NOTICE NO. DGTP PETITON TO THE GOVERNOR IN COUNCIL CONCERNING TELECOM REGULATORY POLICY CRTC , 22 JULY 2015

Transcription

1 NOTICE NO. DGTP PETITON TO THE GOVERNOR IN COUNCIL CONCERNING TELECOM REGULATORY POLICY CRTC , 22 JULY 2015 CANADA GAZETTE PART I, NOVEMBER 21, 2015 COMMENTS BY VMEDIA INC. DECEMBER 18, 2015

2 Table of Contents A. INTRODUCTION... 1 B. SUMMARY... 2 C. CANADIAN GOVERNMENT POLICY FAVOURS COMPETITIVE MARKETS, WITH INDEPENDENT COMPETITORS FRONT AND CENTRE... 6 D. BELL S ARGUMENT THAT ONLY FACILITIES BASED OPERATORS CAN BE TOLERATED DEFIES 30 YEARS OF EXPERIENCE AND REGULATORY INITIATIVES... 7 E. INDEPENDENT COMPETITORS NEED ACCESS TO FTTH IN ORDER TO COMPETE... 9 F. BELL TRIES TO INTIMIDATE CANADIANS: KILL OFF THE INDEPENDENT COMPETITORS OR WE MIGHT NOT INVEST IN FTTH G. THE CRTC LOOKED CAREFULLY AT FTTH INVESTMENT INCENTIVES, AND TOTALLY REJECTED BELL S SCAREMONGERING H. DESPITE THE CRTC S DECISION, BELL AND OTHER TELCOS CONTINUE TO TRUMPET THEIR ROLLOUT OF FTTH I. BELL WARNS CANADIANS NOT TO UNDERMINE ITS FTTH INVESTMENT THESIS WHATEVER THAT MAY BE J. BELL S ATTEMPT TO BAN CABLECO WHOLESALE USING DOCSIS 3.1 HAS NOTHING TO DO WITH FTTH INVESTMENT INCENTIVES, AND SHOWS THAT BELL S ONLY GOAL IS TO ELIMINATE INDEPENDENT COMPETITORS AND PRESERVE A DUOPOLY K. IF BELL IS SUCCESSFUL, CANADIANS WILL BE THE BIG LOSERS L. CONCLUSION... 20

3 A. INTRODUCTION 1. VMedia is pleased to submit its comments on the Petition by Bell Canada (the Petition) asking the Governor in Council to review and vary Telecom Regulatory Policy CRTC , Review of Wholesale Wireline Services and Associated Policies (TRP ). 2. VMedia is a competitive provider of internet, TV and phone services in Canada. 1 As an independent internet service provider, VMedia competes with the incumbent telephone companies (telcos) and cable television companies (cablecos) in providing Canadian consumers with the high-speed internet-based services they increasingly demand. Today, VMedia is the only independent service provider that holds CRTC licences to offer TV services throughout Canada. 3. VMedia was one of the first companies to be licensed by the CRTC as a non-incumbent broadcasting distribution undertaking (BDU) to deliver TV signals to Canadian consumers. Since then, VMedia has pioneered a number of important innovations, including: the first skinny basic TV offering, its proprietary VBox which combines the functionality of a set-top box capable of receiving conventional TV services and a media payer which can access apps and over the top video and other content over the internet, and its VCloud personal video recording function which allows consumers to scroll back up to 7 days to view TV programs they missed or may want to revisit. 4. VMedia launched its TV service, together with its high-speed internet service, in March Since then, VMedia has grown substantially as it offers Canadians attractive packages of internet, TV and phone services in competition with the incumbents, and continues to grow at a rate of 2% per month. This growth, which has been driven primarily 1 For more information on VMedia, see 1

4 by word of mouth, is a response both to the demand by Canadians for a compelling alternative to the incumbent operators which dominate the market, and to the quality and price-competitiveness of VMedia's services. VMedia currently serves over 18,000 predominantly middle class homes, which enjoy savings of up to 30% on their service packages as compared to the prices charged by the incumbents. 5. VMedia was an active participant in the extensive CRTC proceeding leading to TRP That proceeding reviewed the wholesale framework under which VMedia acquires bandwidth from the telcos and cablecos. VMedia argued for a wholesale framework that includes fair pricing and proper access to telco and cableco facilities, including fibre-to-the-home (FTTH) facilities. 2 This is essential to developing and sustaining a robust competitive market that will benefit Canadian consumers with more choice, innovative services, and better prices. Such a framework is growing in urgency as Canadians transition their TV and video consumption to the internet, dramatically driving up bandwidth usage and the likelihood of abusive pricing if the market is permitted to be dominated by local duopolies. 6. With the issuance of TRP , the CRTC took a number of important steps to improve the wholesale framework, most notably, its decision to require incumbent operators to offer wholesale broadband services over FTTH facilities in addition to other access facilities. It is that FTTH ruling that Bell Canada seeks to overturn with its Petition to the Governor in Council For the reasons set forth below, VMedia strongly urges that Bell s Petition be rejected. B. SUMMARY 8. In its Petition, Bell wants to reverse the CRTC ruling requiring wholesale access to FTTH. Bell also asks, in the name of competitive neutrality, to reverse mandated 2 FTTH is sometimes referred to as fibre-to-the-premises or FTTP. 3 Bell is also seeking to overturn other important pro-competitive rulings in TRP through a review and variance application to the CRTC. 2

5 wholesale access to certain high-speed cableco facilities (which largely do not use FTTH). Bell believes that the CRTC ruling both misreads Government policy and CRTC precedent, and will lead to reduced investment in FTTH. 9. Contrary to Bell s view, Canadian Government policy favours competition including by independent operators like VMedia. In the Prime Minister s recent mandate letter to the Minister of Innovation, Science and Economic Development, Mr. Trudeau set out as a top priority: Increase high-speed broadband coverage and work to support competition, choice and availability of services, and foster a strong investment environment for telecommunications services to keep Canada at the leading edge of the digital economy. (underlining added) 10. The pro-competition policy is consistent with a central element of the Prime Minister's message of standing up for the middle class. It is precisely the middle class, and others less fortunate, that will suffer most if high-speed internet access, so central to all of our lives, continues to be controlled by a telco/cableco duopoly. 11. Bell describes mandated FTTH as some unprecedented regulatory event which undermines facilities-based competition. But the CRTC has for more than 30 years welcomed all manner of competitive entry including by facilities-based, non-facilitiesbased and hybrid operators. Indeed, Bell and other telcos readily employ sharing and resale of other telco facilities and services in formulating their own retail service offerings. The CRTC s FTTH ruling is thus fully consistent with the CRTC s longstanding regulatory approach, and is fully consistent with the federal Government s 2006 Policy Direction to the CRTC. 12. Independent competitors like VMedia will be devastated if Bell s Petition is granted. Independent competitors use incumbent wholesale services in their retail offerings. Consumers are demanding higher speed services to access the growing number of highresolution streaming services and more downloads, which is precisely the reason why Bell is rolling out FTTH. The independent competitors must be able to respond with their own competitive offerings, otherwise they will wither and die. 3

6 13. It is no answer to say that the independent competitors should ubiquitously install their own FTTH. Some will install FTTH in select areas, but the telcos like Bell hold such enormous legacy advantages, including large customer bases, long-standing customer relationships, large amounts of legacy infrastructure and brand recognition, that only they can realistically be expected to install FTTH in a widespread manner. After all, Bell has not announced any grand FTTH investments in Calgary, Saskatoon and Vancouver, and Telus is silent on installing FTTH for homeowners in Toronto, Halifax and Ottawa at the same time as it announces its ambitious FTTH plans for Vancouver. 14. Bell s key complaint with the CRTC decision is that mandating wholesale access to FTTH will decrease Bell s incentive to invest in FTTH especially in small cities and rural communities. Bell believes that mandated FTTH access will lead to reduced triple-play (internet/tv/phone) revenues from consumers, which cannot be adequately compensated by the CRTC-mandated pricing for its wholesale services. 15. Bell s investment argument is not new. It was carefully examined and rejected by the CRTC in the proceeding leading to TRP The CRTC determined that Bell and other telcos will continue to invest in FTTH to meet consumer demand and in order to compete with the cablecos. This makes good sense as the telco DSL offerings are at a competitive disadvantage to cableco DOCSIS offerings. 16. Building the facilities needed to ensure that Bell can deliver internet services to Canadians at speeds that match and exceed those offered by cablecos is central to Bell s business strategy. That strategy will not be undermined by the possibility that independent competitors, which together serve a small fraction of the market, will have wholesale access, at reasonable prices, to those facilities. 17. Post-decision events confirm the appropriateness of the CRTC s findings. Bell has announced plans to spend billions of dollars on FTTH, and it has publicly indicated it can well afford the investment, which it calls table stakes in competing with cable. 4

7 18. Bell s Petition is nothing more than attempt to preserve a telco-cableco duopoly, at a time when triple play competitors, such as VMedia, are launching their services. Why else would Bell call for eliminating mandated wholesale access on cableco DOCSIS 3.1 facilities which has nothing to do with FTTH investment while recognizing that the cablecos still offer their own triple play packages? Bell s rationale about maintaining competitive neutrality is simply a code for maintaining a duopoly, a marketplace construct that is an invitation to anticompetitive abuse and that can never be in the best interest of consumers. 19. The fact is that the price that Canadians pay for triple play bundles under the current duopoly is very high by world standards, which shows why it is so much in Bell s interest to suppress independent competition. 20. Bell s investment argument is a lose-lose proposition for Canadians. Bell is saying: eliminate mandated wholesale access to FTTH, and thus destroy independent competition, or it will underinvest in FTTH, particularly in under-served rural areas. But Bell does not actually commit to invest in FTTH even if all independent competition is destroyed. And given Bell s many other businesses, and an ever changing investment environment, there can be no certainty that Bell will indeed invest in FTTH in preference to other opportunities. For example, Bell s entire investment in FTTH in the 5 years before it bought Astral Media was but a fraction of Bell s purchase price for that acquisition. 21. Despite the incoherence of Bell s investment thesis, somehow Canadians are supposed to take it on faith that Bell will do the right thing with FTTH roll-out, provided that all of its independent competitors are first wiped out. This is nothing but a Bell fairy tale but with no happy ending. 22. We ask that the Governor in Council to reject Bell s Petition and to do so expeditiously. Bell s Petition creates uncertainty as to key elements of the CRTC s wholesale framework, and therefore impacts the business plans of independent competitors such as VMedia. The earlier that this uncertainty can be lifted, the earlier that independent competitors can move forward with turning their business plans into reality, and thus developing the competitive service offerings that Canadians want to see. 5

8 C. CANADIAN GOVERNMENT POLICY FAVOURS COMPETITIVE MARKETS, WITH INDEPENDENT COMPETITORS FRONT AND CENTRE 23. Both the CRTC and the federal Government have consistently endorsed policies that favour providing Canadians with more choice and competition in telecom and broadcasting services, in particular high-speed internet services. Indeed, this policy was recently articulated as a top priority in Prime Minister Trudeau's mandate letter to the Minister of Innovation, Science and Economic Development: 4 Increase high-speed broadband coverage and work to support competition, choice and availability of services, and foster a strong investment environment for telecommunications services to keep Canada at the leading edge of the digital economy. (underlining added) 24. The Prime Minister s instructions recall the position taken by Minister Marc Garneau as Industry, Science and Technology critic for the Liberal Party when he made the following submissions to the CRTC in connection with Telecom Notice of Consultation : The Liberal Party is in full support of an open, innovative and competitive Internet environment. Walled gardens, opaque systems and anti-competitive barriers are the antithesis of the phenomenon we know as the Internet. We have seen it around the world, and in Egypt most recently: the Internet is the world s network of new ideas, of creativity and innovation. The Internet is not simply a series of tubes, wires and towers owned and controlled by telecom companies, the Internet is and must be an open network of people, connecting ideas and creativity. 25. The pro-competition policy is consistent with a central element of the Prime Minister's message of standing up for the middle class. It is precisely the middle class, and others less fortunate, that will suffer most if high-speed internet access, so central to all of our lives, continues to be controlled by a telco/cableco duopoly. 26. After housing, food and transportation, the communications services provided by Bell and other incumbents account for the next largest recurring household expenditures. Any diminution of choice and competition in the provision of these services will result in the 4 See 6

9 unmerited transfer of billions of dollars out of the pockets of the middle class, and other Canadian consumers, into the coffers of the incumbents. 27. VMedia, and other independent competitors, represent choice and competition in a market dominated by a telco/cableco duopoly. This duopoly has enjoyed decades as the privileged and protected providers of telecom and broadcasting services to Canadians. 28. The CRTC s wholesale services framework is an absolutely vital element in enabling competition from independent competitors. The only way for independent competition to challenge the duopoly in a meaningful way, and secure the benefits for Canada s middle class that the Canadian Government envisages, is through a robust and sensible wholesale services framework including the access to FTTH that the CRTC mandated, but Bell now seeks to deny. D. BELL S ARGUMENT THAT ONLY FACILITIES BASED OPERATORS CAN BE TOLERATED DEFIES 30 YEARS OF EXPERIENCE AND REGULATORY INITIATIVES 29. In its Petition, Bell tries to shape the narrative by characterizing the raison d' être of the CRTC s wholesale services framework to be the promotion of facilities-based providers, as Bell narrowly defines them. 5 This is flatly wrong. Policy-makers and regulators have for more than 30 years supported the entry by all manner of competing operators, whether facilities-based, based on resale, or hybrid operators that employ a combination thereof. Facilities-based entry is obviously important, but other forms of entry are also highly valued. 30. As long ago as 1985, the CRTC strongly endorsed the entry of non-facilities based competitors: 6 The Commission considers that, with respect to resale and sharing, users would benefit from an increase in the number of suppliers through improvements in supplier responsiveness and a stimulation of service innovation. Resale and sharing would 5 Bell Petition, para Telecom Decision CRTC 85-19, 29 August 1985, section V. D. 1. 7

10 spread the benefits of competition through the market more quickly than would facilities based competition and, initially at least, these benefits would be available to a larger number of smaller users. Further, permitting expanded resale and sharing would remove some of the uncertainty in the provision of enhanced services in those cases where it may be difficult to determine the primary function of an enhanced service. Expanded resale and sharing would also create pressure for the reduction of certain rates and for increased flexibility in rating structures. In addition, where carrier services provide capacity in excess of user requirements, resale and sharing can lead to more efficient capacity utilisation. (underlining added) 31. Since then, the CRTC has made numerous pronouncements on the value of competition from new entrants that rely on wholesale services from the incumbents. For example, in Telecom Regulatory Policy , the CRTC stated as follows: 3. Services provided by the independent service providers bring pricing discipline, innovation, and consumer choice to the retail Internet service market. According to the Commission s most recent monitoring report, the network providers have 94 percent of the residential retail Internet market in Canada and the independent service providers have 6 percent of that market. For the Commission, it has been important to ensure that retail Internet service competition is sufficient to protect consumers interests. (underlining added) 32. The CRTC carefully considered whether its FTTH ruling would comply with the federal Government s 2006 Policy Direction to the CRTC. 7 It concluded that it did indeed comply fully. Moreover, the CRTC found that solely relying on market forces to bring about wholesale access, as Bell wants (and which, as a practical matter, means the end of independent competitors), would not be sufficient to achieve the objectives of the Policy Direction, and would have an adverse impact on retail Canadian consumers: 8 With respect to disaggregated wholesale HSA services, including over FTTP access facilities, the Commission considers that reliance on market forces would not satisfy the Commission s policy objectives, in particular to support the efficiency and competitiveness of the retail Internet access services market. 33. It is also important to realize that all operators share infrastructure, which is the essence of resale. Even a telco like Bell does not install infrastructure in all of Canada. Rather, where it wants to offer service in a community where it has no infrastructure of its 7 SOR/ TRP , para

11 own, it will readily resell the services of another operator. It would be senseless to demand that Bell and Telus and Rogers and Shaw and Cogeco, among others, install their own fibre or other physical links to each and every location in Canada in order to satisfy some arbitrary notion of facilities-based purity. If further evidence is needed as to the prevalence of facilities sharing, consider that Bell and Telus have developed an extensive shared mobile wireless network (as have other wireless operators). The savings by doing so are substantial. Bell would no doubt argue that it would be absurd to demand that each operator abandon this shared approach and only install its own coast-to-coast network facilities. Yet, if Bell s arguments in the Petition were to be accepted at face value, that is exactly the outcome that should logically follow. 34. Accordingly, Bell s argument that only facilities-based operators, as Bell defines them, should properly have a role in Canadian communications, is completely misplaced, and is contradicted by policy and regulatory decisions that have been in place for 30 years. E. INDEPENDENT COMPETITORS NEED ACCESS TO FTTH IN ORDER TO COMPETE 35. In responding to Bell s arguments, it is important to appreciate that Bell s proposal will, if implemented, destroy independent suppliers of internet services and TV services. Consumers are demanding greater internet speeds and are downloading and uploading ever greater amounts of data. This is manifestly evident by the decision by Bell (as well as Telus, Verizon and AT&T) to invest large sums to install FTTH, which Bell explains in its petition. 9 Bell s CEO, George Cope, further elaborated on the business case for FTTH at a November 12, 2015 conference in Toronto as follows: 10 We have 2.2 million homes and we have evidence that our churn is better, our operating costs are better and the customer wants to migrate to those speeds [of a gigabit per second or more] over time. (underlining added) 9 Ibid, para 2 10 FTTH to cover 90% of Bell Footprint in 10 years: Cope ; The Wire Report. 11/13/2015. See 9

12 36. The fact that Bell foresees a need for gigabit service to the home, 11 and is willing make sizeable investments to achieve it for 90% of its service footprint, 12 is a strong indicator of why independent competitors need to be able to offer their customers similar levels of service. If independents are relegated to dead-end low speed service over less functional access facilities that are increasingly stranded and to transmission technologies that are not supported, their businesses will wither and die. These points were emphatically and repeatedly made by independent competitors in the proceeding leading up to TRP The implications of the Petition are especially worrisome for TV providers like VMedia. Some 4K video is already offered, and this will inevitably increase over time. Each stream could require as much as 32 Mbps to maintain decent quality of service. It is not realistic to expect that video competitors will be able to offer a quality 4K video service using Bell s non-ftth wholesale services, given that the connected home of the future may well want to simultaneously run multiple video streams as well as other data applications. Bell already enjoys a tremendous advantage in delivering its content over the internet, effectively zero-rating usage consumed to access that content, while VMedia has to pay dearly for every bit consumed by subscribers to its TV services. 38. It is no answer to say that the independent competitors should ubiquitously install their own FTTH. Some will install FTTH in select areas, but the telcos like Bell hold such enormous legacy advantages, including large customer bases, long-standing customer relationships, large amounts of legacy infrastructure and brand recognition, that only they can realistically be expected to install FTTH in a widespread manner. 14 After all, Bell has 11 Bell s website already offers gigabit service using FTTH. See See, for example, TRP , paras During the hearing leading to TRP , Bell Aliant stated that it expected to achieve a 22% penetration rate for its FTTH deployment. See Bell Aliant response to interrogatory Bell Aliant/Telebec(CRTC)15Oct

13 not announced any grand FTTH investments in Calgary, Saskatoon and Vancouver, and Telus is silent on installing FTTH for homeowners in Toronto, Halifax and Ottawa at the same time as it announces its ambitious FTTH plans for Vancouver. If these industry giants are deterred from widespread installation of FTTH in another telco s home turf, how can much smaller independent operators be expected to do it? F. BELL TRIES TO INTIMIDATE CANADIANS: KILL OFF THE INDEPENDENT COMPETITORS OR WE MIGHT NOT INVEST IN FTTH 39. Bell's main argument in its Petition is that the CRTC ruling requiring wholesale access to FTTH will decrease Bell s incentive to invest in FTTH, especially in smaller cities and rural areas. As a result, fewer communities will be connected with FTTH and Canadians will not reap the benefits of higher internet speeds that are enabled by FTTH, such as 4K television, ultra-high speed video streaming, telehealth, etc. 40. Bell claims that this reduced investment incentive arises because Bell cannot be assured of the triple play (internet/tv/phone) revenues it seeks when it installs FTTH facilities. Although the CRTC has clearly stated that Bell will receive adequate and profitable compensation for the wholesale access to FTTH, Bell is not satisfied. Bell believes that there is no amount of compensation that can preserve Bell s investment incentive. In Bell s view, the only suitable remedy for this alleged reduced investment incentive is to prohibit wholesale FTTH access altogether Bell not only wants to deny wholesale access on its FTTH, but it wants wholesale access to be denied for DOCSIS 3.1 services from cablecos even though the cablecos have not filed a petition asking for such action, and even though the cablecos do not need FTTH to benefit from DOCSIS 3.1 (as we explain later in this submission). Moreover, Bell s position vis-à-vis the cablecos has nothing at all to do with Bell s own FTTH investment incentives. After all, the cablecos already compete directly with Bell. Why should Bell s investment decisions depend on what wholesale services the cablecos may or may not 15 Bell Petition, paras

14 provide? Bell s only justification is that this prohibition is needed in the name of competitive neutrality a nebulous concept that Bell does not explain In the following paragraphs, we will explain why Bell s FTTH investment thesis is mistaken and should be rejected. It is but a smokescreen for Bell s real agenda, which is to kill off competition from independent suppliers such as VMedia. G. THE CRTC LOOKED CAREFULLY AT FTTH INVESTMENT INCENTIVES, AND TOTALLY REJECTED BELL S SCAREMONGERING 43. In an extensive and comprehensive proceeding leading to TRP , the CRTC received much input on the issue of FTTH wholesale access and the investment incentives for the incumbent operators. Bell Canada was a very active participant, and filed numerous submissions advocating its investment thesis the very same thesis and arguments that Bell recites in its Petition. In its decision, the CRTC opted for mandated FTTH wholesale access. In doing so, it categorically rejected the investment scaremongering of Bell and other incumbents, as follows: 141. With respect to disaggregated wholesale HSA services over FTTP access facilities, the potential disincentive that a decision to mandate the provision of such services could have on investment was the predominant reason given by the incumbent carriers that the Commission should reject such a proposal. There are several reasons, however, why the negative impact on investment is not likely to happen to any significant degree, particularly in more urban areas. First, the Commission expects that the incumbent carriers 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. 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. (underlining added) 44. The CRTC s findings make good sense. The telcos' DSL internet offering is less reliable and less speedy than the cableco DOCSIS offerings, and the gap will increase over time. As Bell and the other telcos consider a future of ever increasing demand for bandwidth, especially for TV and other video services, they cannot afford to let the cablecos gain an 16 Bell Petition, para. 8 12

15 even greater competitive advantage over them. Accordingly, the telcos like Bell must offer an improved, or at least comparable, product. That means FTTH. Moreover, the CRTC s findings are amply supported by subsequent events. H. DESPITE THE CRTC S DECISION, BELL AND OTHER TELCOS CONTINUE TO TRUMPET THEIR ROLLOUT OF FTTH 45. Since the release of TRP on July 22, 2015, Bell s own statements have underscored the Commission s conclusion that Bell and other incumbent telcos will continue to invest in FTTH to provide enhanced internet service and to better compete with the cablecos. In his August 6, 2015 conference call with investment analysts, which took place shortly after Bell announced a $1.14 billion FTTH upgrade in Toronto, Mr. Cope responded to a question on the return from Bell s investment on its FTTH-enabled Gigabit Fibe service as follows: 17 Yes, so, look, the first of all we are really excited about the launch of it in the marketplace on Monday in some of our footprint. 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. So it is not a matter of market share, frankly it is a matter of table stakes from our perspective. That will be the business for broadband. One of the differences certainly we are seeing in North America is Canadian telco market share gains versus cable is different than other countries and we think that is because of the hard investment we are making and our peer competitor in Western Canada to make sure Canada has the leading broadband services in the country. (underlining added) 46. In the same conference call, Mr. Cope also explained other advantages from FTTH and how Bell can comfortably afford the investment needs: We believe that the cost to delivering these services through the technology evolution to fibre and through the work that the great work that John Watson's team is doing on the service metrics, will over time take cost out of our business in the competitive market that we are in and we clearly think that is where we have to go. That is, I do not want to make a forecast on margins but our results over the last eight years probably you know, is an example of our focus on margins. So we have the free cash flow to invest. 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. 17 Transcript available at 13

16 We think it gives a very unique opportunity to be one of the broadband leaders in our markets and that is relative to other players across the world there, our telco versus cable. (underlining added) 47. Other telcos are likewise committing substantial investment dollars in FTTH. On October 2, 2015, Telus announced a $1 billion project to bring FTTH to Vancouver The commitments to FTTH by Bell and Telus are a strong endorsement of the CRTC s finding that the telcos will continue to invest in FTTH notwithstanding the requirement to permit wholesale access. They recognize that FTTH is table stakes, to use Mr. Cope s language, in their competitive rivalry with the cablecos, and their desire to capture the home of the future. The independent competitors that are its wholesale customers have nothing at all to do with these table stakes it is the cablecos that matter to its FTTH rollout plans. I. BELL WARNS CANADIANS NOT TO UNDERMINE ITS FTTH INVESTMENT THESIS WHATEVER THAT MAY BE 49. Bell argues that wholesale FTTH access will reduce its incentive to invest in FTTH, and no amount of wholesale compensation will be satisfactory to restore that incentive. 19 But Bell does not explain its FTTH investment algorithm, and Bell fails to articulate a commitment to in fact make investments in FTTH. This is Bell s lose-lose ultimatum to Canadians: if you don t kill off independent competition, I might not invest; but if you do kill off that competition, maybe I ll invest, but I won t commit to do so. Canadians should firmly reject such intimidation. 50. Moreover, Bell s FTTH investment incentives argument ignores the impact of Bell s other investment incentives and priorities in a constantly changing investment environment. Remember that in 2013 Bell spent $3.2 billion to buy Astral Media, even though in the years just prior to that acquisition, Bell Canada invested nowhere near that 18 See vancouver/ /story.html 19 Petition, para

17 amount in FTTH. 20 And this was at a time when Bell was under no regulatory obligation to provide wholesale access to that FTTH. Bell just decided that investing in Astral was a better use of its investment dollars than investing in FTTH. There is nothing to prevent it from making that type of decision again regardless of whether Bell succeeds or fails in its goal of destroying independent competition. 51. Bell s investment thesis is also overly pessimistic. Underlying its statement that no amount of revenue will be sufficient to compensate Bell for mandated wholesale FTTH, is the assumption that its FTTH investment needs, in perpetuity, three revenue streams: internet, TV and phone, and that once this business is lost to a FTTH-enabled competitor, Bell will never see any revenue recovery. Yet alternative scenarios are quite feasible. Bell could sell FTTH on a wholesale basis to a competitor, and enjoy the generous CRTCmandated wholesale margins, but then compete with that competitor to win back the consumer s business. Bell could win back all of the business, or win back some of the business (that is, one or two of the three revenue streams). Although Bell is no slouch as a competitor, somehow it now believes that it really cannot compete with independent operators once they gain a toehold of wholesale access to FTTH. Bell s pessimism on this score is much too simplistic and contrived to be taken seriously. 52. Bell s investment activities have been surprisingly constant regardless of CRTC decisions favouring competition. During the past 10 years, Bell s capital expenditures have ranged from a low of $2.85billion, to a high of $3.7billion (in 2014). 21 Capital intensity, the proportion that capex is to revenues, has consistently been within industry norms, ranging from a low of 16.1% to a high of 17.8%. Indeed, based on the trend of the last five years notably the years following the CRTC s last major wholesale services decision in 2008 (and 20 Petition, Attachment 2, p BCE Inc Annual Report 15

18 which Bell loudly complained about 22 ) spending and the intensity rate have actually increased. 53. The data simply does not support Bell's core contention that CRTC pro-competition decisions, notably its 2008 wholesale decision, have had a negative impact on its investment activities. 54. Despite the incoherence of Bell s investment thesis, somehow Canadians are supposed to take it on faith that Bell will do the right thing with FTTH roll-out, provided that all of its independent competitors are first wiped out. This is nothing but a Bell fairy tale but with no happy ending. 22 See 16

19 J. BELL S ATTEMPT TO BAN CABLECO WHOLESALE USING DOCSIS 3.1 HAS NOTHING TO DO WITH FTTH INVESTMENT INCENTIVES, AND SHOWS THAT BELL S ONLY GOAL IS TO ELIMINATE INDEPENDENT COMPETITORS AND PRESERVE A DUOPOLY 55. Bell not only asks to deny wholesale FTTH access for its facilities, but it also seeks to deny wholesale access to cableco DOCSIS 3.1 networks, 23 including those of its sportsproperty-holdings partner Rogers. Bell argues that this is needed in order to maintain competitive neutrality It is important to realize that DOCSIS 3.1 does not need FTTH to operate. This is abundantly clear from the website of Cablelabs, the developer of DOCSIS 3.1: 25 Do you need to upgrade the cable plant to deploy DOCSIS 3.1 technology? No, DOCSIS 3.1 technology does not require any upgrades to the HFC plant in order to operate. DOCSIS 3.1 technology can capitalize on HFC network upgrades to increase network capacity. How does DOCSIS 3.1 technology compare with FTTH? DOCSIS 3.1 technology was designed to support multiple Gbps of line capacity while maintaining economical deployment and maintenance costs on the current HFC infrastructure, thus delivering Gbps performance to the masses in contrast to the limited deployment of FTTH solutions. 57. Bell s opposition to wholesale access over DOCSIS 3.1 networks has nothing to do with investment incentives for FTTH, because FTTH is simply not required for DOCSIS 3.1. Bell s sole objective is to deprive independent operators like VMedia of any wholesale vehicle to grow their offerings and compete with Bell. 58. Bell s rationale about maintaining competitive neutrality is simply a code for maintaining a duopoly, a marketplace construct that is an invitation to anticompetitive abuse and that can never be in the best interest of consumers. The CRTC has long warned of the perils of a telco-cableco duopoly, and its negative effect on Canadian consumers. In 23 Bell Petition, paras. E20, 8, DOCSIS is an acronym for Data-Over-Cable Interface Specification. DOCSIS 1.0 was released in 1997, and the latest version, DOCSIS 3.1, was released in See 17

20 its 2010 speed-matching decision, Telecom Regulatory Policy CRTC , the CRTC stated: 55. The Commission concludes that, without a speed-matching requirement for wireline aggregated ADSL access and TPIA services, it is likely that competition in retail Internet service markets would be unduly impaired. In the Commission s view, an ILEC and cable carrier duopoly would likely occur in the retail residential Internet service market, and competition might be reduced substantially in small-to-medium-sized retail business Internet service markets. The Commission considers that, in such circumstances, retail Internet service competition would not continue to be sufficient to protect consumers interests. (underlining added) 59. Accordingly, Bell s call, in the name of competitive neutrality, to end wholesale access to cableco services such as DOCSIS 3.1 should be recognized as a blatantly anticompetitive strategy that has nothing at all to do with the FTTH investment incentives that Bell professes to be concerned about, and everything to do with killing off independent competitors like VMedia. K. IF BELL IS SUCCESSFUL, CANADIANS WILL BE THE BIG LOSERS 60. What Bell seeks is the annihilation of the competitive market for internet services and for internet-based bundles (internet/tv/phone). The competitive market for triple play bundles is particularly important, given their great popularity 26 and given that independent competition is in its infancy with the recent BDU licensing of VMedia and other new entrants. It is not hard to understand why Bell seeks to stifle this competition. 61. Canadians already pay very high rates for triple-play bundles in a duopoly environment. A recent OECD report compared Canadian pricing with other countries and showed Canada at or near the top of the list The BCE 2013 Annual Report, p. 58, reported that 80% of Bell Fibe TV customers take all three Bell products: TV, internet and phone. 27 OECD (2015), Triple and Quadruple Play Bundles of Communication Services, OECD Science, Technology and Industry Policy Papers, No. 23, OECD Publishing, Paris. 18

21 Figure 7. Triple-play basket (10 Mbps download speed and 25 GB, fixed telephone connection and basic paytelevision), April 2014, USD PPP Figure 8. Triple-play basket (30 Mbps download speed and 200 GB, unlimited fixed calls, premium paytelevision including sports and movies), April 2014, USD PPP 62. The 2015 edition of the Wall Report, a comparative analysis of pricing of telecom services in various countries which was commissioned by the CRTC and Industry Canada, 19

22 made very similar observations as to the high pricing of Canadian bundles relative to other countries: 28 In the case of Bundle 2, which includes wireline telephony, broadband and basic digital TV, the average Canadian bundle price of roughly $140 is also well above the average bundle price for the other surveyed countries of roughly $ Competition from independent TV service providers like VMedia is a new phenomenon in Canada. It is understandable that Bell and the other telcos want to do everything they can to frustrate such competition. Restricting the ability of independent competitors to access FTTH will relegate them to a lower quality offering in limited geographies, and therefore much reduced competitive effectiveness. Canadians will lose out on the better pricing and increased innovation that vigorous competition can bring, and instead they will be stuck with a telco/cableco duopoly. L. CONCLUSION 64. VMedia strongly urges the Governor in Council to reject Bell s Petition. Bell s threat to underinvest in FTTH unless independent competition is destroyed should be dismissed. Bell s goal, which is to destroy independent competition and inflict an anticompetitive wireline communications duopoly on Canadians, is as transparent as it is flawed. Bell has simply recycled the same hollow arguments that the CRTC rightly dismissed in TRP We also ask that the Governor in Council move expeditiously to reject Bell s Petition. Bell s Petition creates uncertainty as to key elements of the CRTC s wholesale framework, and therefore impacts the business plans of independent competitors such as VMedia. The earlier that this uncertainty can be lifted, the earlier that independent competitors can move forward with turning their business plans into reality, and thus developing the competitive service offerings that Canadians demand and deserve. 28 Wall Communications Inc., Price Comparisons of Wireline, Wireless and Internet Services in Canada and with Foreign Jurisdictions, 2015 Edition, March 30, 2015, pp