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NOTICE NO. DGTP-002-2015
PETITON TO THE GOVERNOR IN COUNCIL
CONCERNING TELECOM REGULATORY POLICY
CRTC 2015-326, 22 JULY 2015
CANADA GAZETTE PART I, NOVEMBER 21, 2015
COMMENTS BY
VMEDIA INC.
DECEMBER 18, 2015
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 ........................................................................... 11
G. THE CRTC LOOKED CAREFULLY AT FTTH INVESTMENT INCENTIVES, AND
TOTALLY REJECTED BELL’S SCAREMONGERING ................................................................................... 12
H. DESPITE THE CRTC’S DECISION, BELL AND OTHER TELCOS CONTINUE TO
TRUMPET THEIR ROLLOUT OF FTTH .......................................................................................................... 13
I. BELL WARNS CANADIANS NOT TO UNDERMINE ITS FTTH INVESTMENT THESIS –
WHATEVER THAT MAY BE ............................................................................................................................... 14
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 ........................... 17
K. IF BELL IS SUCCESSFUL, CANADIANS WILL BE THE BIG LOSERS ..................................... 18
L. CONCLUSION ............................................................................................................................................. 20
Notice No. DGTP-002-2015 VMedia Comments
1
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 2015-326, Review of Wholesale Wireline Services and Associated Policies (TRP2015-
326).
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 2013. 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 www.vmedia.ca
Notice No. DGTP-002-2015 VMedia Comments
2
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
TRP2015-326. 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 TRP2015-326, 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.3
7. 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 TRP2015-326 through a review and variance application to the CRTC.
Notice No. DGTP-002-2015 VMedia Comments
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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-facilities-
based 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 high-
resolution 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.
Notice No. DGTP-002-2015 VMedia Comments
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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 TRP2015-326. 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.
Notice No. DGTP-002-2015 VMedia Comments
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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.
Notice No. DGTP-002-2015 VMedia Comments
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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 2011-77:
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 http://pm.gc.ca/eng/minister-innovation-science-and-economic-development-mandate-letter
Notice No. DGTP-002-2015 VMedia Comments
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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. 53 6 Telecom Decision CRTC 85-19, 29 August 1985, section V. D. 1.
Notice No. DGTP-002-2015 VMedia Comments
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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 2011-703, 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/2006-355 8 TRP2015-326, para. 260
Notice No. DGTP-002-2015 VMedia Comments
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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 http://www.thewirereport.ca/news/2015/11/12/ftth-to-cover-90%25-of-bell-footprint-in-10-years-cope/30310
Notice No. DGTP-002-2015 VMedia Comments
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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 TRP2-15-
326.13
37. 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 http://www.bell.ca/Bell_Internet/Internet_access 12 http://www.thewirereport.ca/news/2015/11/12/ftth-to-cover-90%25-of-bell-footprint-in-10-years-cope/30310 13 See, for example, TRP2015-326, paras. 97-101. 14 During the hearing leading to TRP2015-326, 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)15Oct13‐202.
Notice No. DGTP-002-2015 VMedia Comments
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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.15
41. 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. 19-20
Notice No. DGTP-002-2015 VMedia Comments
12
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.16
42. 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 TRP2015-326, 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
Notice No. DGTP-002-2015 VMedia Comments
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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 TRP2015-326 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 http://www.bce.ca/investors/investorevents/all/show/BCE-Q2-2015-Results-conference-call
Notice No. DGTP-002-2015 VMedia Comments
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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.18
48. 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 roll-
out 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 http://www.vancouversun.com/news/telus+rolling+billion+fibre+optic+network+across+vancouver/11409326/story.html 19 Petition, para. 20
Notice No. DGTP-002-2015 VMedia Comments
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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 CRTC-
mandated 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. 8 21 BCE Inc. 2014 Annual Report
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which Bell loudly complained about22) – 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 https://cartt.ca/article/bell-canada-seeking-leave-appeal-crtcs-wholesale-services-decision
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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 sports-
property-holdings partner Rogers. Bell argues that this is needed in order to “maintain
competitive neutrality”.24
56. 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, 64 24 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 2013. 25 See http://www.cablelabs.com/innovations/featured-technology/
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its 2010 speed-matching decision, Telecom Regulatory Policy CRTC 2010-632, 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 anti-
competitive 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 popularity26 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.27
26 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. http://dx.doi.org/10.1787/5js04dp2q1jc-en
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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,
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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 $112.
63. 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 TRP2015-
326.
65. 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. 55-6 http://www.wallcom.ca/reports_studies.htm