Yak Communications Inc. and Cybersurf Corp. told the CRTC during testimony that it needs to focus on wholesale access as part of the local exchange service forbearance proceeding. Much of the CRTC’s hearings into local exchange service forbearance focused on defining the appropriate product and geographic markets, and debating the right level of market share loss for incumbents before entertaining a forbearance application. But the two companies said wholesale access to ILEC facilities is a key component to local forbearance and should be considered prior to local service deregulation. Yak cites interrogatory responses from both Bell Canada and TELUS Corp. as evidence that if the ILECs were granted local exchange forbearance then the requirement to provide certain competitor services would also be removed. Benjamin Rovet, corporate and regulatory counsel at Yak, said, "We understand Bell and TELUS to be saying, first, that if the commission grants forbearance for retail service, it is because the ILEC does not have market power in the supply of that retail service. If the ILEC does not have market power in the supply of service, then any category 2 competitor services used by competitors to compete with the ILEC should not be a requirement." Under questioning, Rovet indicated that it is premature for the commission to be considering local exchange forbearance and that more work needs to be done to the wholesale access and interconnection regimes to make them more viable. "First of all, we believe still have market power in retail services…that without really looking more at the underlying wholesale access framework, forbearance first would, in our view, be detrimental to that," he said in response to a question from commissioner Andrée Noël. The Yak representative said that the company would be especially vulnerable in a market where the incumbent telephone company has had its retail local exchange services forborne from regulation. Rovet noted that it is conceivable that ILECs could price below cost, so they could compete in the market with either their VoIP or primary line service. But he added a strong commitment to wholesale access would mitigate this to a degree. "If the commission kept or strengthened its findings in the VoIP decision, including the requirement to provide dry DSL and the requirement for and the requirement for wholesale access to high-speed Internet, there may be less concern. I think it really goes back to what the underlying wholesale access market would be before you could really assess ," he said. Cybersurf shares similar views on wholesale access and interconnection, but was a little more forceful in its assessment of the significance of wholesale services. "We submit that the establishment and enforcement of an appropriate regulatory regime for wholesale services that competitors require from the ILECs to provide their own local services must be a precondition to forbearance of ILEC local services," Chris Tacit, VP, law and general counsel at Cybersurf said in his opening remarks. He went further, however, suggesting the commission rework the regime regarding wholesale access. "Cybersurf recommends that the existing regulatory framework for the supply of wholesale facilities and services be reworked in order to ensure that all bottleneck facilities and services are unbundled and made available to competitive service providers," Tacit stated (see box for more detail). Tacit, under questioning, flatly rejected the proposition that a duopoly market of cable and telecom would be sufficient to create a competitive market. He cited the high-speed Internet market as proof that excess capacity was not made available on a wholesale basis. "We had to fight for every scrap of access that we were able to get in that marketplace and we don’t see why is going to be any different. We don’t view the theory that a duopoly may be sufficient to protect the interests of consumers as being a good enough guarantee, when you can have the alternative of actual multi-competitor marketplaces," he said (NL Update, Jan. 12/04; June 23/03). The Cybersurf representative suggests that an appropriate framework for wholesale access and services can in fact spur facilities deployment down the road. Tacit cites the example of Call-Net Enterprises (now Rogers Telecom), which began as a resale operation and eventually grew into a facilities-based competitor. "So I think that the preoccupation with two facilities players, or facilities-based competition, if it is not tempered with the benefits of resale to fill in the gaps and provide the critical mass, is not going to happen," he said. Tacit noted that the company’s arguments rest on the fact the incumbent telephone companies have to be forced to unbundle services prior to offering them on a retail basis. "If you do it afterwards, they have already exercised their market power. They have already built up their brand. You are making the obstacle of overcoming their market power that much more difficult for us," he said.