Manitoba Committee Hansard — 8 June 1993 (PUNR Committee, Sitting 5, 35th Legislature, 4th Session)

35-4-punr5

Manitoba — Debates (Hansard)

Fourth Session ·Thirty-Fifth Legislature of the Legislative Assembly of Manitoba STANDING COMMITTEE on PUBLIC UTILITIES and NATURAL RESOURCES 42 Elizabeth II Chairperson Mr. Jack Reimer Constituency of Niakwa VOL. XLII No.5· 7:30 p.m., TUESDAY, JUNE 8, 1993 ISSN 0713·9454

MANITOBA LEGISLATIVE ASSEMBLY Thirty-Fifth Legislature Members, Constituencies and Political Affiliation NAME ALCOCK, Reg ASHTON, Steve BARRETT, Becky CARSTAIRS, Sharon CERILLI, Marianne CHE EMA, Guizar CHOMIAK, Dave CUMMINGS, Glen, Hon. DACQUAY, Louise DERKACH, Leonard, Hon. DEWAR, Gregory DOER, Gary DOWNEY, James, Hon. DRIE DGER, Albert, Hon. DUCHARME, Gerry, Hon. EDWARDS, Paul ENNS, Harry, Hon. ERNST, Jim, Hon. EVANS, Clif EV ANS, Leonard S. FILMON, Gary, Hon. FINDLAY, Glen, Hon. FRIESEN, Jean GAUDRY, Neil GILLESHAMMER, Harold, Hon. GRAY, Avis HELWER, Edwar d R.

HICKES, George LAMOUREUX, Kevin LATHLIN, Oscar LAURENDEAU, Marcel MALOWAY, Jim MANNESS, Clayton, Hon. MARTINDALE, Doug McALPINE, Gerry McCRAE, James, Hon. MciNTOSH, Linda, Hon. MI TCHELSON, Bonnie, Hon. ORCHARD, Donald, Hon. PALLISTER, Brian PENNER, Jack PLOHMAN, John PRAZNIK, Darren, Hon. REI D, Daryl REIMER, Jack RENDER, Shirley ROCAN, Denis, Hon. ROSE, Bob SANTOS, Conrad STEFANSON, Eric, Hon. STORIE, Jerry SVEINSON, Ben VODREY, Rosemary, Hon. WASYL YCIA-LEIS, Judy WOWCHUK, Rosann Vacant Vacant CONSTITUENCY Osborne Thompson Wellington River Heights Radisson The Maples Kildonan Ste.

Rose Seine River Roblin-Russell Selkirk Concordia Arthur-Vi rden Steinbach Riel St. James Lakeside Charleswood Interlake Brandon East Tuxedo Springfield Wolseley St. Boniface Minnedosa Crescentwood Gimli Point Douglas Inkster The Pas St. Norbert Elmwood Morris Burrows Sturgeon Creek Brandon West Assiniboia River East Pembina Portage Ia Prairie Emerson Dauphin Lac du Bonnet Transcona Niakwa St. Vital Gladstone Turtle Mountain Broadway Kirkfield Park Flin Flon La Verend rye Fort Garry St. Johns Swan River Rossmere Rupertsland PARTY.

Liberal NDP NDP Liberal NDP Liberal NDP PC PC PC NDP NDP PC PC PC Liberal PC PC NDP NDP PC PC NDP Liberal PC Liberal PC NDP Liberal NDP PC NDP PC NDP PC PC PC PC PC PC PC NDP PC NDP PC PC PC PC NDP PC NDP PC PC NDP NDP

10 1 LEGISLATIVE ASSEMBLY OF MANITOBA THE STANDING COMMITTEE ON PUBLIC UTILITIES AND NATURAL RESOURCES Tuesday, June 8, 1993 TIME- 7:30 p.m. LOCATION- Winnip eg, Manitoba CHAIRPERSON - Mr. Jack Reimer (Niakwa) ATTENDANCE- 10- QUORUM 6 Members of the Committee present: Hon. Mr. Rndlay, Hon. Mrs. Mc intosh Messrs. Alcock, Dewar, La ur endeau , McAlpine, Pallister, Reimer, Sve inson, Ms.

Wowchuk APPEARING : Tom Stef anson, Chai rperson, Board of Commissioners, Manitoba Telephone System Oz Pedde, Presi dent and Chief Executive Officer, Manitoba Telephone System Heather Nault, Vice-Presi dent, Corporate and Regulatory Affairs and Corporate Secretary, Manitoba Telephone System Barry Gordon, Vice-Presi dent, Network Services, Manitoba Telephone System Bill Fraser, Vice-P resident, Finance, Manitoba Telephone System MATTERS UNDER DISCUSSI ON: Annual Report of the Mani toba Telephone System for the year ended Dec emb er 31 , 19 91 Annual Report of the Mani toba Telephone System for the year ended Dec ember 31 , 19 92 *** Mr.

Chairperson: Will the Standing Committee on Public Utilities and Natural Resources please come to order. We have before us the following reports to the cons idered: the Annual Report for the Manitoba Telephone System for the year ending December 31 , 19 91 , and the Annual Report for the Manitoba Telephone System for the year ending December 31 , 19 92. Copies of the repor ts are available to the committee members on the table behind me. I would inv ite the hon our able mi ni ste r responsi ble to make his opening statement and introduce the staff present this evening. Hon.

Glen Findlay (Minister responsible for the administration of The Manitoba Telephone Act): Mr. Chairperson, if the committee is willing, we can pass it right now. Mr. Chairperson: I doubt that they are. Mr. Findlay: Okay. I would like to introduce the Chairperson of the Board, Mr. Tom Stefanson, and President and CEO, Mr. Oz Pedde. They will each be making opening comments. We have here to consider the '91 and '92 Annual Reports of MTS, which are the documents officially before the committee. It is our intent to comment on the contents of these documents and to answer questions about them.

Howeve r, memb ers of the commi ttee wi ll recognize that telecommunications is one of the most dynam ic industries in the world. Because much as happened in the field, we will be bringing you up to da te on recent and si gni fi cant developments. As far as the '91 report itself is concerned, I believe the members will observe the corporation di d not enjoy the strong net earni ngs of the previous two years.

The net earnings continue to be positive , but dropped from $39.4 million to $14.6 million, and the 19 92 annual report shows positive net ear n ings once agai n but a reduc tion as compared to the previous year, net earnings in 19 92 being $6.1 million. Despite reduced net earnings, MTS nevertheless was able to make progress on the supp ort and serv ice initiatives such as implementation of a universal Individual Line Servi ce Program and network modernization. Mr. Pedde will give you the highlights and the progress on this particular program.

The change in the fi nanci al resu lts of the company over the past two years resulted from a number of factors. One, of course, is the ongoing effect of national economic downturn. The other

102 LEGISL ATIVE ASSEM BLY OF MAN ITOBA June 8, 1993 notable fact or was the imp act of lower long distance rates established by Stentor and MTS in response to customer service. Mr. Chairperson, I can report that over the last four years, long distance rates have gone down by over 50 percent. When I represe nted the company's annual report to you last year, I explained that MTS was being affected by developments taking place generally in the telecommu nic ations ind ust ry.

I noted in particular that the federal regulator, the CRTC, was reviewing an applicat ion mad e by Unit el Communications Inc. an d other companies seeking au thorizat ion to compet e directly in the long distance telephone service market. I also noted that Manitoba's position in these procee dings was in support of compet i tion provid ed that the comm ission prot ect ed the universality of service and the affordability of basic service for ordinary telephone users.

Members of the committee will know that after having held weeks of public hearings, receiving tens of thousan ds of document s and hearin g testimony of many expert wit nesses, the CRTC issue d a decision on June 12, 19 92, just about a year ago, an d this historic ruling, labelled CRTC Telecom Decision 92- 12 , will allow full competition on the long distance market in most areas of Canada. The essence of the decision was stated this way, and I quote: The commission has concluded that increase d competition subject to the appropriate terms and con ditions would be in the pub lic int er est.

In arriving at his conclusions, the commission determined that toll rates should be reduced to increase affordability of toll services; in general, competitiveness of Canadian business, in par ticular, and to maxi miz e use of Canad ian telecommunication facilities. In the view of the CRTC, competition in long distance will have many benefits. The decision notes that, and I quote: The commission considers the compet ition permi tted in this decision will increase pressure on the telephone companies to minimi ze their cos ts.

More im port ant ly, competition not only can be expected to increase pressure to reduce rates, but increase choice and supplier responsiveness, particularly in terms of the number of price and service packages tailored to ad dress specific need s an d applic ations of a greater variety of user groups.

The CRTC , in concluding that long distance competition to serve the public interest recognized not only the telephone companies would have to respond to competition by reducing their costs and becom ing more prod uctive, but also that new compe titors would have to contribute their fair share in support of local service. It determined that, with such support, there would be no sign ificant impact on universal, affordable basic service. The decision reads, and I quote: In the commission's view, competition need not add any signi fican t increases in local ra tes if contribution payments are adequate.

The market expand s and the respondents increase efforts to minimize costs in order to capture or retain marke t share. The commission is satisfied that the terms and conditions it has established will address these issues. The decision appeared to satisfy the position we pu t before the commission in asking to protect universally affordable, basic service.

Rve months later, after legal challenge to the decision that followe d their course, I issue d a stat ement ann ounci ng that Manit obans would join the telephone customers in eight other provinces by gaining access to competitive telephone service in the province . There are compelling reasons for taking this course of action. The first an d most important one is the quest ion of equity. Most Canadians have begun to enjoy the benefits of competition and will have a choice of suppliers an d all of the other benefits that competition can provide.

We concluded that there is no way anyone can or should say to Mani tobans, you must not have ad va nt age of the long dist anc e te leph one competition that is available to the vast majority of Canadians. The second reason is, as a matter of general princip le, we believe that compe titive marke ts serve the public interest , because they encourage the efficient and economic delivery of innovative goods to consumers. One company cannot do every thing in this expand ing business, given the rapid proliferation and diversi ty of the telecommunication services being employed.

These were the main reasons my gov ernment pre viously de ci ded to allow competition in business terminal equipment and private lines in this province.

June 8, 1993 LEGISLATIVE ASSEMBLY OF MANITOBA 103 The CRTC's decision has provided a competitive model that is appropria te for the long distance market, and that will produce the desirable effects competition offers in other sectors of the economy. Third, we are satisfied that the general terms and conditions identified by the CRTC will ensure that basic, local service will continue to be universally accessible and affordable. As a ma tter of policy then, long dis tance telephone competition is coming to Manitoba.

However, in setting our policy, we also recognized that we should not assume that the CRTC' s dec ision, in all the specific elements, applies perfectly to the conditions that exist in this province. Ther efore , we issued an Order-i n-Council directing the PUB, using the CRTC's decision as a model, to review sugges ted rates, ter ms and conditions that apply to companies connecting to MTS facil ities for the pur pose of pr oviding competitive long distance service. The fundamental intent of this review is to ensure that these terms and conditions reflect Manitoba's needs and circumstances.

The PUB began its public hearings on June 7 of this year. When that process is complete, we will receive its report and give official authori zation to MTS allowing it to connect its facilities with those competing long distance carriers. Mr. Chairperson, we recognize that this step is the most important one we have taken to date in the telecommunications industry. However, MTS has, for several years, been making adjustments to address the continuing changes in the industry.

Our previous policy decisions have helped the company to prepare for these upcoming changes by requiring that the corporation run itself in a businesslike fashion and to accept higher levels of competition in other markets. • (1 940) We do not sugg est that the changes the company has made in the past have been easy, or that those it must make in the future will be any less di ffi cu lt. What is obvious and undeniable, however, is that change in telecommunications is part and parcel of what the industry is all about.

Of equal importance, telecommunications is a national and global business-when significant changes take place anywhere, they eventually take place everywhere. Manitoba is not an island that can or should resist change. Our government is intent on ensuring that Manitobans will be able to reap all the benefits that these inevitable changes will permit while giving MTS the policy direction and support that will allow it to succeed in a new environment. I have asked Mr. Stefanson and Mr. Pedde to provide you with a brief description of what the corporation is doing to adapt to these realities of change. Mr.

Tom Stefanson (Chair person, Board of Commissioners, Manitoba Telephone System): Mr. Chairperson, this is the fourth time I have had the pleasure of presenting MTS' Annual Report to the committee. In his comments, the minister has provided you with an overview of the momentous changes that ar e taking place in the telecom mun ic ations industry. He has underscored the fact that these changes are inevitable and that MTS is being asked to adapt to them, not only since it must, but also because those changes have overall benefits for telecommunications users in Manitoba and the economy of the province.

One of those benefits can be seen in the pages of the annual reports now before the committee. We have explained in previous years that MTS is responding to the general trends in the industry, and one of the things it has been doing is reduce its out-of-province long dis tance rates. While there have been local rate increases, the effect on the bills of residential customers has been negligible. There is a chart on page 5 of the 19 91 report that shows what this means.

It dem onstrates that between 19 83 and 19 91 , while the consumer price index rose by nearly 45 percent, the average residential te lephone bill did not rise at all. Moreover, while total revenues were down in 19 91 , long distance calling increased by 6.4 percent. Taken altogether, this means not only that cost increases for consumers have been modest, but also that long distance is now, more than ever, an important part of the telephone use by residential customers. Competition in long distance service therefore will bring clear and tangible benefits for Manitobans.

As the minister explained, however, all who are involved in the industry recognize that there is an important link between long distance service and local service . Last year, I told mem bers of the committee that with reductions in long distance rates, we as a company are no longer able to

104 LEGISLATIVE ASSEMBLY OF MANITOBA June 8, 1993 depend to the degree that we once did on rich cross-subsidies from services such as business long distance and, at the same time, satisfy the need for more and better services at affordable local rates. It is generally understood that the cost of providing basic local services is substantially higher than the prices charged to the consumers. It is the cross-subsidies like long distance that in the past have made up the difference between the cost and the price of local service.

The CR TC under stood , an d the minis ter appr eciates, that the knee- jer k and sim ple response to the loss of these cross-sub sidies cannot be substantial increases in local rates. While modest rate increases in local rates are likely to be required in the future, as they have in the past, we recognize that the corporation has an obliga tion to dem onstrate to its owner, its customers and its regulator that it has taken all necessary steps to utilize its imagination, energies and resources to control its costs and to generate new revenues before it asks the public to accept higher local rates.

The company takes the position that over time the best way it can protect the interests of those it serves is to get its financial house in order. In 19 92, I emphasized to members of the committee that we must pay particular attention to how we manage the finances of the corporation. I said that the MTS board has set a number of long-term financial goals, the main ones being a reduction in the corporation's debt ratio and the full funding of the company's pension liability by the turn of the century.

In the light of changing circumstances, we are staying the course on the funding of the pension liability but have decided to strive to accelerate and intensify our efforts to reduce the corporation's debt ratio. It is our intention to reduce it from its current level of about 80 percent to roughly 70 percent over a period of five years. The need to take these measures is readily apparent. As we face the challenges of change and competition, we will require all the financial strength and flexibility we can mus ter.

With high debt loads and the consequential burden of servicing, the corporation will not have the resources available that are needed to address a competitive market. The increase in intensity and the nature of competition add to the urgency of addressing the deb t issue. The an swer is not to turn the corporation's back to the reality of competitive forces, nor can it ignore the reality of its debt obligations. The plain fact of the matter is that the corpor ation' s deb t obligations are high, and competition or no competition, they must be paid.

If the burden grows, members of this committee know full well who will bear it- future generations. Our intent, therefore, is to take gr adual and prudent steps in reducing our debt ratio in order to avoid the inevitable dramatic rate increases that would be required in the future if we do not adopt reasonable measures now. The evidence of the corporation's commitment to control its finances is reflected in the 19 91 Annual Report. Despit e the fact that total operating revenu es declined as compar ed to 19 90, the long-term deb t incr eased, MTS was able to maintain its debt equity ratio.

Facing continuing service obligations as well as increased competition, the company in 19 91 , and with even vigour in 19 92, has been controlling its costs. I can assure you that the board has been requiring that the corporation get the most out of its available resou rces. We are dema nding that managemen t challenge every expense. Budgets have been cut and then cut again. While no one enjoys this kind of restraint, we recognize that our customers are making these demands of themselves. We can demand no less of MTS.

Our success is demonstrated in being able to keep the growth of our expenses below the inflation rate. In addition to addressing the debt ratio and controlling our expenses, we are also working to reduce the structural costs of the company. One of these initiatives has received some attention in the press. The need to downsize has been recognized by companies in every indus try and by most governments throughout the world. MTS is no exception. Last year, we announced that the company would be reducing its staff complement by 1 ,000 positions over a period of five years.

As a result of moderniz ation and improved equipment, fewer people are needed to run the Manitoba Telephone System. Our present plan is to reduce the size of our staff complement through normal attrition and early retirement programs. We are optimistic that our goal can be met by these means.

June 8, 1993 LEGISLATIVE ASSEMBLY OF MANITOBA 105 Recognizing that we must live within our means and ret ain only those resou rces that can be jus tified, MTS has taken steps to enhance its long-term productivity. We are implementing a corporate-wide process that over time will help us to work more efficiently while improving the quality of our service. The board , man agement and staff of MTS corporation accept the reality of change. We under stand tha t the ad jus tm ents tha t the corporation must make will challenge us, but at the same time, we are confident we can make them. Mr.

Pedde, after describing some of the highlights of the 19 91 and 19 92 annual reports, will be telling you about the strategies we are pursuing that we believe will ensure our success. Mr. Oz Pedde (President and Chief Executive Officer, Manitoba Telephone System) : Mr. Chai rperson , this is the second time I have appeared before the committee, and I would like to begin my remar ks by giving you a brief overview of both the 19 91 and 19 92 annual reports.

First, however, I should point out to those who have jumped to the five-year review on page 24 of the 19 92 report, that they will find that there is a difference in the numbers for three items listed for 19 91 and before on that page as compared to the same numbers as shown in the 19 91 report. The figures for 19 91 and earlier years regarding total operating revenues, total operating expenses, and other revenues in this listing, as pointed out in a footnote, have been restated to conform to the 19 92 presentation.

This means that adjustments have been made to reflect a different way of presenting uncollectibles and the interest earned on pensions. This new presentation will appear in all future reports. Working on the 19 92 format the highlights are : Total operating revenues were $527,498,000 in 19 91 , which is a decline from 19 90's figur e of $537,027,000. Total operating revenues were nearly flat between 19 91 and '92. Total operating expenses were $444,1 22,000 in 19 91 compared to $435,2 13 ,000 in 19 90. In 19 92 total operating expenses were $449,307,000.

MTS' net income in 19 91 was $1 4.6 million as against $39.4 million in 19 90. In 19 92 it was $6 .07 million. Net construction expenditures were $19 3.1 89 million in 19 91 while they were $1 93.278 million in 19 90. In 19 92 they were $1 71 .976 million. The minister noted that during the reporting year the corpor ation was able to mar k conti nue d progress in its Individual Line Service Program and the modernization of the network. These are the details: 9,71 1 ad ditional cus tomer s in 26 communities were provided with individual line service in 199 1 .

In 19 92 it was implemented in 30 exchanges covering 7,6 86 customers. In 19 91 digital switches were installed in three exchanges in the Northern Region, nine exchanges in the Western Region, 16 exchanges in the Eastern Region and 10 in the Winnipeg Exchange. In 19 92 digital switches were installed in an additional 20 exchanges in rural areas. Digital switching also was made available to an additional 20,0 00 cus tomers in Winnipeg .

With these upgrades, nearly 87 percent of all MTS lines had digital capacity by the end of the year. * (1 950) On the day after the reporting period, January 1, 19 92, Urban Unlimited was launched , adding 27,000 customers to the Winnipeg Exchange and 6,500 to the Brandon Exchange. Through this program, customers in the exchanges adjacent to Winnipeg an d Br andon have the option of subscribing to a flat-rated calling plan for the calls they make to those urban centres. Community Calling, which provides expanded toll- free ca lling areas, was extended to an additional 20 exchanges in 19 92.

Additional service improvements were made in 19 91 and 199 2. These included the following: The corporation applied to the Public Utilities Board to conduc t a yearlong trial of Call Management Ser vices in Brandon. That appl ication was approved in early 19 92, and the trial was completed in Febr uar y of this year. The trial exceede d expectations and the corporation has received many requests from customers. Therefore, MTS has applied for authori zation to implement the service in other parts of the province, starting in Winnipeg. The PUB approved this application for implementation on June 1, 19 93.

In 19 91 , MTS added to the value and utility of its Custom Calling Services through the addition of Cancel Call Waiting, Toll Call Forwarding and Teen ring. Late in 19 91 , the company introduced the Invisible Answering Machine. This is a residential

106 LEGISLATIVE ASSEMBLY OF MANITOBA June 8, 1993 voice me ssagin g ser vice whic h ha s been enthusiastically received. In 19 91 , MTS constructed 29 cable television distri bution systems through agree ments with Westman Cable TV and A 1 Cablesystems. In 19 92, the company extended its fibre opti cs network to Flin Flon and Thompson from The Pas. The com pany continued its aggress ive expansion of payphones in 19 91 , adding to their number by 20 percent in three years. The 7,000th payphone in the province was installed during the year in Steinbach.

MTS also installed five teletype payphones to assist deaf an d hearing- an d speech -imp air ed persons. This is the highest number of any Canadian telephone company. In itiatives wer e also taken to enh ance telecommunications service of interest to business users in 19 91 an d 19 92.

These included : a low-cost entry level 800 service, as well as a general restruc turing of 800 coverage; two long distance discount programs called Advantage Cana da and Advantage U.S. for high volume users; FaxCom, a discount plan for long distance fax users; Local Digital Channel Service, which provides for the transfer of data without the use of a modem ; the expansion of coverage of cellular service making it available to nearly 80 percent of all Manitobans; Megalink, which is an Integrated Services Digital Network service-serving large business, it allows voice, image and data on the same channel; new features and rates for WATS, Advantage and 800 service.

While the events of 19 91 and '92 are important, clearly the rapid developments of the past several months are of particular interest. As the minister and the chairman have said, the advent of competition in one of the company's major markets is bringing with it challenges that in many ways are unprecedented in the history of MTS. It goes wi thout saying that we are doing hundreds of specific things to prepare ourselves for the changes taking place.

What I would like to focus on are the broad-brush initiatives we are taking, and the best way of explaining these to you is to give you the same picture we painted for all MTS employees at meetings that took place in February of this year. We told those who work for the corporation that MTS is part of a global industry in which competition is the order of the day and where the monopolies of television companies are rapidly becoming as distant a memory as rotary dial payphones. Choice, we explained, is what competition is all about.

We said, when customers can choose among suppliers, they decide who succeeds or fails in the marketplace. This means, in turn, that high-quality service is not merely an important part of what we do, it becomes the only game in town. It separates the losers from the winners. MTS, we emphasized, knows exactly on which side of that equation it intends to land. That is why we have laid out a plan we call Strategies for Success. In short form, this is how we described these strategies to MTS employees.

Looking to the future, MTS is focused on leveraging the most out of its network infrastructure for revenue gener ation. This means advanced net work offe rings such as Call Ma na gement Services, Advanced Intelligent Network Services, such as Telephone Number Portability and Voice Messaging Services, which add to the bottom line of MTS while, at the same time, offer our customers the high est qua lity of ser vic e from a modern telecommunications network. While looking toward thes e reve nue opportunities, we intend to excel in sales and service.

To do this, we will orient our sales efforts away from just selling to one where we look for ways and means of making customers successful. Some of the specific initiatives we will take will include continuing to work with Stentor in reducing long dis tance rates and improving our billing systems. Our purpose, overall, will be to meet or exceed what our customers expect of us. Given the national and global nature of our industry, and in order to excel in sales and service, we will need more than our own resources to do the job.

The refo re, we will be seeking strategic alliances with providers of services as well as major suppliers. We also will be forging a partnership in progress with our unions by involving them more in our Strategies for Success. Indeed, MTS' unions played a key and constructive role in the recent meetings with MTS employees. The chairman gave special attention to another one of our strate gies, which is to improve our financial positi on. A critical elemen t of that position, he noted, is the improvement of our debt ratio.

June 8, 1993 LEGISLATIVE ASS EM BLY OF MAN ITOBA 107 The last, but not least, of our Strat egie s for Success will be to implement what we are calling Quality Focus. This is not a program, but rather a process that we will adopt as an ongoing part of everything we do. The intent of this process is to improve, on a continuing basis, the quality of the service we provide to the customers who use our service , as well as the internal service we, as employees, provide to one another as a means to deliver service to the public. The goal, in all cases, always will be to achieve customer satisfaction.

If we can make our customers satisfied, we have no doubt that we will be successful in a very different kind of telecommunications world. Mr. Chai rpe rso n, and the mem bers of the committee, MTS unde rstands the magnitude of challenges it is facing, and it is not kidding itself or anyone else that the path will be smooth. For a company that has worked for gen erations in a monopoly en vi ronme nt, and in that time has accomplished much and given a great deal to Manitoba, dr ama tic and far- rea ching trans formations do not come easily, but conditions are with us now that call for transformation.

We must change, and will change, to meet them. MTS has had to remake itself in the past, facing earlier challenges to technological innovation as well as economic adversity and high customer demands. Each time the company did what had to be done. It improved itself and, as a result, was able to be a better provider of ser vice for its customer s. So after 85 years of distinguished service to Manitoba, we truly can say, once again, we have only just begun, and with equal conviction, we have reason to believe that the best is yet to come. Mr. Chairperson: Thank you. Does the critic for the official opposition, Mr.

Dewar, have an opening statement? Mr. Gregory Dewar (Selkirk) : Mr. Chairperson, I only have a short statement, and that is, of course, I just wish to thank and welcome Mr. Stefanson and Mr. Pedde to the proceedings this evening. I look forward to their answers to our various questions. •

(2000) We have a number of concerns on many issues associated with the operation of the Man itoba Telephone System. We are concerned that the Man itoba Te lephone Syst e m is no longer representing the interests of ordinary Manitoba and that the govern men t, with its wholehear ted endorsement of deregulation, competition, all these other Conservative buzzwords, that they are now representing the interests of large business users. We were speaking earlier about competition. I do not think that the competition that we talked in earlier statements is a fair or true competition.

I do not think that Unital will be offering long distance lines between Selkirk and Winnipeg or Winnipeg and Ste. Anne, for example. It is more likely to be offering services between Toronto and Winnipeg, taking away the cream of the long dist ance revenues. Mr. Marcel Laurendeau (St. Norbert): Is Selkirk still long distance, Gregory? Mr. Dewar: The member for St. Norbert asks if Selkirk is still long distance. As a matter of fact, it is. I believe we contribute signif icantly to the revenues of the Manitoba Telephone System. I know I do.

We have other questions related to the 1 0-day layoff, the service for the future, the dir ectory, many, many questions we are interested in raising. We will be doing those throughout the proceedings this evening. Mr. Chairperson: Thank you, Mr. Dewar. Does the critic for the second opposition, Mr. Alcock, have an opening statement? Mr. Reg Alcock (Osborne): Mr. Chairperson, I feel a little bit like I have heard from the future and the past now. I am actually looking forward to the discussions tonight. I really appreciate the written statements from Mr. Pedde and Mr. Stefanson in addition to the minister's.

It is a really interesting time for the corporation and, frankly, from the operating statements and the PUB application, the corporation seems to be in relatively better shape than I would have expected it to be given some of the pressures that you are experiencing. I would like to frame some of the discussion, though, that I would like to have tonight. I am interested in the impact of some of the CRTC changes on the debt position of the corporation right now. I am particularly interested in what is going to happen as you downsize . You me ntioned a thousand emp loyees, and I think that is a very

108 LEGISLA TIVE ASSEMBLY OF MAN ITOBA June 8, 1993 significant concern, I am sure, for the corporation and it certainly is for the House. I would like to have a sense of how that is being implemented and what sort of negotiations are taking place with the em ployees, wha t sort of services are being provided to them. I talked briefly about the debt, I mentioned the debt posit ion of the corpora tion.

I am also concern ed about what seems to be a growing blending of the roles of the CRTC and the PUB and wondering if that does not put the corporation into a somewhat more difficult position, if the regulatory environment becomes more difficult. We will get into that. I mean, there are a number of specific questions we can get into. I would like to say at the outset that I am pleasantly surpris ed and I am rather impressed with the work that has been done by the corporation.

I think that all of the staff should feel pre tty positive about this report, given the very, very difficult times over these last few years. Mr. Chai rperson : I would appr eciat e som e guidance from the committee. Shall we consider each report sep arat ely or pur sue a gen eral discussion on both? Mr. Alcock: If the minister is willing, I would like to pursue this in a general broad-ranging discussion of the two reports and whatever other areas that people are prepared or willing to get into, and perhaps we can wrap this up rather quickly. Mr. Chairperson : Is it agreed? (agreed) Mr.

Dew ar: I would like to begin tonight 's discussion with a question to the minister. I was wondering if the mini st er has any plans or govern ment has any plans to privat ize the Manitoba Telephone System. Mr. Find lay: Ov er the cou rse of time, Mr. Chairperson, we have introduced a number of policy decisions which have introduced competition from whatever, whet her it is privat e line inter connect er or the long dis tanc e compe tition, whether it is terminal attachments for the business community. In terms of the speci fic question of privatizing, these are changing times.

It is not anything we have any intent on at this time, but one could not rule out what decisions might have to occur down the road as to the changing telecommunications environment. I can assure the member that there is no consideration in that regard at this particular time. Mr. Dewar: I would like to ask the chairman of the board, has the board discussed the issue of a potential privatization of the Manitoba Telephone System? Mr. Stefanson: The board has not discussed the issue of privatization.

We view any discussion on the privatization of MTS as being a government mat ter, and we see our role as being more in se tti ng the policy and the dir ect ion of the corporation and not discussing whether the owners should be selling their assets or not selling their assets. Mr. Dewar: In terms of your own personal opinion, do you think MTS should be privatized? Mr. Stefanson: At this given point of time in 199 3, I would say that the corporation is doing well, as Mr. Alcock has suggest ed, as a Crown corporation.

The corporation, I believe, is very, very important to the econom ic de velo pment needs of the government in Manitoba. From that point of view, I think that if the people in Mani toba own the corporation in this period of time when everybody is scr ambling for economic development, as the minister has stated-1 think my personal opinion is that I could not say what my position would be five, 1 0 years down the road. Mr. Dewar: I am just going to ask some questions of Mr. Findlay on dereg ulation and specifically Bill C-6 2 which is cur re ntly be fore the House of Commons. I was just reading an

article in, I believe it was, the Globe and Mail where the bill is not passed yet. I want to know what happens if the bill is not passed. How would this impac t upon the Telephone System or the direct ion taken by the corporation? Mr. Findlay: Well, the member misuses a word right at the beginning of his comments. He uses the word dereg ulation. Telecommunications in Ca nada is not going through der egulation introducing competition in a regulated environment, and CRTC is there as the regulator.

In the course of looking at whether competition should or should not happen in this country, we advocated that it shoul d not be two companies, duopoly in competition. It should be open to any business, any entrepreneur who wanted to get involved in supplying competitive services. So I wanted to be very clear on that. He continually misus es the

June 8, 1993 LEGISLA TIVE ASS EM BLY OF MAN ITOBA 109 word. It is not a fair assessment of what is going on. Bill C-6 2, it has been in the works for years and years, as long as I have been minis ter, some elements of it, and it is in front of the House of Commons right now. All intentions would indicate that it is going to pass, but until it does-1 have waited many months in the past for it.

I assume it will, and if it does, we have a Memorandum of Understand ing, the transfer of regulation that is in place, and some amendments have been made to the bill that put into effect certain dates that were in the original MOU that are more workable in the revised bill that is in front of the House of Commons. Mr. Dewar: Last year, in the Estimates, you made note that you would be making a representation to the Senate committee and the House of Commons committee on this specific piece of legislation. Did you make that representation? Mr. Findlay: A member of my department did on behalf of the government, yes.

Mr. Dewar: Could you give us a review of the comments made by that individual? Mr. Findlay: Generally, we supported the bill. As I said earlier, it had been a long time in preparation. Certainly my staff and staff from telecos across the country worked on it for many, many years. We cert ainly rec ommended provision for regional sensitivity in policy principles of the bill. In our pr esentation we requ ested four amendments.

The first amendment was that the date in which the act has to come into effect for MTS would be set at December 31, 19 93, or such earlier da te as reques ted in writing by the government of the province of Manitoba. The second amendment, that the date specified for the end of the transitional period during which a jointly selected method of economic regulation can be tested would be December 31, 1997. The third request was to ensure the pro vincial ministers enjoy at least a 1 0-working-day advance notice before the federal minister acts.

And the fourth one is that any reference to research and development in subsection 7(

g) to apply throughout Canada, not just within Canada which was what was in the bill. *

(2010) Mr. Dewar: So you are satisfied that the MOU you signed in January of '92-how does that relate to the current piece of legislation? Mr. Findlay: It sets the terms and conditions for the transition of MTS from PUB regulation to CRTC regulation. Bill C-6 2 enacts that. Mr. Dewar: As you mentioned, the regulator for the Telephone System is still the PUB. I believe this week it is hearing repr ese ntati ons from different groups concerning competition in long distance. Has MTS made a representation to the PUB as of yet? Mr. Pedde: Yes, we have. Mr.

Dewar: Would you mind giving us a review of the presentation, please? Mr. Ped de: Relative to the in terconnection hearings that are before us? Mr. Dewar: Yes, please. Mr. Pedde: Mr. Chairperson, the essence of our presentation is to present the terms and conditions of interconnection for competitors in a Manitoba environment or a Manitoba-specific environment, but applying in broad terms the rules as declared in CRTC decision 92-1 2, wh ich in trod uced toll competition in the rest of the countr y excep t Saskatchewan. Mr.

Dewar: In part of your presentation were you not to ma ke some comm en ts about cross subsidization? Mr. Pedde: Yes, Mr . Chairper son, but only indir ectly. There is a mechanism not so much pertaining to cross-subsidization. As the minister alluded to, the game in Canada is different than in the United States. There is no divestiture. There is no dere gulation. There is competition, and par t of the com petition is preservation of universally affordable local rates. Therefore, there is a mechanism by which the competitors are to contribute to sustaining local service.

So what is under deba te is agree ing on the ar ithme tic, how muc h the competitor shou ld contribute based on the Manitoba- unique situation, but the methodology is a Ia 92-12 decision so that is what we commented on. Mr. Dewar: I was reading in the paper today wher e I bel ieve the Telephone Sy ste m is requesting 4.2 cents per minute. Mr. Pedde: Yes, Mr. Chairper son, and I guess that is probably the sim plest way to distill a fairly complex formula or mechanism, but it says the debate is raging in the arithmetic whether 4.9 cents

11 0 LEGISLATIVE ASSEMBLY OF MANITOBA June 8, 1993 a minute is the correct number or 4.3 cents is the right number. Our competitors are saying 4.3 cents and obviously we want the bigger number 4. 9 cents. We will probably come down the middle, I hope. Mr. Dewar: If it takes the less amount, what effect would this have upon the abilit y of MTS to maintain subscriber rates as they are? Mr. Pedde: Mr.

Chairperson, we do value each and every dollar, but in the overall scheme of things, we are close to a $600-million revenue comp any and this would be a fra ction of a percentage impact if we lose or if they win 4.3 cents a minute. Mr. Dewar: Who is paying for the PUB hearings? Mr. Pedde: Mr. Chair person, the rules for the payment of the Public Utilities Board are through provincial government legislation and the payment mechanism is on the basis of a fixed cost and a variable cost.

The fixed cost is all the companies that are subjected to the Public Utilities Board on a pro rata basis pick up a portion of the fixed cost. The variable cost pertains to the cost of very specific hearings. Normally there are no absolut e guidelines. Normally the applicant pays for the bulk of the variable cost. Of course, we have made the argument , and probably it is falling on dea f ears, that since in this case we are not the applicant, we should not pick up the cost of the hearings, our competitors should, but I trust the wisdom of the PUB will see what the right answer is. Mr.

Dewar: I would like to refer to a document, if I may, the Manitoba Telephone System Key Resu lt Area No. 2, A compet itive prep aredness for message toll competition from March 19 91 , and part of the Executive

Summary. Again I quote: Message toll competition will have significant financial and operational impacts on the Ma ni toba Teleph one Sys tem. Capi tal expense resource requirements are expected to increase drama tically, while subt le revenues experience a substantial decline. The following points sum marize the imp act s. Network and information system modif icat ional loans were required at an estimated $88.75 million to $89.65 million in addi tional capital expendi tures. Is that still correct? Mr. Pedde: Mr.

Chairperson, I am not sure if I know of the exact numb ers, bu t the cos ts to prepare the Canadian telephone network for the competitor is in the hundreds of millions of dollars, and to look after the interface devices for the next 1 0 years, that has been acknowledged by the regulator and there is a repayment mechanism for that cost. The repayment mechanism is on the basis as whoever has the bulk of the market share will pay that mechanism. I do not know what the exac t number is. If that is germane, I was remiss earlier in being a little nervous, not introducing our team.

If I can do that right now, and then Mr. Gordon can provide the speci fic numbers. We have our Vice- President of Finance, Bill Fraser; Mr. Barry Gordon, Vice-Pr esident, Network Operations; and Heather Nault, Vice- President, Corporate Communications and Regulatory Affairs. The speci fic number, I think it is in that ballpark, but that is the first up- front capital plus the ongoing support up until the year 2002, I think. Barry, if you have a more correct number, I do not have it, but it will be in that ballpark. Mr.

Dewar: The next quote: Subtle revenues are expec ted to decr ease by $70 million in 19 98, dropping to an estimated $1 18 million loss by the year 2002, assuming a competitive situation in the 19 94 time frame. Is that correct? Mr. Pedde: Mr. Chairperson, yes, that is correct, but it has to be put in the context that we know what kind of dollars we are describing here, because it is saying competition is here. The regulator has said if competition is good for Canada and Canadian consumers, then we have to create an environment that at least the smart competitors can thrive.

They said, our view of the world is that by the year 2002, there should be in the neighbourhood of 30 per cent of the business should be to the competitors. So you look at our toll business and say, what is the number, take 30 percent of that, and that is probably that number. Now it is driven by a number of things. It is also driven by the price reductions that we impose on ourselves, so we do not lose even more to the competition. Mr. Dewar: What impacts would $1 18 million loss have on the Manitoba Telephone System in the year 2002? Mr.

Pedde: It depends on whether we sit by and do not do anything about it or we aggressively find

June 8, 1993 LEGISLATIVE ASSEMBLY OF MANITOBA 111 new revenue opportunities, as I mentioned. We have made some great strides in some areas and we are going to continue to do that. We are not going to just roll over and play dead in terms of losing that revenue. Secondly, as I mentioned earlier, the competitors will have to made a subsidy to make up for what they take away from us. *

(2020) Mr. Dewar: At the conclusion of the document, it mentioned that sort of a reference plan, indicating which customers in Manitoba will see the following reductions in long dis tance rates. They have a market share on one side, and then the assu med reductions on the other. Residents, which I again make the assumption is you and I, would see rates go down by 2 percent. Then we get in to businesses. Small businesses will see their rates go down by 2 percent; medium businesses will see the ir rates go down by 38 percent, and large bus inesses will see their rates go down by 58 percent.

Are these assumptions still correct? Mr. Pedde: No, they are not. In fact, I think, as the universe has unfolded, we have discovered that toll competition is of benefit right across the spectrum. In fact, the Public Utilities Board just recently approved toll reductions across the board and even furth er reduc tions on ver y modest monthly subscription amounts. As an example, even for a single phone call from Thompson to Winnipeg, you get a 33 percent reduction in the bill. Mr. Dewar: You were mentioning that some of the net negative revenue impacts would be made up by other services.

I have noticed, I guess it was, the recent PUB ruling that allowed the Ma nitoba Telephone Syste m to now charge 65 cents for Di rectory Assistance. Is that the way the corporation will be picking up its lost revenues? Mr. Pedde : Mr. Chair person, this par ticular example was one element out of a package of five eleme nts, and the strate gy unf olded thusly. Certainly, the interveners and the Public Utilities Board agreed with our strategy. It said our local, our intraprovincial rates, our long distance rates are too high.

For us to re duce them, even after stimulation, and get them into comparable rates required about $10 million. We also knew getting $1 0 million just out of local rate increases is not on-we said, well, one of the ser vices was co-management services. Another service was making touchtone a universal standard , and a third element was Directory Assistance charging. It was a user-pay philosophy.

Particularly, we thought it was appropriate, and agai n, the regulator agreed with that because, when we had the toll market to ourselves, then it did not matter whether we charged appropriately for the use of the Directory Assistance operator, but if Unital's customers use our long distance operator and we do not charge app ropr iate ly, the y are getting a free ride on the service.

Therefore, we did not in cr ease the rate , although we have an application now to increase it from 65 to 70 cents, but we said that should be a user pay except for ver y , very special excepti ons, the visuall y handicapped and some other special exceptions. Mr. Dewar: I agree with you that Unital should be paying to use the ser vice, and it was my understanding that they were getting it free before, but unfortunately residents in my constituency are having to pay the 65 cents.

As you can imagine, very few of them have access to a Winnipeg telephone book, and it is not the policy of Manitoba Telephone System to issue every single member of the rural areas a telephone book. I was wondering what would be your comment on that kind of a scenario. Mr. Pedde: We have two answers to that, and I believe they are reasonable. Firstly, if you are an occasional user, you can pay for the 65 cents. If you are more than an occasional user you can pick up a book. Alternatively, if you make more than $20 of long distance calling in Manitoba a month, we will give you the Winnipeg book for free. Mr.

Dewar: Of course, you could also give us long distance access to the city of Winnipeg, and that would take away that need, but I do not think that is about to come. I was reading in one of your publications, ECHO, and it says: Customers win as Public Utilities approves MTS applications. One is the directory assistance charge. I do not know how customers can win when they have to pay 65 cents for a service that once was provided free by the Telephone System. The other thing is the ownership of inside wires is transferred to the customers. Inside wires will be guaranteed for one year-

112 LEGISLATIVE ASSEMBLY OF MANITOBA June 8, 19 93 Floor Comment: It was not free; somebody paid for it. Somebody was paying for it, Greg. It was not free. Mr. Chairperson: Order, please. The member for Selkirk is asking a question. Mr. Dewar: Could you explain that to me please about the ownership of inside wires transferred to the customer? Mr. Pedde: On how that was done, or the underlying reasoning behind it? Mr. Dewar: Both of them. Mr. Pedde: Well, basically we have a cent ral office swi tch. That is the node where the logic functions and gets you rooted to the world.

From that swit ch is typically a dedicat ed cable pair, unless you are a cellular user, that gets you to the house. Then there is a protector block outside the house and from the protector block outside the house is another set of wires called the inside wire that get s you to the telephone jack and the telephone behind it. Once we decided, and I think that decision we should have made some time ago, that the nature of our business and the nature of the technology made us not much different from the hydroelectric company, that we get you to the house and you plug in and the rest is up to you.

But once we decided that the instrument should be at your choice, we will lease it to you, we will sell it to you, but if you want to buy it somewhere else that is fine. Then we ne eded a poi nt of demarcat ion to test where the trouble is with the telephone network. Resid ent s and business consumers say: MTS, sometimes we do not want to buy from you, we do not want to lease from you, and that not only was the extension but also the main set.

So once you decide that the inside wiring is then in no- man's land, and we need a point of demarcation to test whether the trouble is in the MTS network or in customer-provided equipment. Therefore there was no rhyme or reason to retain the inside wiring. Secondly, a lot of people wanted to install their own insi de wiring, and we just said: No, you cannot do that. We have an MTS policy, we will do it for you. So that is the reasoning. Mr. Dewar: If anything goes wrong with the wiring inside, how does the customer get it repaired? Mr. Pedde: Mr. Chairperson, we have a number of options.

First of all, with the new policy, for the first year to facilitate the transition we will totally look after the wiring whether you own it or not. In fact, you own it as of June 1. After the first year, you have a choice to make. If you say, I will fix it myself if the trouble occurs-a nd the trouble occurs very rarely, typically once every 20 years-then, you will pay for it. If you feel unsure, and you want the protection policy, that I do not want any hassle, for a dollar a month we will give you peace of mind and comfort. That is the third option. Mr. D ewar: I have a memorandum from Mr.

Reg Bird, President and CEO of Manitoba Telephone System, directed to the Honourable Glen Rndlay. In it he makes a number of-this was written on June 12 , 19 89-he made a number of significant points. One of them was that competition in long distance services result in higher telephone bills for most business and residential sub scribers, 90 percent will be losers, 1 0 percent, mainly large businesses, will be winners. *

(2030) He goes on to talk about the U.S. experience, and competition has res ulted in a decrease in interstate long distance rates by 30 percent but an increase in local rates by 48 percent. Overall telecom pric es have climbed by 17 percent. [interjection] Mr. Chairperson: Mr. Dewar, to continue his questioning. Mr. Dewar: I was wondering if you could make some comments on this particular memorandum, Mr. Findlay. Mr. Findlay: Well, the memb er ref ers back to 19 89.

If he had paid at tention in my opening comments, we had indicated that MTS, as well as other Stentor members have reduced long distance rates by over 50 perc en t in the last four years. Revenue from that source has remained relatively flat over the course of time. So if the cost has gone down half and the revenue is the same, that means by and large people have doubled their use. Projections back at that point in time are really not relevant to what is happening today. MTS has applied for rate increases on an average phone bill of 1 percent each of the last two applications for rate increases.

So 1 percent is well below the inflation or CPl. So the comments in terms of the

June 8, 19 93 LEGISLATIVE ASSEMBLY OF MANITOBA 113 fear of higher rates in the future have not been borne out, in fact, to this point in time, and they are not expected to be in the future. I would like to raise the issue, now, of the 1 0-days layoff, or the 3.8 percent reduction in MTS employees wages. I was wondering what action MTS has taken to deal with Bill 22, the reduced workweek. Mr. Pedde: Mr. Chairper son, we did not deal with Bill 22.

We dealt with an environment where, if you pardon the expression, we had a signal that restraint in public sector wages was an appropriate approach and policy to the Manitoba economy. We confronted that head on and tried to sit down with our management and our union and said this is an easier way to control our costs than to lay off people. Theref ore, we hammered out days that were appropriate for the nature of our business that would have virtually no customer impact. I would be a fool to say that they have zero customer impact, but it has not significant customer impact.

We have approached it and have had the uni on memb ership pick the days, with some guidance on our part, and we picked 1 0 dedicated days, and for those people that are in essential positions, they picked different days. We expect 50 percent of the people will be in the dedicated days and 50 percent in random days that they work out with their management. It is not a pleasant pill, but it is generally well received as a good approach by both management and the members hips at large, employees at large. Mr. Dewar: I would just to like ask you, Mr. Pedde and Mr.

Stefanson, are you taking a 3.8 percent cut in pay as well? Mr. Stefanson : Yes, I can speak for both Mr. Pedde and myself . We are both taking a 3.8 percent. In fact, every person in the corporation is taking 3. 8 percent. Mr. Dewar: I would like to enlarge further on this parti cular topic. I was wondering how will this af fect MTS ' com petitive ma nda te , or the competitive aspirations of the Telephone System, closing down 1 0 days in a year? Mr. Pedde : Mr. Cha ir per son, there ar e two elements at play here in terms of, roughly, the 10 days off translates to the equivalent of 150 full-time positions.

The first assumption is that we can get our work done with 150 less people, and I think the creativity of our management has demonstrated that we can do that. The second

part is to pick those days where customer service is not impacted. We have other days. We have Remem brance Day and Easter Monday, and we have days around Christmas time and New Yea r's where a lot of people are celebrating and maybe not contributing all that much. I am not a fool to say that it has no impact, but generally, I think, we can manage it as long as you start with the assumption that we can get the job done with 150 less people. Mr. Dewar: How are you going to inform your customers about this decrease in service? Mr. Pedde: Perhaps Ms.

Nault can come forward and describe the specifics, but generally we are going through radio noti fica tions, through newspaper notifications, to identify to the public what those dates are. We will have recorded voice messages. As I mentioned, the nature of the plan is such that we do not want customers impacted, so that any cust omer service-our Phone Centres will be open. Our repair offices will be open. That is why we cannot fully effect 1 00 percent of the savings because the essential positions have to be maintained. The operators, it does not matter, are there whether we declare it a special day or not.

It is the same way on Mother's Day and Christmas and Boxing Day and New Year's, but we will have written notice, radio notice and we will have voice messages on the equipment, and then we will have human beings that calls will be forwarded to that can take care of our customers. Heather, maybe you want to give me the exact specifics. Mr. Stefanson: Mr. Chairperson, I do not believe that it is fair to say there will be a decrease in service. At least from my point of view our service will be as good as it ever has been. I view the 3.8 per cen t as an opportu nity.

I believe it is an opportunity for us to reach our financial goals that I talked about earlier, and I think it is a good way to do it, in other words, let everybody share a little bit rather than layoffs. If you translated 3.8 percent into layoffs, you are probably talking the equivalent of, say, 150 people laid off, and I do not think any of us want to see 150 people laid off. I think we would rather work our programs through this way. When the board made

114 LEGISL ATIVE ASSEM BLY OF MAN ITOBA June 8, 19 93 the decision to proceed with this program and asked the manage ment to come forward with a proposal, I might also suggest that I believe very strongly that management did an excellent job of coming forward with a proposal. I think they really put an awful lot of thought into it. You see the way they have structured it. If we were to go into the details I think you would be quite impressed, Mr. Dewar. Ms.

Heather Nault (VIce-President, Corporate and Regu latory Affa irs and Corpor ate Secretary, Mani tob a Telep hone Syste m): I would just like to confirm basically what Mr. Pedde has informed you of. MTS will be placing ads in the Winnipeg newspapers with respect to operations of Winnipeg local facilities. We will be placing ads in community new sp ape rs outside of Winnip eg informing them of details of operations in the less urban areas. In the case of Phone Centres outside of Winnipeg, they will carry on their pre mises notices of closing days some period in advance of those days.

We will be using Voice Mail to inf orm our customers who try and access departments which are closed on the speci fic days about the fact that we are closed, that we are closed in alignment with the province's initiative in this area, that customers will have two options, they can either leave a message and our staff will call them on the next business day, or we will be providing emergency nu mber s should they re quir e em ergency assistance. Mr. Dewar: I thank you for that answer. Again, I just have some concerns about the 1 0-day layoff.

We know that there will definitely be some days where the Telephone System will be closed. Will Unital be open on Fridays? I am certain that they will be and this is going to be your main competitor. •

(2040) Mr. Stefanson: I think Mr. Pedde had pointed out a little earlier that the company will not be closed down, that there are two different programs. There is one for where you can , which will be the employees-and that is approximately 50 percent will be required to take the 1 0 days as specified. In other parts of the company, like Phone Centres, for example, or operators, there will be a di fferent program, and service will be delivered as usual. I do not belie ve that ther e is going to be any decrease in service. In regard to Unitel, I have no idea how they will operate their business.

I feel very confident though that our people will match them in all areas of service and will certainly strive to outperform them on all fronts. •

(2040) Mr. Dewar: Thank you, and I wish you well. I would like to speak briefly about some of the job layoffs. I believe Mr. Pedde had made reference in past discussions of the right-sizing program, or I would call the down sizing pr ogra m. It was me ntioned prior that it would be ar ound approximately a thousand employees laid off. Is that correct? Mr. Pedde: Yes, Mr. Chairperson, but I would like to correct this.

We are very specific that we are achieving this not through layoffs but through attrition, on voluntary retirements, and retirement incentives, and I guess if there are layoffs it is for par t- tim e and casual work, but our reg ular employees, to date, we have not had to resort to layoffs to achieve our objectives. Mr. Dewar: How many employees took the early retire ment prior to I believe it was an incentive package on May 15 ? Mr. Pedde: This year? Mr. Dewar: Yes. Mr. Pedde: 49. Mr. Dewar: Thank you for that answer. Is it true that the Telephone System is not hiring any staff at the moment? Mr. Pedde: Mr.

Chairperson, we are not hiring any full-time or permanent staff. We have casual work, construction workers, and the hiring authority for regular full-time employees rests with me, and in the last two years we have hired three people. Mr. Dewar: Did the Telephone Syste m hire any summer staff, any student staff? Mr. Pedde: We certainly did, Mr. Chairperson. Mr. Dewar: May I have that number, please? Mr. Pedde: I will have to get it substantiated, but I think it was 12 0 the last year, and, I am not sure, it will be a significantly lower number this year. Mr.

Dewar: The Telephone System implemented a policy of continuous quality improvement, TQI. Would you give me an idea of the total cost of that program?

June 8, 19 93 LEGISLA TIVE ASS EM BLY OF MAN ITOBA 115 Mr. Pedde: Yes, Mr. Chairperson, if you take the energy and effort of the people involved in the training , and being trained, we are working on a program which probably subsumes about half a million dollars a year. Mr. Dewar: What benefits then have you realized from the program so far? Mr. Pedde: Mr. Chairperson, I am glad we have got Mr. Gordon here to talk about that in detail, but I think, to talk in terms of benefits, I should describe firstly what the program is.

It is not a program, it is a process and we are trying to get every employee to be subsumed with a notion that continuous improvement and customer satisfaction is a way of life. It is like breathing and eating and that you do not have to think about it. So the key program elem ents are that we me asure cust omer satis fa ction , we edu cate ourselves, and then implement work simplification and processes that require 1 00 steps and 16 people to do, we try to do with 20 steps and 14 people and so on.

So we reduce errors in that process and we benchmark and compare ourselves what we call against the best of breed and not only in the industry, but anybody who has similar processes. We are saying if others can do it, we can do it with the same low cost and same simple processes. The organization has been practising this for a while and now we really try to get the steam engine rolling throughout the entire organization through a number of processes, but we have had many, many success stories before it fully rolled out. Maybe Mr. Gordon can talk about some of the specific successes, but the best is yet to come.

Mr. Barry Gordon (VIce-President, Network Services, Manitoba Telephone System): It is important to recognize that the practice of quality, as Mr. Pedde said, has been something that has I think been endemic in the telephone industry for a long time. It is only with the relative ly recent publication of the whole concept of TOM that the people have brought a new focus to it. As Mr.

Pedde said, the objective is to get all our em ployees think in g in te rms of cus tomer requirem ents and customer satisfaction and the best way to deliver those measu res that the customer uses to determine whether or not they are satisfi ed. We have any num ber of modest examples which, taken together, are really quite dramatic. For example, you may remember it rained quite sign ificantly last night. Five years ago, that rain would have caused us a tremendous number of customer trouble reports as a result of wet cables.

We just coincidentally happened to have our executive committee meeting at our McGillivray building wher e the outside plant construction people, the repair people, ac tually are headquartered. We met with them for coffee at 7:30 this morning. The indications were that there were very few customer trouble reports coming in as a result of that rain. That is a consequence of a dedicated effort on behalf of an awful lot of engineering and construction people to bring the outside plant network up to modern standards, and indeed, in some instances, the best of breed as measured by our benchmarking activity.

We have ins tances, for exam ple, wher e customer -led tea ms have taken an enormous number of steps out of processes that are involved with customer service delivery and some of the most notable successes there have come in our regional areas. For example, in northern region we had a team led by em ployees that took a whole, I cannot remember the number of steps, but it was dozens and dozens of steps, out of the service provisioning process which reduced the time from customer order to customer service delivery substantially. We have any number of examples of those.

The trick for us is to find ways in which we can enlis t the brains an d the comm itment of our employees in driving towards customer satisfaction and finding the best ways to deliver on that. As you may be awa re, we have a letter of understanding, a Memorandum of Understanding, with two of our three unions.

They very clearly map out our collective commitm ent to this and an undertaking from the company that as people work through impr oving proces ses, and indee d do themselves out of a specific job because they are no longer requi red on that pr ocess , our commitment is that they will not lose employment as a result of that effort. As a consequence of that, we have got pretty good buy-in from our employee body. We are in the process of training everybody in the tools and

116 LEGISL ATIVE ASSEMB LY OF MAN ITOBA June 8, 1993 tec hniques, and going forward, we anticipa te sig nificant benefits, again on behalf of our customers and thereby the company and thereb y the employees. Mr. Dewar: I unde rstand that morale is quite low at the Telephone System. Is that correct? Would you mind commenting on that, please? *

(2050) Mr. Pedde: Mr. Chairperson, I appreciate it is a serious question, but it is very, ver y difficult to me asur e morale. Ev ery organiza tion, eve ry corpo ration tries to qua ntify that. Morale as measured as one barometer reading, I believe, is-1 am not saying it is low, but it is not a measure. It is like taking an EKG reading. The only value of a morale reading is if you compare it to the year before. If you ask the same questions and get from the same sound statistical sample year over year, then you can talk about morale, any one reading, depending on how you ask the question.

I would submi t that certai nly there is a lot of anxie t y in the corpor ation because of the uncertainty about the future and that. That is why our Strategies of Success is trying to address, look, we have a plan for the future, we are committed to that plan. You have a role in that plan, so come and work with us and let us build a better future. Mr. Dewar: I want to talk about the printing of the phone book. Could you tell me where the phone book is currentl y being printed? Mr. Pedde: Mr. Chairperson, the printing this year, I am proud to say, is being moved from the United States into Canada at a lower cost.

The place in Ca nada, I think, is either in Vancouver or in Edmon ton-( inter jec tion] It is somewh ere in Alberta. Mr. Dewar: We are obviousl y very pleased to hear that. I was wondering if ther e is a printer in Manitoba that could perform a similar function. Mr. Pedde: Mr. Chairperson, we, too, are working -there is a printer in Manitoba. Unfortunately, that printer does not have the capability in that cost.

What I am pleased to report is that our directory people bent over backwards and worked with a printer and the reason that we, firstly, could get a better price out of Canada than we could get out of Ch icago is that the western prairie telcos got together and said, we are going to do a bulk pur chase . Ever ybod y had a buy -in and our Manitoba printer was left high and dry. They just did not have the capability. They had another unique capability and that was the dir ectory covers. As a result of that, we got them the directory cover busine ss for all of the western tel cos and they are very proud of that. Mr.

Dewar: I would like to talk a little bit about the Service for the Future program. I understand that is very successful and very well received in rural Mani toba, as I know my paren ts now have individual line service for the first time in 30 or 40 years. I congratulate the government on that as we did in the past. I was just wondering if the president could give us a progress report on that particular program. Mr. Pedde: I cert ainly would be pleased to. I guess we think of the program in three elements, and that is why we talk of the network modernization.

I noticed in my address I talked about digital switches. You may be bored with that, but that is the guts and essence to deliver some of the capabilities, and that is where the bulk of the money is. The other element is what we called community calling, and the third element is urban unlimited. Lastly and the most im portant one, as you mentioned, is to bring the rest of the province to individual line service, so those customers also can avail themselves of fax machines. That is the only commercial I am going to make.

The program as of the end of April this year has conver ted 10 2 exchanges to individual line services, and a total of 57 percent of our customers have been converted to individual line service. So out of a 46,300, there have been 26,333 customers converted. Mr. Dewar: Thank you very much. I am very pleased to hear that. It is a program of significant financial magnitude. I believe it is in th� range of $800 million? Mr. Pedde: Mr. Chairperson, that is correct. The original plan called for $800 million.

That may be the good news and the bad news, but the good news is that we believe we can bring the program in for significantly less than that, closer to $730 million and maybe even slightly better than that, and there are three variables at play. First of all, the economy is such that you can do a lot more buying, lower, more cost-effective buying

June 8, 1993 LEGISL ATIVE ASSEMBLY OF MAN ITOBA 117 decisions of the equipment, of the people who do the installation or the plowing in that. And lastly, Mr. Gordon did not take credit for one of the areas in the engineering family. They have streamlined their design processes as part of a COl initiative, and that has also saved some money. Mr.

Dewar: I had some conversation recently with some MTS employees, and they were telling me that they felt that, if the Telephone System was under a competitive envi ronmen t when this program was introduced, MTS would not be able to undertake such a huge capital project because of the anticipated losses and decrease in revenues. Would that be correct? Mr. Findlay: Mr. Ch air person , that is a ver y hypothetical question because he is trying to say "if" in the past, which did not exist. So it is a very hypothetical question. I do not think it is a fair question to ask the president to comment on.

Let us talk about the facts and reality of what is happening. The program has been underway. It will be a seven-year progr am. It will upgrade everybody to private lines and digital switches, and it is a very positive program. It is underway, so do not ask, if this would happen, it would not take place. The fact is, it has taken place, is ongoing, on target, and all Manitobans, as the member for Selkirk indicated, are very happy about it. It is a very hypothetical question that is not relevant. Mr.

Dewar: In the opinion of the president, would the Manitoba Telephone Sys te m be able to undertake such a huge capital project in the future? Mr. Pedde: Mr. Chairperson, I believe that is the same question, and I guess I will answer it slightly differently. The question depends on what rate of return one wishes to wrestle from that undertaking. We are in that par t a monopoly utility, and we are implementing a policy initiative, long overdue, that gives every Manitoban individual line service.

I guess the way we are regu lated is in an overall context of affordability in terms of our balance sheet and our net income statement, and our regulator is watching our dollars just as closely as we are to make sure that we can afford this program. Mr. Dewar: Well, what are some of the capital projects that you see coming in the future? Mr. Pedde: In addition to Service of the Future? Well, I think our capital program will always be what the engi neers call rearr angements, that people move and offices move and businesses move. Then there is modernization.

You must always replenish yourself and modernize yourself. Then, thirdly, ther e is growth. The gr owth is twofold. There is growth in terms of more customers, and there is growth in Manitoba in terms of customers. Businesses grow or individual homes take out two lines or three lines or a fax line.

Then lastly, the nature of the telecommunications business is that the old clunker switches have turned into computers which have software and the intelligence sits in that software and all the vertical services that come with that, as I mentioned, the Number Portability, the Call Management Services, Voice Messaging Services, video dial tone and other such services. They do not come for free. They are software based and software nowadays costs more than hardware, and that is wher e the money is going to be demanded. Mr. Alcock: Mr.

Chairperson, let us pick up on some of the discussion about the employees and the projections for the downsizing. If I understood you correctly, you said that the intention was to deal with as much of that as possible by offering some incentives for early retirement, some restructuring within the organization, hopefully some attrition and that, and you ma de me ntion that some 40-some -odd people had taken advantage of early retirement. * (21 00) I will just frame the question. You can think about it, then answer. The question really is, how far along with tha t are you ?

What is your anticipation in terms of the protection available to the thousand em ployees overall that will be affected by this change in the corporation? Have you explored other opportunities for the corporation that might make use of the talents of those employees? Mr. Pedde: Mr. Chairperson, I wanted to position the 49- the question was asked in a very, very specific question , but the 49 is only one small sample in a bigger number. We are well beyond the 600 number of the total 1,000, but that is both regular, full time, part time and casual.

Yes, the approach is both in terms of early retirement incentives, some retire on their own volition; part-ti mers, we just do not renew their contracts; and we redeploy full-timers to other

118 LEGISL ATIVE ASSEM BLY OF MAN ITOBA June 8, 1993 areas. In fact, we curr ently very proudly just redeployed, on the voluntary basis, 30 employees to the construction progr am. They are going through extensive training in Mr. Gordon's area. That afforded us again, indirectly, a 30 reduction. What was the other element of your question? [interjection) Oh, yes. We do have areas of growth but, as our chairman mentioned, generally we can deliver the same job functions with les s people be cause of the technological investments and the CQI initiatives and others we have made.

We have growth in cellular, a signif icant and magnif icent growth in cellular. We have, as a result of these, what we call, vertical services, Call Management Services, Voice Messaging Services, advanced intelligent network. Call Management Services was introduced in Winnipeg on June 1. The good news is that it was an overwhelming success. The bad news is our customer response index suffered badly because we could not staff up for the demands. We just could not fulfill the demand. I think we will meet our one-year's target in the first two months. Those are the sort of services.

They are highly profitable and they subsidize local service. They require people. They require a different breed of people. They require people that understand this product, that can administer it, that can sell it, that can rearrange the software for it, that can key in the order so the customer is identified on the switch that, yes, you have that service and so on. It is a di fferent breed of people. We have a huma n resource development program to redeploy the major pockets from one area to another. We are also working with Stentor to have work done on behalf of Stentor here.

There is one particular project that unfortunately is not in its full fullness of time that will bring some work here. We are also working with our sister companies across western Canada for a number of reasons. In that, we are exploring some possibilities to bring work to Manitoba, but the driver for all of us there is we cannot continue with the existing cost structure. We just cannot afford to continue with the existing cost structure, but we are exploring some work specifically that we believe we can do for British Columbia very effectively in Manitoba, but I am not at liberty to talk about it yet. Mr.

Alcock: I do not want to push too far on that. But what I hear you saying though is that, of the reduction of a thousand positions that we re identified over a five-year period, already 600 of those have been accomplished with no layoffs. Mr. Pedde: No layoffs of regular full-time or regu lar part-ti me employees. I do not want to mislead anyone, Mr. Chairp erson. Term and casuals were not rehired. If you call that a layoff, then there were layoffs. Mr. Alcock : Does this put you ahea d of your

schedule for the full thousand positions? Mr. Ped de: Yes, Mr. Chairp erson , modestly ahead of the schedule. Mr. Alcock: In the remaining 400, how many of them would be involved in the conve rsio n to single-line service and will become subject to layoff as that program begins to wind down? Mr. Pedde: Mr. Chairperson, we hope they will not be sub ject to a layoff, but the numb ers involved-M r. Gordon and I have had an argument about that-are somewhere between 12 0 and 14 0, in that range. Some of those will still be required all the way out into 19 96.

Some of them are very well skilled and easily deployable people into a number of areas. Some of them are part timers and others will retire. Mr. Alcock: I am sure that what I am about to ask is not going to be news to the corporation or something that has not already been raised with you, but I am interested in exploring the answers to it a little bit. One of the elements of faith, when you come into the Legislature as a new member with the current government in place, begins with a catechism that starts off: In the sands of Saudi Arabia.

You hear this term, it is usually spoken at least once a day by some member of the government. One of the suggestions that has come out of some group s is that, as you have me ntioned already, you are talking about selling services to Stentor and to British Columbia and others. One of the concerns is, as a result of that experience early In the '80s, that the corporation may be constrained from seeking other opportunities overseas, and that the corporation is un able to explo re other possibilities. I would just be interested in knowing whether or not that is true.

June 8, 19 93 LEGISL ATIVE ASSEM BLY OF MAN ITOBA 119 Mr. Pedde: Well, Mr. Chairperson, there are a couple of variables at play. We are- Mr. Chairperson : Excuse me, I would ask you to get a little closer to that mike. Mr. Pedde: Oh, sorry, Mr. Chairperson. A couple of variables at play. These exciting times certainly focus management's attention to the issues at hand. So that is just simple operating principles that we had better not deflect too much management attention outside of the province. But opp ortu nit ies, fro m ti me to tim e, get presented to our doorstep.

We do have certain capabilities, and if we put good judicious use to that, and we have reviewed that subject with our board, and our board has given us some fairly prudent guidelines and principles to pursue this. First of all, the first rule they said, well, this baby had better star t walking before it runs, and therefore no equity injection for ventures outside of Manitoba. The second one was do not deflect from your service delivery capability in Manitoba. If you do this, the ideal way would be to work with some other Manitoba company and provide its services.

If you get asked your self and pu rsue this venture-maybe venture is a bad term-but this opportunity, then make sure that your bills get paid and you know you get paid for your services, but do not risk any capital outside the province. So we are not handicapped, but I must add right now where I do not want management's attention deflected too much, and you cannot just assume that this will automatically manage itself. Mr. Alcock: I certainly appreciate that there are a number of challenges that confront the corporation.

I guess the concern is, and maybe I should direct this to the minister rather than others from the corporation, it is interesting how unwilling we are to accept an y level of failure on the part of anything that has to do with public ser vice or public management. I mean, MTS is not the first large corporation that has tried a new venture in the hopes of gaining greater revenue and had it go awry. I am wonde ring whether the governm ent is prepared to see the corporation move in those directions again, to explore a little bit.

There seem to be tremendous opportunities around the world for people that have the kinds of skills that some of the employees of the corporation have, and I would hope that we have gotten past that par ticular experien ce and that the corporation is free from government direction to make the decision. * (211 0) Mr. Pedde makes the point that this may not be the time for the corporation, and that is a legitimate decision. I would hope that it is being made though based on sound manag em en t within the corporation and not because of a fear that one more time we will talk about the sands of some other country. Mr.

Findlay: Mr. Chairperson, I think the me mber has heard the president describe it fairly accurately, and that is that, yes, they have skills. You have identified the y have ski lls, skills that could be contracted out to some individual or some country. There are many countries in the world who do not have an y telecomm unic ation sy ste m. I see opportunities, there is no question. I think it is fair to say, as the president has said, investing capital would not be the desirable route, but using skills or selling skills or contracting out skills unde r some kind of a contract would be appropriate.

The president has indi cated very clearly the y want to focus on the challenges at hand at this point in time. I am sure that both the executive of the corporation and the board, if the appropria te opportunity came along that was attractive and they felt that the buyer could pay the bills, they would look very carefully at it. Mr. Alcock: I appreciate the minister sa ying that. I guess my specific short-term concern-although I think it is a longer-term concern for the corporation, my short-te rm concern is with these remaining 400 employees. Downsizing is always difficult.

The first part of it is always the easy part, because you can identify some slack and some flexibility, but these last 400 may prove to be more difficult than the first 600. If there are opportunities that would allow these individuals to be productively employed rather than laid off, I would hope that we could find ways to do that. Mr. Stefanson: I think in a short answer to Mr. Alcock's question, the answer is yes in regard to our human resource expertise, that if we are able to save jobs by the sale of our expertise, the board has mandated that management can bring such proposals forward to the board. As Mr.

Pedde has pointed out, we have said in no uncertain terms that we would not make any capital investments. We

120 LEGISLATIVE ASS EM BLY OF MAN ITOBA June 8, 1993 have no money to make capital investments. We have already I think discussed the very serious debt situation at MTS. I think that there certainly are opportunities out there. You are probably right that we probably have, because of past experiences, maybe lost some opportunities in this area. We certainly will not entertain anything where we have to invest in equipment where it becomes part of a package sale.

If we can joint venture it with Northern Telecom or some equipment supplier and they are to do it and we are only to supply the expertise and we think we have a fairly safe investment in regard to our human resource services we are offering, yes, bring forward any proposal. Mr. Alcock: I appr eciate that, Mr. Stefanson. I look forward to seeing what occurs with those last 400. I do feel some responsibility and some concern about them. Let us talk about the debt for a minute. Mr. Stefanson made the comment about the serious debt problem. Just step me back a little bit.

Help me unders tand how MTS became the telephone service with the highest debt-equity load in the country. How did it get into this position? Mr. Stefanson : We ll, I guess it is basically through history. I guess that the owners of the corporation through regulation, PUB, have worked in an environment whereby it was fashionable to have MTS levered. Historically, we have been regulated by the PUB, and we have been able to do our business plans and our financial projections and go to them and ask for whatever was required. For many, ma ny ye ar s, ther e wer e no rate increases required.

So the debt in recent times has always been there. In 19 88, the debt-equity ratio was something like 92 percent. When I and some others came on the board at MTS, we recognized this as a top priority, to start working the debt down, and we have knocked it down some nine points. I think it was 91 percent in 19 88 or '87 and now it is roughly around 82 percent. It is very unfortunate that it was there. I would say, throughout history it has been there. I cannot speak back 25 years ago, but I can certainly speak back over the last 15 years or so. I suspect that is the way it has been.

The financing, I guess, we have always had preferential financing from being bac ked by the government of Manitoba and it probably did not seem like a bad way to go for past governments over the last few decades. Mr. Alcock: So then, if I understood the response, it is a function of government policy, not current government policy, but government policy over a period of time.

I look at some other telephone companies that would certainly be both larger and have a muc h lower deb t equity ratio -and smaller-t hat have a much lower debt equity ratio, so it does not seem to be a function of size, although I note that our neighbouring service in Saskatchewan also has the second highest in the country. Is what you are saying-- just so I am clear on this-is that as a result of government policy going back over the years, some 15 years you re ferenced, that the corporation was allowed to and, in fact, encouraged to assume more debt as a mechanism for keeping rates level. Mr. Stefanson: Mr.

Chairperson, I think that is a fair statement. I do not think that I would identify or sugg est that it was intentio nal. I think that throughout the years the emphasis has been to keep local rates down and it has been pointed out earlier that local rates have been priced much lower than what the cost of them is. To get back to your question as to how far it has gone back, I would be well advised to ask Mr. Fraser, our V.P. of Finance, he could probably give you more speci fics on that. Mr. Alcock: I am not interested in a point in time.

I am more interested in how it is that this one, this utility in Manitoba, ends up in this position. If it were sort of me thodologies or oper ations or pressures that telephone companies were having to face at particular points in time, you would exp ect, or I would ex pect at least some commonality in the debt load across various-it might look di fferent based on size but you expect some common ality across the country. Yet Manitoba is so far out of line with what seems to be the norm in other provinces. I just look at this little chart that we have in your PUB application.

Is it simply because in this province we had a different policy relative to debt and rate setting going back over a number- Mr. Stefanson: Mr. Chairpers on, I would say that it comes down to regulation methodology. In M an itoba and Sask atchewan we ha ve been regulated by provincial regulation,

whereas the CRTC has re gulated the private companies in

June 8, 1993 LEGISL ATIVE ASS EM BLY OF MAN ITOBA 121 Ontario, Quebec, the Maritimes and B.C. The rate of return has been the basis for regulation in those jurisdictions, so rate of return is based on equity. So the more equity you have, the more profit that you are allowed. Companies in general, not only in this industry, usually try to operate at less than a 50 percent debt equity ratio. In fairness, it was not the problem at that point in time that it is now. I am not sugge sting for a momen t that competition has really changed anything. It is a new world. We are going to be regulated federally.

If we have very low equity, you can imagine the difficulties we have with rate-of- return regulation, and that is very likely the methodology that we will be under when regulated by the CRTC. •

(2120) Mr. Pedde: Mr. Chairperson, maybe this will help to expand on that, and this is absolutely and categorically not a political statement of any sort. The Crown corporations across western Canada all had higher debt-equity ratios. If you had Alberta before privatization it had a higher debt-e quity ratio than Manitoba. It was driven by, as you correctly alluded to, borrowed capital is cheaper to work with as long as somebody guarantees the borrowing. The problem is that 50 years ago all the provinces were not deficit financed and did not have to worry about guaranteeing the debt.

Right now, Alberta, Manitoba and Saskatchewan-M r. Fraser just was with Moody and Moore today, and they have never asked about little old MTS and its debt crisis before, but they are asking the ques tion now. So historically, when your revenue streams were gu aranteed and the borrowing up front was guaranteed and the provinces had a healthy balanc e sheet, it was eas y to guarantee the borrowing of the Crowns. That is sort of the history behind it. Mr. Alcock: I apprecia te that and certainly one has to look at decisions that are made within the operati ng environment of the time.

I am not proposing this critically one way or the other, I am jus t in te res ted in that di ffer enc e , because pre sumabl y New Bru nswick and P .E.I. an d Newfoundland and Nova Scotia had the same possibilities open to them. If I understood Mr. Stefanson correctly, the one variable there is that the y have been federal ly regu lated for muc h longer and the west e rn provinces were locally regulated through the PUB. This may be as clear a reason for this difference as anything else. Mr.

Pedde: Yes, the federal regulation is one variable, but the other one is, if you are a private corporation, you have a few other stakeholders in return for the shareholders and other dimensions at play. Therefore, their balance sheet, there is an optimum use of capital for a corporation depending on what returns you have to satisfy for the various shareholders. Depending on the nature of their business, that usually gravitates in the 40-to- 60 or 60-to-40 range, depending on the type of business, so that is the other dimen sion at play , not jus t a form of regulation. Mr.

Alcock: Now we come to the problem, which is, as you move in to a more competitive enviro nmen ts, debt equ ity becomes a gr eater consideration and you are working hard to get that down. You mentioned that it was at some 91 percent and it is now at 81.7 percent, and you have a goal to get it down further over this next period of time, but now you are movin g in to federal regul at ion, and I think, Mr. Ste fans on, you referenced some of the difficulties in doing this in the short term. Have you had discussions with the CRTC about this what is a relatively unique case, given the various telephone companies.

Are you anticipating being able to move on this? Mr. Pedde: Yes, we are, Mr. Chairperson, and I think the minister can probably expand on that. The provin ce, as part of this Mem orandu m of Understand ing, took the initiative to ensure an adequate and proper transition from provincial to federal regulation.

One of the elements was what the appr opriate regulatory regulation mechanism was to be, as the chairman alluded, because of an 80-20 debt equity ratio, if we were to be regulated on the return on that measl y 20 percent equity that it would not get sufficient net income, and we would be slowly steeping deeper into the hole. Mr. Alcock: I am sorry. Your sense is that this will be accommodated within the regulatory regime of the CRTC? Mr. Pedde: Mr. Chairperson, there is a transition phase even though federal regulation kicks in on January 1, 1994, assu mi ng C- 62 passes, of cou rse .

The n there is going to be some

122 LEGISLA TIVE ASSEM BLY OF MANIT OBA June 8, 1993 mechanism by which the appropriat e form of reg ulat ion for a corpor a tion like Mani toba Telephone System will be pursued. It will not likely be rate of return of regulation. In fact, if I can deflect slightly, the whole question of regulat ion for the telephone companies in Canada is presently under review under something called 92-7 8 Structural Hearing, I believe.

It is recognized by the telecos, by the regulator, by the federal governm ent , by the compe titors that rate-of -return regulation is no longer appropriate, but what is not recognized is what the right solution is. Mr. Alcock: I beli eve we will see what that produces. What now happens-a ssuming the bill passes, and I think there is some reason to make that assumpt ion-in the relationship with the PUB? Will you be going before two reg ulators now? Maybe this is a policy decision for the government, or will your relationship with the PUB change substantially? Mr. Find lay: Mr.

Chair person , the process of transition will occur right now, as I mentioned in my opening comments, January 1, 19 94, unless we agree to have an earlier date. An amendment of Bill C-6 2 has accommodated this. We expect the PUB application to be completed over the course of the remainder of this year, and then everything is in place under PUB. Regulation is more or less grandf athered or assumed to have been accepted by the CRTC and we move into a transitional period of about five years.

A group of experts have done an analysis and reported in '92 that the Crown corporations ha ve , as we alrea dy ment ioned, financed themselves with debt, with govern ment backing. They are not in as strong a position as the privately owned companies and are going to need a differe nt form of regulation,

part icularly in the transition period before they get under full CRTC regulation using the process of rate of return. In the transit ional period , a methodology of regulation will be used that reflects the reality that Crown corporations have an unusually high debt load. Mr. Alcock: I am not ce rt ain if I comple tely under s tood or that completely answered the question. I understand the transitional problem, and there are going to be discussions wi th the CRTC as to how you accommodate the debt equit y problem.

Are you saying over the five-year period of time that the telephone company' s involvement wi th the PUB will cease completely? Mr. Findlay: It ceases as of December 31 , 199 3. We will move from PUB to CRTC. There is no overlap. Mr. Alcock: That is what I would have assumed. So the five-year phasing you are talking about is more relat ive to the rat e se tting and that as opposed to any kind of regulatory involvemen t. Mr. Findla y : We ll, it is the process of being regulated by the CRTC. Mr. Alcock: I have just a couple of per haps smaller questions here.

You mentioned in one of the opening statements the use of 800 numbers and the changes to 800 service that you have br ough t in. The govern ment passed a tax provision relative to 800 service some two budgets ago, I think it was. I am wondering what sort of an impact that has had on service. Mr. Pedde: Mr. Chairperson, I am not sure what specific difficulty it has had. One of the companies that was, I believe , contemp lating to come to Manit oba-a nd I only have that from hea rsay- would not have come wi thout that reduction.

We like to think that the reason our 800 service is catching on so phenomenally is because we sell very well and we also have restr uctured and repackaged it. As I mentioned, one of the entry vehicles, almost any little small butcher shop can get 800 service now with a nominal monthly fee, so that is at play. I am not sure that I can sort of get the right drops out of the rain barrel which was government policy and which was our market ing, which was our price setting and so on. Mr. Alcock: I am certain it is attributable to both, of course.

As I understood the move that the government made, it was an attempt to attract some of the large 800 compan ies, the cent ral sort of cust omer service companies that some locations in the States have worked hard to attract that kind of business and that this was sending a signal, if you like, to the larger business community that this is a place to come and set up because you can get some tax advantages for using the 800 service and

June 8, 19 93 LEGISL ATIVE ASSEM BLY OF MAN ITOBA 12 3 the n, of course, the very fine services of the Manitoba Telephone System. What has been the increase? What is the nature of the increase in the use of 800 service, leaving aside for a second the small butcher shop that is now using it or my friend in Winnipeg Beach who is now using it? Has there been a significant uptake? Has there been significant growth in it? Mr. Pedde: Mr. Chairperson, by our standards 800 service has experienc ed phenomenal growth in all sizes, shapes and forms. I do not have the exact number.

I can make that an undertaking, but it certainly has been double-digit growth in the last couple of years. Mr. Alcock: That is fine. * (213 0) Mr. Chairperson: Ms. Wowchuk. Oh, pardon me. Mr. Alcock to continue. I am sorry. I thought maybe you said that is fine. Mr. Alcock: Oh, no. Another issue that arose in the discussions about Unitel, and I am interested, frankly, at just how modest the projected impact from Unite( appears to be certainly in your overall operating statements. I mean, you are not showing huge changes as a result of Unite( coming on-line.

The hookup costs, can you give me some sense of how that arrangement works with Unitel? They are paying you a fee for hooking onto your service? Mr. Pedde: Mr. Chairperson, I guess again the difficult

part is and one we always have to be careful that what numbers we throw around that we have the comparable numbers. What we do not know is what the rats would have behaved like with a different recipe. We do not know what the revenue would have been in the other circumstances. So who knows what the difference was? What we do know is that revenue has been impacted by resellers in other jurisdictions. Revenue has been impacted by the economy, and reve nue has been impacted by lower prices, but I defy a genius to say which is which, and so on. We know what the total result would be, and we do not know what it might have been. That was just the

preamble. I lost the question. Mr. Dewar: Hookup. Mr. Pedde: Okay. The hookup, as Mr. Dewar mentioned, Mr. Chairperson, is the capability, the physical capability for our competitors to get out of their network or their customers into our network so they can fully avail themselves of the infrastructure that we have built.

When the hookup is of the nature, and that is where the big money is, such that they can dial under the North Ameri can numbering plan, they can get into our network with 1 0 digits or one plus 1 0 digits, the area code and seven digits, as opposed to 16 or 17 digits which they cannot do in Manitoba just yet. That is, for Canada, over 1 0 years of the capital and the ongoing support is a $1 .2 billion figure. Our component of that is that we are not sure, depending on how it evolves, and if I seemed evasive to Mr. Dewar, I do not know the exact number until we get into it.

I think the initial capital for our first two-year plan is $1 0 million of that plus an ongoing running cost related to that. The recovery of that will come through the contribution from the competitors. Mr. Alcock: Well, let me deal with a couple of small ones before we come back to the financial statements. There is a discussion, and actually I raised this question with the minister in the House about, I do not know, I guess last week some time.

It came out of the Manit oba school trus tees as they ar e attempting to get school divisions and individual schools hooked up onto the fibre optics system, I think was one that was specifically refe renced . They had expressed a concern because MTS apparently had taken the position that it would not negotiate with the school system as a system, that it would negotiate school by school or school division by school division, but that it would not enter into a broad negotiation with the educational system in the province as a method for lowering overall costs per individual hookup.

In fairness, I should say that the minis ter responded in the House that MTS was a corp orat ion an d ope rated in a com petitive environment and had to make its decisions in the best interests of the corporation, and the schools and the education of the future citizens of the province could just be ignored in all of this. I think that is how you editorialized it, was it not, Mr. Minister? In fairness, I should not play. The question, though, why would you not? As a public service, why would MTS not negotiate collectively with all school divisions?

12 4 LEGISL ATIVE ASSEM BLY OF MAN ITOBA June 8, 19 93 Mr. Pedde: Mr. Chairperson, I am not sure that we would not. I think what we would not do is, somebody has to pay for this, and we worked with the Department of Education who wanted sort of an overall plan rather than once- there is no point in going to a school division and saying, this is what we will do for you and then they have to run to the Department of Education for financing.

So we have done it on a test basis, but we very consciously-we pursued this very aggressively, and we did some aggressive pricing with the lowest possible, least amounts of margins over cost to ma ke sur e that the whole prov ince uses our faci lities where they are appr opriate . But if somebody came to us-1 do not think anybody has told us that somebody came to us-and said, we have money and we would like you to hook up this fibre and give us remote video-telecommunications capability, we would dance to that. Mr.

Alcock: Except I think the complaint from the school trustees is that you would only deal with it on a school-by-school, location-by-location basis, and would not negotiate-the ir assumption, of course, is that there are some considerable savings due to scale, if all the school divisions in the province or all the school di visi ons in a given region of the province are able to negotiate as a body. Now, are you saying that there are no savings due to scale, other than that you are pricing this at the lowest possible level and everybody is going to get the same rate?

Or is there a policy decision not to even entertain? Mr. Pedde: Well, Mr. Chairperson, I believe that is what precisely it is we are doing. We are working with the Department of Education to make sure that the priorities as seen by them, and the funding as seen by them, and therefore we can provide a most cost-effective solution for the province. I stand to be corrected, but I believe that is precisely what we are doing. Mr. Alcock: Mr. Cha irperson, I will send the memorandum from the school trustees over to Mr. Pedde. Maybe it is just a matter of communicating more clearly with them or helping them understand.

Mr. Pedde: Mr. Chairperson, I believe there was, in fact, a press conference between the Minister of Education in our facilities, and the various groups were tied in. In fact, I was supposed to speak that, but unfortunately the minister held me up too long, but Mr. Gordon was there. Barry, do you want to clarify? Am I missing something here? I have nothing further to add. Mr. Alcock: Another one. When we talk about capital investment in the system, what is the extent of fibre in the pro vince righ t now? Are we upgrading? Mr. Pedde: Mr. Chairperson, I believe Mr.

Gordon can take the rest of the night to describe our fibre program . We are very, very proud of our fibre program in the province. Unfortunately, we are not as advanced as we would like to be, but certainly, coming out of the blocks a little late, we have bought the technology much more cost-effect ively, and we have provisioned more cost-effectively, but Mr. Gordon can provide you the specifics in capital terms and reac h and location and so on. [interjection] The 1 0-minute version. *

(2140) Mr. Gordon: Mr. Chairperson, perhaps I could ask, to give me an opportunity to hear the question in terms tha t I can, ma ybe , respond in a 10 minute- Mr. Alcock: I would hope you could respond in even less than 1 0 minutes. I think it may elicit other questions. The first is, you are investing in single lin e services and a variety of other improvements in ser vi ce thr oughout the provin ce. One of the changes that I believe we discussed the last time we were here was the extent to which fibre is replacing copper.

I would just like to get a sense of, how ex te ns ive is that replac emen t and how available is a fibre hookup to people now? Mr. Gor do n: Mr. Chairp er son, the initial application of fibre, of course, is in the long-haul network to replace things like microwave radio and so on. We have made very extensive use of that. For example, I believe Mr. Pedde mentioned in his opening remar ks that we now have fibre to The Pas, Flin Flon, Thompson and so on. We are carrying CBC and CTV television using digital facilities to those communities. So we have a very extensive backbone fibre network in the pro vin ce .

Pr obably every commu nity of 1 ,500 people and up has fibre access. Howeve r, the qu estion with respect to the replacem ent of copper is one that is probably

June 8, 1993 LEGISL ATIVE ASS EM BLY OF MAN ITOBA 125 coming a little more slowly than most technical prognostica tors would have guessed. We are using fibre, for example, in the distribution network, which is the network between the central office and the residents or business, fairly extensively in both Winnipeg and Brandon. In Winnipeg we have two fibre rings downtown that allow us to cover probably 80 percent of the large businesses downtown off of very high band width services, and we have essentially got fibre to their doorstep. The same situation exists in Brandon.

We have a fibre ring in Brandon which literally encircles the core area of the city, and gives us the same kind of capability. The next challenge is to take that yet the next step, particu larly in the residential areas. As a matter of fact, in that regard, just today we have launched an initiative with Stentor, who are putting together basically a trial application program for fibre to the curb, which is a kind of euphemism for getting it further and further towards the residence, involving a number of prospective manufacturers. We are in the process of making a pitch, based on our experience.

It goes back quite a long way wi th res pect to br oad-band faci lities in the distribution network to have a piece of that action. That will give us hands-on experience. We are looking on applying it in a small, new development, perhaps in an apartment building and perhaps in a rehabilitation application as well. We are optim istic that we will be able to collaborate wi th Stentor, the other Stentor companies to do that. So that will give us a real good feel for the technology, what it means in terms of the capital cost to apply, the oper ati onal administrative aspects of it and so on.

It is coming, it is probably coming a little more slowly than some of the technological seers would have you believe at this point, however. Mr. Alcock: So at the current time, most of the operational capability is in the commercial districts around these rings downtown; and the second question, just projecting out, any sense of how long it will be before we have it in the residential areas? Mr. Gordon: Yes, the application, as it relates to fi bre to the building or to the point-of-service delivery, is primarily, I guess exclusively, in the downtown area today.

We are at the point where, if we were to have a large me dium- to-u pscale residential community subdivision development undertaken-if Lindenwoods were starting again, for example-! think it is safe to bet that we would look very, very carefu lly at fibre at least to the pedestal or some point in the distribution network within a few hundred metres of the individ ual homes. Unfortunately, the way in which our economy is, we are not seeing those kinds of developments. We are seeing in-f ill, we are seeing onesey, twosies, so we do not see the opportunity to apply it in a sort of a fresh piece of paper application.

It is not cost-effective yet in rehabi litation or growth, overlay-type growth. Mr. Alcock: So if I understand you correctly, then there is no current planning to replace the copper in older di stricts , River He igh ts, Tu xedo , Charleswood, whatever. Mr. Gordon: No, that is quite right, we have no plans. As a matter of fact, in respect to that, there is an enormous number of technical advances being made in signal processing, which is allowing copper to carry higher and higher bandwidth signals.

There is a school of thought that says, with some signal- processing capability based on large-scale integr ated silicon circuits, we will be able to deliver full motion, full colour television over a copper loop of maybe a kilometre and a half or two kilometres. Stentor, again, is undertaking a trial, this time with the Univer sit y of Ottawa and Carle ton University to actually deliver some image-type material, within their educational environment, on copper, using signal-pr ocessing techniques.

So it is not entirely clear that we will not have a couple of alternative solutions to high band with service delivery. Mr. Alcock: Is that one-way di gital, or it that interactive? Mr. Gordon: Mr. Chairperson, in that particular instance, it is one way. The upstream signal is a much lower bandwidth, but there is also another technology which is not being looked at for the subscriber loop so much, it is more being looked at for interoffice or private business applications, which is in fact two way. Mr.

Alcock: It is interesting, I harken back to a meeting I was at, I think in 19 75, wher e the Telephone System, at that time, was getting into

126 LEGISL ATIVE ASSEMBL Y OF MAN ITOBA June 8, 1993 the discussion with the CRTC relative to the cable companies' delivery of video services. The telephone companies were making, at that time, the pitch that there should be a single carrier; that they are the ones that should provide the hookup to the home; and that the cable companies and others should purchase the pathway, the backbone if you like, for the deliver y of their services and they would deliver their programming around one of those loops.

As we hear more and more of the availability of interactive services, and I had assumed with the arrival of increased fibre that we might revisit that discussion . Is that a discussion that is currently active with the telephone companies now, or have they conceded that ground completely to the cable companies? Mr. Pedde: I think, Mr. Cha irperson, if I can rephrase the question or try and attempt to answer it sligh tly di ffe rently. From the busin es s per specti ve, Man itoba Telephone System as almost any telephone company is principally in the information movement business.

I keep on telling our employees, what our job is is to be the Reimer Express of the information movement, where we do not need to own the parcels, we do not even need to sometimes own the highways, but the trucks -not the content in the truck. Now, if you take that analogy, we are in the business of moving information. The beauty of the information is whether it is voice, image, data, facsimile or video when it is digitalized you cannot tell any difference. So you move it, you store it, you massage it, you manipulate it, you route it, you bill for it and you get it to the other end. That is our business.

So I answer the question, just let me play in the area of the movement of information. I do not want to be in the content business, never have been except for Yellow Pages, and that is lucrative business so we are not about to give that up. But, generally, we are not in the content business, but in the movement of information business.

Therefore, video information, our view of the world, we would like to move video information either for the cable companies or the television companies or for Joe video rentals if he wants to move a video into the residential home over our-it does not matter whether it is coax, fibre or twisted pair, copper, in other words, that really does not matter. *

(2150) So any type of information movement and even video information is digitized. That is the business we are in, and that is the business we want to be in. Mr. Alcock: I appreciate that- Mr. Pedde: I did not fully answer your question. Mr. Alcock: No, actually you restate, I think, the position of the telephone companies for as long as I have been involved in some of these policy questions. But the limiting factor has been your access, your pathway into the house has not been capable of delivering some of those services. What I hear Mr.

Gordon saying is that rather than going to the expense of the capital upgrading to put the fibre in, that you might be able to do it on the existing copper system. One cann ot dis coun t the advances of technology. Anything I have seen on that though has not suggested that you are going to have the kind of broad-band interactivity that is currently being discussed, certainly in some of the test markets in the U.S. I mean, we do not need to get into this discussion here. My question was just on the degree to which we are going to upgrade the fibre. If I understand Mr.

Gordon correc tly, there is no plan to replace existing copper in residential districts, that you would look at that if a contractor were doing that in a development, but at the current time there is no plan. I would assume from that then, that despite your desire to deliver these services that, in fact, as we revisit the discussion of the relationship with the cable companies, that you will not be competitive in that market in the short term . Mr. Pedde: Yes, Mr. Chairperson, I do not believe there is a simple yes or no answer. It is a push and pull of the marketplace.

It is a push-pull of the technology capability, and it is a push-pull in terms of the demand. It is not only demand of video services that want this wider band width or this greater bit or throughput capability, it is also other data applications. There are, and again Mr. Gordon can describe that, some of these synchronous transfer mode re qu irem ents which is millions or gigabit s of information going into the household in a matter of

June 8, 1993 LEGISL ATIVE ASS EM BLY OF MAN ITOBA 127 seconds which require a lot of band width. Again, it is the most cost-effective structure in terms of fibre, coax or twisted pair will be implemented. Right now, fibre is coming down and cost is coming down. Copper cost is not coming down, but the ability of transferring more information because of electronics over copper is again indirectly driving down the co

Document details

Collection	Manitoba — Debates (Hansard)
Citation	35-4-punr5
Type	hansard
Volume / chapter	35th 4th hansardpdf punr5.pdf
Language	en
Format	pdf
Source	PROVINCIAL
Identifier	82164c82617c7c35370f1fd0477d958035a9106a

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