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Teresa Griffin-Muir
Vice President, Regulatory Affairs
Vice-présidente des Affaires réglementaires
MTS Allstream Inc.
 

22 February 2011 by Access Key

Mr. Robert A. Morin


Secretary General
Canadian Radio-television and
Telecommunications Commission
Ottawa, ON K1A 0N2

Dear Mr. Morin:

Subject: Telecom Notice of Consultation CRTC 2011-77 – Requests for modifying the
scope and terms of the proceeding – MTS Allstream comments

1. Pursuant to the Commission staff letter of 15 February 2011, MTS Allstream Inc.
(MTS Allstream) is hereby providing its comments regarding the scope of the proceeding
initiated by Telecom Notice of Consultation CRTC 2011-77, Call for comments – Review
of billing practices for wholesale residential high-speed access services, 8 February
2011 (TNC 2011-77).

2. While MTS Allstream agrees with the Canadian Network Operators Consortium (CNOC)
that a review of the regulatory framework for wholesale access to incumbents’
broadband facilities is ultimately required, particularly with regards to business services,
in the context of the current proceeding MTS Allstream submits that the Commission
needs instead to address the fundamental issues regarding the nature of wholesale
broadband access services.

3. It has become evident through the hearings before the Standing Committee on Industry,
Science and Technology (INDU) that, despite two proceedings already on usage based
billing (UBB), there is no agreement on or understanding of the facts. This has resulted
in the proliferation of misinformation by Bell concerning:

i. The existence of congestion on the Bell network;

P.O. Box 6666, MP19C, 333 Main Street, Winnipeg, MB R3C 3V6 Tel: (613) 688-8789 Fax: (613) 688-8303 email: iworkstation@mtsallstream.com
Suite 1400, 45 O’Connor Street, Ottawa, Ontario K1P 1A4 Tel: (613) 688-8789 Fax: (613) 688-8303 email: iworkstation@mtsallstream.com
Mr. Robert Morin
22 February 2011
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ii. The configuration of the Bell network, the traffic that rides on the shared network
and the location of choke points within that network and the hand-off of traffic
from the Bell network to the “Internet”;

iii. The Bell GAS service including the differences between GAS and retail internet
access service, the structure of the Bell GAS tariff and the fact that within the
current tariff competitors pay for access and capacity, the current mark-up
incorporated in the price of GAS, and the implication of the proposed wholesale
UBB on retail pricing;

iv. The actual cost of capacity and whether the imposition of UBB on wholesale
access, and in this instance specifically GAS as proposed by Bell, actually even
addresses the so-called “subsidization” by low volume Internet users of higher
volume Internet users;

v. The relationship between increasing demand and network costs.

4. Prior to determining whether the imposition of UBB on a wholesale broadband access


service is appropriate, MTS Allstream submits that the Commission must first conclude
on the issues outlined above. It is only through the testing of Bell’s assertions by the
Commission and interested parties that a fulsome understanding of reality, and therefore
the appropriateness of the imposition UBB in the context of GAS, can be ascertained.
The very fact that at this juncture confusion and misinformation continue to abound is a
strong indication that the scope of this process must include an assessment of these
issues.

5. In his presentation to INDU, Bell Canada’s Senior Vice-President Regulatory and


Government Affairs made a number of assertions that bear scrutiny.

6. The rates that competitors pay to use incumbents’ broadband access services such as
GAS are based on costs developed using estimates of average peak period demand, as
Bell described in The Companies(CRTC)20Aug09-8 TN 242 & 7181, a copy of which is
Mr. Robert Morin
22 February 2011
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appended as Attachment 1. Yet Bell’s Senior Vice-President claimed that wholesale


ISPs’ heaviest users are leaving Bell in a bind.

7. However, there is no indication that these users, which Bell admits are few in number,
are contributing any more heavily than the vast bulk of users, which are Bell’s own retail
end-customers, to peak period demand. This is important because it is the total number
of consumers using the Internet during the busiest time of day that creates the peak
period. Usage at other times of the day does not cost Bell any more and competitor
ISPs are fully compensating Bell based on peak period demand. Obviously, Bell’s claim
needs to be looked at more closely.

8. Bell’s Senior Vice-President also claimed that the way Bell has proposed applying
usage-based billing on GAS does not prevent competitors from differentiating their
services from Bell’s own retail services. He also claimed that the discounts applied to
GAS give wholesale ISPs a 50% to 60% reduction relative to Bell’s retail offers. These
claims also need to be examined.

9. In the first instance, there is no way that a competitor ISP relying on Bell’s GAS
accesses can adequately control its costs without applying the same or lower caps on its
retail service as Bell does on its own retail services. This is the case because these are
the same caps Bell has proposed to arbitrarily place on GAS. Under these
circumstances the competitor has no option but to mirror Bell’s service pricing. If the
competitor does not impose a cap then it runs the risk of not recovering the direct costs
applied by Bell under its proposed UBB. If on the other hand that same competitor tries
to control its costs by establishing a lower cap, then that competitor renders its own retail
service uncompetitive.

10. In the second instance, the claim made regarding the margins available to GAS users is
readily countered by a quick look at the GAS rates Bell filed in response to the
Commission’s matching speeds determination in the Broadband Access Policy. 1 Just

                                                           
1
Telecom Regulatory Policy CRTC 2010-632, Wholesale high-speed access services proceeding,
30 August 2010 (the Broadband Access Policy).
Mr. Robert Morin
22 February 2011
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the access component of those rates alone, without taking into account the fact that
competitors must also purchase adequate capacity at the aggregated high-speed
service provider interface (AHSSPI), is very little higher than Bell’s nominal retail rate at
each speed. When bundle and other retail discounts are taken into account, Bell’s retail
prices can be more than 20% lower than the associated GAS rate, as can be seen from
the following table:

Lowest
Wholesale Retail Rate Difference Bundle Difference
Rate (W) (R) (R/W) Price (R/W)
Ontario
– 6 Mbps $ 41.21 $ 41.95 2% $ 31.95 -22%
– 12 Mbps 46.77 51.95 11% 36.95 -21%
– 16 Mbps 58.51 61.95 6% 46.95 -20%
– 25 Mbps 67.84 67.95 0% 52.95 -22%
Québec
– 7 Mbps $ 43.50 $ 44.95 3% $ 34.95 -20%
– 10 Mbps 45.90 49.95 9% 39.95 -13%
– 16 Mbps 58.51 59.95 2% 44.95 -23%
– 25 Mbps 67.84 69.95 3% 54.95 -19%

11. In addition to the wholesale access rates shown, competitor ISPs must also pay Bell’s
monthly rates for AHSSPI capacity sufficient to handle the aggregate demand for their
respective services and, in many cases, for the unbundled local loop over which the
access rides. On top of this, competitor ISPs are responsible for all the ancillary
components that make up an Internet service and that are included in Bell’s retail rates.
These include such things as email addresses and storage capacity, security features,
parental controls and portal services.

12. There is also confusion, as is clear from Bell’s INDU testimony, as to how GAS customer
traffic travels over the Bell network and where that traffic is handed off the Bell network
to the GAS customer’s network, or server, to the Internet. This is evident from Bell’s
claim on the one hand that GAS competitors’ end-customer traffic travels over the same
network as Bell’s retail customers’ traffic (see attached diagram taken from Bell’s
Mr. Robert Morin
22 February 2011
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response to The Companies(Primus)1Mar10-3 TNC 2009-261, appended as


Attachment 2) and on the other that Bell’s IPTV traffic does not use this same network.

13. Moreover, while acknowledging that the physical access is common between Bell’s IPTV
service and Internet traffic, Bell now claims that there is no congestion on this portion of
its network. Yet this contradicts claims it made in the proceeding leading up to the
Broadband Access Policy, where Bell opposed competitor use of its fibre to the node
facilities.

14. Finally, while Bell made frequent references to the amounts it is investing to expand the
capacity of its broadband networks, Bell failed to make clear the extent of the investment
that is needed to combat existing congestion, meet future expected demand for its own
retail offerings, competitor retail offerings and more importantly what aspects of the
current wholesale costing framework (prior to the imposition of UBB) prevent full
recovery of the costs associated with this investment. Bell left the impression with the
industry committee that the current regulatory wholesale costing methodology does not
recover the costs associated with current operating expenses and replacement capital to
meet new demand for all carriers. At the same time, Shaw’s Senior Vice-President
Regulatory Affairs indicated that when Shaw launched its retail high-speed Internet
service, it included 1.5 Mbps download speed at under $55 per month, while that same
service today includes 7.5 Mbps download speed for under $40. It would appear that
while demand is increasing the cost for capacity is actually decreasing – which is a
widely agreed upon conclusion regarding the Internet.

15. It is clear from the few examples of misstatements and contradictions provided above
that, absent a full assessment of the issues outlined in items (i.) through (v.), the
Commission will not have the factual groundwork available to reach a determination as
to whether under the current essential services regime and the wholesale costing
framework, UBB on GAS is just and reasonable. Under these circumstances it will be
impossible for the Commission to conclude whether the imposition of UBB on wholesale
GAS customers’ retail customers is just and reasonable pursuant to sections 25 and 27
of the Telecommunications Act.
Mr. Robert Morin
22 February 2011
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16. Therefore MTS Allstream submits that the scope of the proceeding must include a full
assessment of the issues outlined above.

Yours truly,

for Teresa Griffin-Muir


Vice President, Regulatory Affairs

c.c.: Pauline Jessome, MTS Allstream (613) 688-8791


Lynne Fancy, CRTC lynne.fancy@crtc.gc.ca
Tom Vilmansen, CRTC tom.vilmansen@crtc.gc.ca
Attached distribution list

* * * End of Document * * *
Attachment 1
MTS Allstream Comments - TNC 2011-77 Scope
22 February 2011

Bell Aliant/Bell Canada Response to Interrogatory


5 October 2009 The Companies(CRTC)20Aug09-8 TN 242 & 7181
Abridged
Page 1 of 2

INFORMATION REQUESTED BY
CANADIAN RADIO-TELEVISION AND TELECOMMUNICATIONS COMMISSION

Q. Explain: (i) if and how peak period usage impacts the switching and transmission
costs and if so, for which cost components, and (ii) how peak period usage is
taken into consideration in the cost study (including how demand is forecast to
reflect peak usage). If peak period usage is not taken into consideration in the
cost study, explain why not.

A. Certain information contained in this response is filed in confidence with the Commission
pursuant to section 39 of the Telecommunications Act. This information is highly
disaggregated and the Companies consistently treat such information as confidential.
Release of this information on the public record would provide existing or potential
competitors with invaluable competitively-sensitive information that would not otherwise
be available to them, and which would enable them to develop more effective business
strategies. Release of such information could prejudice the Companies' competitive
position, result in material financial loss and cause specific direct harm to the
Companies. An abridged version of this response is provided for the public record.

The Companies' cost study takes into account peak period usage. Specifically, the costs
of the ATM Optical Transmission Hardware, IP Routers and the Bandwidth Access
Servers as well as a portion of the costs of the ATM Switching Hardware are driven by
bandwidth and are therefore affected by the bandwidth requirements during the peak
period. Holding all else constant, the greater the bandwidth requirements, the higher the
costs associated with these components.

In order to take into account the impact of usage during the peak period in the cost
study, the Companies undertook an analysis which showed that for every 1 GB of use
per month, the average end-user will require # Kbps of bandwidth during the peak
period. The Companies then applied this analysis to the forecast of average monthly

# Filed in confidence with the CRTC.


Attachment 1
MTS Allstream Comments - TNC 2011-77 Scope
22 February 2011

The Companies(CRTC)20Aug09-8 TN 242 & 7181


Abridged
Page 2 of 2

usage for 2009 for the various services addressed in the study (namely, Residence -
Lite, Residence - Lite Plus, Residence - Basic and Business - Lite Plus). In order to
develop the bandwidth usage forecasts that were then used for the remainder of the
study period, the Companies assumed that bandwidth usage would increase by #
for each year beyond 2009.

The average usage per end-user per month for 2009 and at the peak period assumed
for all years in the cost study is provided below:

2009 Average Usage 2010 2011 2012 2013


Average end-user (GB per (Kbps at (Kbps at (Kbps at (Kbps at (Kbps at
Usage month) peak) peak) peak) peak) peak)
Residence – Lite # # # # # #
Residence – Lite Plus # # # # # #
Residence – Basic # # # # # #
Business – Lite Plus # # # # # #

# Filed in confidence with the CRTC.

*** End of Document ***


Attachment 2
MTS Allstream Comments - TNC 2011-77 Scope
22 February 2011

From The Companies(Primus)1Mar10-3 TNC 2009-261

a) The diagram below illustrates for Bell Canada and Bell Aliant the delivery of IPTV service across
the Companies' access networks. The upstream components of the Companies' video networks
are confidential.

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