independent digital infrastructure Specifically, the Decision enables CSPs to directly access the transmission path to the customer without also being forced to use extra bundled services that reduce CSPs control of the connection and impose material and inefficient overhead costs. 53 Decision, para Decision, para Decision, para 142

20 Comments of Primus Canada The CRTC rightly concluded that the old rules are an expensive and inefficient use of the network 56 that impose costly overhead 57, which in turn threatens sustainable competition. 58 These bundled extras and unnecessary costs further weaken CSPs capacity and incentives to invest, deter innovation and artificially inflate retail prices By way of contrast, the CRTC s new direct access model strengthens CSP capacity and incentive to invest and will enable competitors to become more innovative by giving them a greater degree of control over their service offerings Under this new model, direct access to fibre is the core incentive for CSPs to invest in independent networks that support the provision of cutting-edge new products and services. 52. For example, CSPs can now build competitive new video offerings for the residential market from the ground up. This will create jobs as CSPs invest in human capital to undertake the necessary software development and network engineering. 53. Strong interconnected infrastructure, fibre bandwidth and top technology talent also have the potential to position Canada as a global leader in the design and adoption of products and services related to the Internet of Things. This will extend broadband connectivity beyond computers, smartphones and tablets to a range of devices and everyday things that use embedded technology to communicate and interact with the external environment via the Internet. 54. Overall, the CRTC s Decision correctly recognizes that Canada s fullest potential as a leader in the global digital economy can only be realized through a unified policy that harnesses the state-of-the-art fibre infrastructure of incumbents, together with the agility and innovations of CSPs. This combination will fuel job-creation and an inclusive digital economy for all Canadians. 56 Ibid 57 Ibid, One of the main drawbacks of the current aggregated HSA service is the high cost incurred by competitors when transporting large amounts of traffic 58 Ibid, These costs are expected to exacerbate given that a competitor must pay for all of its data traffic to be routed back to a central point of aggregation, no matter how far away a subscriber Decision, at

21 Comments of Primus Canada The CRTC s innovative and technology-neutral approach is widely supported. As was noted by Rogers, the Decision promotes facilities based-investment and does not undermine the business case to build fibre broadband infrastructure in Canada: On the wholesale broadband decisions that came out late yesterday, our initial read is that it appears to create a more level playing field between cableco and telco providers of high-speed Internet offerings in that it won't exempt telco fiber to the home from wholesale requirements. Assuming the CRTC gets the cost models right, we see little risk that the overall regime will hinder continued network investment by incumbent providers. Over time it also seems that the decision will require resellers to invest more in infrastructure which is a fairer sharing of the required costs as more consistent with a facilities-based competition model Wholesale access to fibre further enables consumers to choose their provider, in addition to new valuable products and services. As was observed by PIAC: The CRTC has boldly revised wholesale internet and telephone access market, said Jean-François Léger, Counsel to PIAC. While the details have yet to be settled, it appears the Commission has opted for a new approach that requires and expects more investment in fibre and transport by both incumbents and smaller competitors Decision, at Edited Transcript, Rogers Communication Inc. Q2 Earning Call, at pg 4 62 PIAC, Consumers to benefit from wholesale fibre access to Internet: PIAC supports CRTC decision to mandate wholesale access to high-speed access services including FTTH 22 July 2015

22 Comments of Primus Canada PETITION REFUTED BY BELL S OWN STATEMENTS 3.1 Post-Decision Representations to Shareholders A. No material changes in regulations affecting our wireline business 57. Bell s petition claims the Decision was surprising [and] inconsistent with Canada s long-standing policy of facilities based competition given that it expropriates new fibre-to-the-home networks for the benefit of other companies. 63 Indeed, reading the petition, one may reasonably conclude that the Decision is an unmitigated disaster for Bell s wireline business, as it expropriates [Bell s] massive private investments Primus notes that notwithstanding the release of the Decision on 22 July 2015, Bell s Q2 (5 August 2015), and Q3 (5 November 2015) shareholder reports and quarterly forecasts assume the following: No material financial, operational, or competitive consequences of changes in regulations affecting our wireline business. 65 No fundamental changes in overall outlook as we enter Q4 wellpositioned across all services and in all markets 66 5th consecutive quarter of positive Wireline EBITDA growth with increase in industry-leading margin to 41.1% 67 B. Not possible to assess the financial impact if any 59. The Petition claims that as a direct and inevitable consequence of the Decision, many of Bell s fibre projects are no longer viable, because it is impossible for the CRTC to set accurate wholesale rates: 63 Petition, para E7 64 Petition, para 49 It is impossible for the CRTC to set a wholesale rate that adequately compensates at whatever rate the CRTC sets the [Decision] will 65 Q2 Report pg. 21; Q3 Report pg Q3 Investor Presentation, pg Q3 Report, pg 4

23 Comments of Primus Canada 21 necessarily reduce and slow fibre-to-the-home deployment. This is the inevitable consequence There is no mention of the Decision in the section of the Q2 Report entitled: Bell Wireline - Key Business Developments. However, the Decision is specifically addressed in the section entitled Regulatory Environment where Bell states: WHOLESALE WIRELINE SERVICES FRAMEWORK REVIEW On July 22, 2015, the CRTC issued Telecom Decision which concluded a review of its wholesale wireline telecommunications policies Although it is not possible at this time to assess the financial impact of Telecom Decision , it could have a negative effect on our business and financial performance as it is progressively implemented over the next few years. However, the nature of such effect, if any, will only be ascertainable once the CRTC has completed its costing models and set the wholesale access rates to be charged by the incumbent telephone companies and cable carriers To reiterate: Bell communicated to its shareholders that, as of 5 August 2015, it was impossible to assess the financial impact of the Decision. Bell further communicated to its shareholders that it is impossible to assess the financial impact until such time as the CRTC sets the wholesale rates that Bell will charge CSPs, at which point in time, there could very well be no financial impact whatsoever. These statements further assume no material financial, operational or competitive consequences of changes in regulations affecting our wireline business after explicitly taking into account the contents of the Decision released on 22 July D. Increased spending substantial completion.further expansion 62. The petition further describes numerous material risks and financial impacts to Bell s ongoing fibre projects arising as a direct result of the Decision: 68 Petition, para Q2 Report, at pg Ibid, pg 21

24 Comments of Primus Canada 22 The CRTC released a decision that has created significant investment instability in the midst of the deployment There should be no doubt that going forward, as a result of the CRTC s decision, each [FTTH] investment opportunity will be reviewed and the pace and scale of our investment will unequivocally be affected. The CRTC s decision means that investment will be stopped or delayed for years Again, Bell indicates the exact opposite to its shareholders. In the Q2 conference call, Bell s CEO is emphatic: [Bell] must start [FTTH] now because there is no doubt in our minds [FTTH] is the place [Bell] needs to go and will provide a return to shareholders given that these projects will generate free cash flow and return for shareholders. It is undoubtable that [FTTH] is where [Bell] has to go As noted, the CRTC mandated wholesale access to FTTH because it posed no threat to Bell s investment. The CRTC concluded that that Bell will generally continue to invest in FTTP access facilities in order to provide enhanced retail Internet access services in response to consumer demand as well as to compete effectively and efficiently with the Cablecos. 74 correct: Bell s representations to shareholders prove that this determination was It is very clear to us as we look out over the next five, 10 years the market is going to demand these type of speeds and so we have to start it now so that as broad a footprint as we possibly have when we complete it as those demands grow frankly it is a matter of table stakes... no doubt in our minds it is the place we need to go and will provide a return to shareholders There is no evidence whatsoever to indicate that there has been any slowdown with respect to Bell s FTTH deployment as a result of the Decision. In fact, the only reference to a decrease in projected wireline investment occurs in Bell s Q3 Shareholder Report, which discloses lower wireline capital expenditures of $40 million in the third 71 Petition, at E17 72 Petition, at E22 73 Q2 Call, at pg Decision, at Q2 Call, at pg 13

25 Comments of Primus Canada 23 quarter. The reason: substantial completion of [Bell Aliant s] FibreOP deployment in Atlantic Canada Very much to the contrary, all of the available evidence demonstrates that Bell is accelerating its fibre deployments and investments. The Q3 reports reassures shareholders that the above unexpected decrease due to project completion was partially offset by increased spending on [Bell s] continued rollout of broadband fibre and further expansion of our fibre-to-the-home (FTTH) footprint including the Gigabit Fibe infrastructure buildout in the city of Toronto and other locations As is further consistent with the CRTC s analysis in the Decision, Bell has acknowledged that it is accelerating fibre investments to compete with equivalent cable company network upgrades: Yes, I mean we ll stay competitive with our competitor. We ve clearly seen the reaction from all cable operators to our leadership on broadband investment 78 E. We are unique on a wireline sense on a North American basis 68. To the GIC, Bell claims that its fibre network is entirely new and that all potential service providers begin from the same starting point. Since 1880, Bell has been an incumbent in communications services delivered over legacy copper networks. But fibre networks are different all potential service providers start from the same starting point completely new networks built under competitive conditions Conversely, but consistent with the CRTC s findings of fact, Bell s representations to shareholders make explicit reference to specific advantages that Bell is 76 Q3 Report, pg Q3 Report, pg Q3 Call, 5 Nov Petition, para E15 80 Petition, pg 16

26 Comments of Primus Canada 24 leveraging from its legacy wireline business to propel its fibre deployments. These unique assets make Bell s investments quite easy : In every single market we have fibre versus where we have fibre to the node. So that makes the investment for us quite frankly quite easy... We are unique in a wireline sense on a North American basis that we can take the capex we got and still generate the free cash flow on the Wireline business to make the investment in broadband. 81 Wireline cash flow generation providing ample support for ongoing fibre build Pre-Decision Testimony on Rural Broadband 70. Similarly, the Petition claims that rural Canada will be no longer receive planned investments. Bell warns the Wireline Decision has eliminated the business case 83 for many of Bell s planned rural fibre builds. 71. The Petition claims this will deepen the digital divide as rural Canada is leftbehind without the fundamental building blocks of the new digital economy, such as ultra-high-definition 4k television. 84 Going forward, rural Canada will be deprived of any of the billions of dollars in investment entirely from private resources 85 that would otherwise position urban Canada as a world-wide leader in next-generation broadband connectivity. 72. The fact is, Bell never intended to undertake any significant deployment of rural fibre and instead has and intends to continue to rely upon taxpayer subsidies to undertake wireline builds in rural and remote areas. When the CRTC initiated a dedicated proceeding to review the broadband services required for rural Canadians to meaningfully participate in the digital economy, 86 Bell submitted the following arguments, just two weeks before the release of TRP : 81 Q2 Call, pgs 13 & Q3 Presentation, pg Petition, at Petition, at Petition, ate23 86 Telecom Notice of Consultation CRTC , Review of Basic Telecommunications Services. Released 9 April 2015