Appendix a (Abridged) of Rogers Comments - Economic Principles and Usage Based Billing - JChurch - TNC 2011-77 Mar28-11

8/7/2019 Appendix a (Abridged) of Rogers Comments - Economic Principles and Usage Based Billing - JChurch - TNC 2011-77

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# filed in confidence with the CRTC 1

Economic Principles and Usage Based Billing

Jeffrey ChurchProfessor, Department of Economics, University of Calgary

andDirector, Berkeley Research Group, LLC.

March 28, 2011


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Contents

1. Introduction .............................................................................................................................. 32. Technology and Costs of Broadband Networks ...................................................................... 5

2.1. Implications of the Technology of Broadband Networks for Pricing............................... 72.1.1. Efficient Pricing, Firm Viability, and NonLinear Pricing ......................................... 72.1.2. Congestion and Optimal Capacity ............................................................................. 9

3. Congestion Management, Fixed Cost Recovery, and UBB ................................................... 133.1.1. Fixed Cost Recovery ................................................................................................ 133.1.2. Congestion Management ......................................................................................... 13

4. Wholesale UBB ..................................................................................................................... 154.1. Mandated Wholesale Access of High Speed Internet ..................................................... 154.2. Regulatory Arbitrage and Its Effects .............................................................................. 16

5. Tables and Figures ................................................................................................................. 186. References .............................................................................................................................. 21


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1. INTRODUCTION11. I am a Full Professor in the Department of Economics at the University of Calgary. I

received a Ph.D. in economics from the University of California, Berkeley in 1989,and have been continuously employed in the Department of Economics at theUniversity of Calgary thereafter, teaching courses in industrial organization,competition policy, regulatory economics, and microeconomics. My publishedresearch includes articles on network economics, intellectual property rights, andcompetition policy. I am the coauthor of a book on the regulation of natural gaspipelines in Canada, a text in industrial organization, and a recent monograph on thecompetitive implications of vertical and conglomerate mergers. A complete list of mypublications is included in my curriculum vitae, which is marked and attached hereto

as Exhibit 1. I have acted as an expert on a wide range of regulatory and competitionpolicy matters. From 1995 to 1996, I held the T.D. MacDonald Chair in IndustrialEconomics at the Competition Bureau. As summarized in my curriculum vitae I havebeen involved with the development of telecommunications policy in Canada since1995, providing expert advice and participating in drafting many of thetelecommunications submissions of the Competition Bureau.

2. In this report I address the following issues relevant to the Commissions proceedingon billing practices for wholesale residential high-speed access services:

the implications of the characteristics of the technology of high-speed networksfor pricing;

the consistency of nonlinear pricing with efficient recovery of sunk networkcosts;

the use of pricing to manage congestion on networks and efficiently resolve thetrade off between the increased production costs and the reduction incongestion costs from increasing capacity;

the implications for investment and congestion costs if there is an asymmetricapplication of usage based billing between wholesale and retail undermandatory resale.

3. I reach the following conclusions:

Broadband networks are characterized by economies of scale and scope andrequire significant capital investment that is sunk. As a result short runmarginal cost is not a relevant measure for assessing the inefficient exercise ofmarket power. Service providers will typically have to mark their services upabove short run marginal cost in order to break even. The use of nonlinear

1 The following report was commissioned by Rogers Communications Partnership. However, the views expressed

are those of the authors and not of Rogers Communications Partnership, as is the responsibility for errors and

omissions.


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pricingpricing that involves the potential for different prices for differentunits of consumptionwill more efficiently resolve the trade off betweenrecovery of sunk costs and efficient use of a network than uniform pricing (allunits priced the same).

Broadband networks have elements that are often shared by users: totaldemand for the services of the element is the aggregate of the demand of allusers. When these elements have a capacity constraint too much demand by allusers can result in congestion and congestion costs. Efficient pricing ofnetwork usage requires that prices signal to users not just the avoidable privatecosts of the network operator, but also the costs of congestion. The costs ofcongestion are the harm imposed on other users of the network by the use of asubscriber. If the costs of congestion are greater than the costs of additionalcapacity, then it is efficient to expand capacity. If the costs of congestion areless than the costs of additional capacity, eliminating congestion is notefficient.

Congestion pricing that reflects instantaneous network conditions or thatreflects predictable daily variations in demand is only efficient if the costs ofimplementation are less than the efficiency gains. If this is not the case then itmay be possible to identify second best proxies that are correlated withcongestion.

The form of usage based billing instituted by the major telecommunication andcable networks is consistent with efficient recovery of sunk network costs andcongestion management. It appears not unreasonable that volumes might wellbe a second best proxy for congestion.

Retail usage based billing therefore appears to have benefits associated withfixed cost recovery and congestion management. A regulatory policy thatprohibited usage based billing for mandatory wholesale high-speed internetservice could easily create profitable opportunities for arbitrage by independentInternet service providers (ISPs). This regulatory arbitrage would target highvolume subscribers subject to overage charges on the incumbent carriers. Ifsymmetric usage based billing does not apply at wholesale the high volumesubscriber can avoid overage charges by switching to an independent ISP. Theindependent ISP has mandated access at a flat rate for the identical networkservice provided by the network owner. The effect of this is to deny thenetwork carrier revenues that may have been required to cover its sunknetwork costs. This is a form of regulatory hold up which will negativelyimpact the incentives of network carriers to maintain and upgrade their

networks. Moreover, since the users that switch will no longer have the sameincentives to reduce their use of the network, the effect will be to either pushup network costs if the carrier maintains network quality, increase aggregatecosts of congestion, or provide incentives for the network owners to substitutemore heavy handed measures to control congestion. This will be amplified if inresponse to the effects of regulatory arbitrage network carriers no longer useusage based billing at retail.


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4. The remainder of this report is structured as follows: Section 2 identifies relevant characteristics of a broadband network and

discusses the implications of the relevant characteristics for efficientpricing;

Section 3 explains why the form of usage based billing practiced inCanada is consistent with recovery of sunk costs and congestionmanagement;

Section 4 considers the incentives created by an asymmetric regulatorytreatment of retail and wholesale usage based billing and the consequencesof the regulatory arbitrage enabled.

2. TECHNOLOGY AND COSTS OF BROADBAND NETWORKS5. Residential broadband internet service is typically provided either through the network

of the incumbent telephone company (ILEC) or the cable company (Cableco). Eachinvolves a device that insures the appropriate connection between customer premiseequipment and the compatible portion of the last-mile connection. In the case of acable network, the cable modem distinguishes between data and other services and thelast mile connection is coaxial cable. The coaxial cable connects the premise to a fibrenode. The fibre node is connected by fibre optic cable to the cable headend. At thecable headend, the fibre feeds into the cable modem terminating system (CMTS). TheCMTS is connected to other data networks via routers. In the case of the ILECtelephone network conditioned copper loops connect the premise to either a remote

terminal or a central office (local exchange). In either case the loops terminate in adigital subscriber line access multiplexer (DSLAM). The DSLAM is connected to datanetworks via routers.2

6. On both types of networks, data traffic is aggregated and uses shared facilities. On acable network virtually all network elements are used by aggregated data (data frommore than one user). Data aggregation occurs at the coaxial feeder cable outside apremise that runs to the node. On a telecom network data aggregation occurs on thenetwork side of the DSLAM (either at the the remote terminal or the central office). Ifthe DSLAM is at the remote, then in some cases aggregation might occur at the remoteterminal itself.

7. The costs of providing broadband service to a premise are two-fold. Costs must beincurred to connect the premise to the network (costs of providing access) and costsare incurred when data is sent and received over the network from the premise. Theselatter costs are usage costs. The incremental costs of providing service depend on thecosts of connection or access and the extent of usage. The incremental costs ofproviding service at a given level of usage by the premise is the difference between the

2 See the discussion of network components in Spulber and Yoo (2009).


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costs of the network with the premise and its associated level of usage and the costs ofthe network without the premise.

8. The direct incremental costs of providing access are associated with facilities that arenot shared, for instance in the case of cable, this is the cost of installing the coaxialcable from the feeder coaxial cable to the premise or the pair of copper loops for a

telecommunications network. In addition the expected additional usage (data traffic)may require an expansion of shared facilities. These two sources of cost to bring apremise on net for a given level of usage involve capital expenditures that are sunk.That means that these expenditures cannot be recovered by exit, but by earning quasi-rents from providing broadband service. Quasi-rents are the difference betweenrevenues and short run avoidable costs associated with usage. 3 The short run avoidablecosts associated with using bandwidth are relatively small assuming capacity isavailable, i.e. there is no congestion. When commentators refer to the costs oftransporting an additional GB and suggest that this cost is pennies per GB, they arereferring to the short-run costs, not the costs of expanding capacity at the margin.

9. There are two types of costs associated with usage of a broadband network. The firstcost category is the avoidable costs that must be incurred by the provider to deliver thepackets sent by the user. The second cost category arises if the additional traffic on thenetwork creates congestion. The social marginal cost of additional traffic on anexisting network is the sum of the avoidable costs of the network and the costs ofcongestion.

10. Congestion arises because all of the shared network elements have capacity limits.This includes shared components of the last mile, middle mile networks, and backbonenetworks. When an element is congested, the effect is to delay processing of data,degrading the quality of service provided by the network to all users whose traffic usesthat element. The costs of congestion include delays in information transmission and

degradation in the quality of information. Delays in receiving time-sensitiveinformation may decay the value of that information or in the extreme render thecontent requested useless. An example of degradation in the quality of informationarises in particular with video playback when congestion results in frozen playbackwhile data is buffered or if some packets are lost (rendering a file damaged). Whethercongestion results in delay or degradation there is typically also the additional timecost to users of waiting.4

11. The capacity of a broadband network cannot be adjusted up and down to meetpredictable variations in demand. The predictable variations in demand happen beforecapacity can be adjusted. For instance, capacity cannot be expanded to meet demand inthe evening and then reduced when demand falls in the early morning hours. This

occurs because installing capacity quickly is very costly and since this capacity is sunk

3See Church and Ware (2000) at p. 23 for a definition and discussion of quasi-rents. Care should be taken to

distinguish quasi-rents from Ricardian rents and monopoly rents (profits). Ricardian rents arise from ownership

of a superior factor of production that give a firm a cost advantage over its rivals. Monopoly rents from market

power, the ability to profitably raise price above competitive levels. Revenues in excess of long run opportunity

costs indicate monopoly rents.4 For discussion of the source of congestion in broadband networks see Spulber and Yoo (2009) and Jamison and

Hauge (2009).


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it is not possible to reduce capacity and recover expenditures on investment.Consequently capacity cannot be increased in peak periods and reduced in off peakperiods as demand varies.

12. Broadband networks are highly capital-intensive, the construction and capital costs aresunk, and they are characterized by economies of scale and scope. Economies of scale

arise from long run fixed costs associated with construction and indivisibilitiesassociated with the components of the network (the average cost of capacity ofnetwork components declines as capacity increases). Economies of scope arisebecause the network can be used to provide multiple services.

2.1. Implications of the Technology of Broadband Networks for Pricing13. The specific characteristics of broadband networks have important implications for

pricing and investment. The first is the important advantage of using nonlinear pricingto recover sunk capital costs. A constant per unit price gives rise to a linear tariff. Thetotal expenditure by a customer is linear in usage and average expenditure is constant.

If customers face nonlinear pricing, the average price depends on total consumption.Under a two-part tariff, customers pay an access fee (that is independent of usage) anda usage charge. Under a three-part tariff, customers pay an access fee, a usage fee forusage below a maximum threshold in the first block and a different usage fee for usageabove the maximum threshold.

14. The second is the role of pricing in efficiently managing the peak-load problem andcongestion on the network. The peak-load problem arises when service is providedacross a number of time periods and demand over those periods is cyclical butpredictable; output is not storable; and capacity is the same across the time periods. Inthese circumstances increasing capacity will reduce congestion costs during peakperiods, but at the cost of having excess capacity in off peak periods. Installing lesscapacity lowers capacity costs, but increases the costs of congestion in peak periods.Managing the trade-off efficiently between the costs of congestion and the costs ofadditional capacity requires appropriate pricing. The magnitude and sunk nature ofcapital investment ensures that such management is especially important withbroadband networks.

2.1.1.Efficient Pricing, Firm Viability, and NonLinear Pricing15. Economies of scale and scope typically mean that pricing at marginal cost is not

viable. In the simplest case of a single product firm characterized by economies ofscale, pricing at marginal cost will result in the firm not recovering its costs (including

the opportunity cost of its capital), since economies of scale mean that marginal cost isless than average cost. A similar problem usually arises for multiproduct firmscharacterized by economies of scale and scope.

16. By the very nature of their costs, firms that provide broadband service cannot price atshort run marginal cost as firms in hypothetically perfectly competitive marketswould. Instead they must price at levels in excess of short run marginal cost, therebyexercising market power. However, it would be wrong to expect that pricing aboveshort run marginal cost is necessarily an indication of the inefficientexercise of market


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power. Firms must be able to price so that they recover at least their average long runcost of production.

17. Because of economies of scale and scope, it should be expected that broadband serviceproviders will price well in excess of their short run marginal cost and that they willhave high gross margins. The required difference creates quasi-rents equal to their

sunk network costs.

18. A trade off between viability and efficiency arises when a firm is not viable if itsservices are priced at marginal cost. Raising prices above marginal costs increases thequasi-rents of the firm, but at a cost in allocative efficiency. Raising the price abovecosts creates a quantity distortion: the higher price means that consumers reduceconsumption below the efficient or optimal level. The cost to society of the quantitydistortion arises because the alternatives consumers substitute towards have a lowervalue and the firm loses quasi-rents on units no longer produced (difference betweenprice and marginal cost). This reduction in aggregate social surplus or value isknown as the deadweight loss of the increase in price.

19. An alternative is that firms have an incentive to raise revenues by instead usingnonlinear pricing. As indicated above a common form of nonlinear pricing is a twopart tariff, where consumers pay a fixed access fee and a per unit usage charge (twoparts). The use of a two part tariff is a more efficient means for the firm to recover itssunk costs and break even. It can leave the usage fee closer to marginal cost, therebyencouraging consumption, and use the access fee to extract surplus from consumptionof inframarginal units.5

20. A menu of nonlinear pricing options further reduces the social costs of fixed costrecovery. A continuous nonlinear pricing schedule specifies a price for each incrementof consumption. A users total expenditure is the sum of the price for each incrementthey purchase. Intuitively an optimal pricing menu sets the mark-up for an incrementof consumption proportional to the inverse of the elasticity of demand for thatincrement.

21. Thus the optimal nonlinear pricing schedule follows Ramsey pricing principles. Itrecognizes that there are two effects of raising prices above marginal cost: the first isthe creation of profits that contribute to firm viability, the second a reduction in outputthat is socially costly. Ramsey pricing trades these two effects off optimally,recognizing that raising prices for inelastic demands results in a larger contribution tocover the deficit of the firm at little cost in terms of lost output relative to elasticdemands.6

22. Mark-ups are higher for levels of usage that are price inelastic, whereas for levels ofusage that are price elastic, mark-ups are lower. If increments of usage becomesteadily more price inelastic at higher usage rates, then the marginal price rises andquantity premiums become optimal. If increments of usage become steadily moreprice elastic at higher usage rates, then the marginal price falls and quantity discounts

5 See Brown and Sibley (1986) at Section 4.5.6 See Church and Ware (2000) Chapter 24 for a discussion of Ramsey pricing principles.


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become optimal. In either case the consumers with higher demands make a largercontribution to covering the costs of the firm.7

23. Under certain conditions the optimal nonlinear pricing schedule can be implementedwith a menu of two part tariffs, with a tariff targeted at each level of usage. It willfeature a trade off between low access fees and high usage charges. This reduces the

extent to which consumers with low valuations for the service opt not to purchaseaccess, while at the same time reducing the incentives of high valuation consumers toengage in personal arbitrage by masquerading as low value consumers. The high valueconsumers are high value typically because they have a high willingness to pay forusage, i.e. get lots of benefit from using the broadband network. They will be heavyusers. Charging a high usage fee with low access fees discourages them from avoidinga higher access fee since it reduces their usage. Hence the firm can charge higheraccess fees to them and lower usage fees. The effect of the first assists in recovery offixed and sunk costs, the second contributes to expanding usage.

24. Alternatively, the firm instead of discriminating on the basis of quantity coulddiscriminate on the basis of quality. Higher quality is provided at a higher price, lowerquality for a lower price. Those with a high willingness to pay for quality are inducedto pay the higher price: avoiding the higher price can only be done by opting for lowerquality service and the combination of lower quality service (albeit at a lower price), isless attractive than higher quality and a higher price for those that value high quality.

25. For example, consider a customer who has a high willingness to pay for internetservices: she is a heavy user who downloads large files and streams lots of video andaudio content and who gets lots of value from doing so. A second consumer has a lowwillingness to pay for broadband service: he is a light user who uses access for emailand occasional web surfing and who gets little value from doing so. Suppose that theinternet service provider offers two plans: a low price plan intended for the light user

and a high price plan intended for the heavy user. Any attempt to extract revenue fromthe heavy user will be frustrated by her ability to opt for the low price plan. To preventthis, the broadband service provider should reduce the quality of the low price plan,thereby reducing its appeal to high value, heavy users. This could be done by reducingits speed or imposing a lower monthly cap with relatively higher overage charges forlow price plans.

26. One result of using such a price menu is that more of the burden of cost recovery islikely to fall on high value, heavy users. Besides typically being more efficient than auniform price, a price menu is also likely to be viewed by many as more equitable.Those who benefit from the network pay a greater share of its costs.

2.1.2.Congestion and Optimal Capacity27. In this section, I discuss two models that support positive usage prices to curtail

congestion. The first is a model of peak load pricing. It recognizes that capacity in thenetwork is available across all periods, but it abstracts from the issue of viability by

7 See Brown and Sibley (1986) Chapter 5, Tirole (1988) Section 3.5.1.2, and Braeutigam (1989) Section 7.3.


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assuming that long run marginal cost pricing allows the firm to break even. Thesecond is a model of congestion pricing that assumes only a single period.

28. While many of the capital costs of a network are fixed in the long run, not all are. Inthe long run some capacity costs are variable, i.e., as planned output increases, so todoes capacity and capacity costs. In the short run these costs are sunk, but in the long

run they vary with output.

I. A Simple Example Illustrating Peak-Load Pricing29. To see the role of usage prices in resolving the trade off between congestion costs and

capital costs, it is useful to abstract away from the issue of cost recovery and firmviability. This can be done by assuming that production is constant returns to scale,requiring one unit of capacity and one unit of all other inputs. The costs of capacity aresunk, the cost per unit of all other inputs is constant and equal to c. Since all othercosts are variable in the short run, c is short run marginal cost. It is also informativeto simplify the costs of congestion by assuming that once capacity is reached,consumption benefits of additional units are not reduced, but instead lost completely.

Finally assume that there are two periods of equal length, demand is independent, andhigher in the peak period, lower in the off peak period.8

30. Efficient usage pricing for a fixed level of capacity depends on the demand in theperiod when price equals c. If demand during the off-peak period is sufficiently lowthen when price equals c demand will be less than capacity, and the optimal priceduring the off peak is c. Conversely in the peak period we would expect that demandexceeds capacity. Hence the price should rise to ration capacity: the efficient price

reduces demand until it just equals capacity in the peak period. Denote this price p* .

31. The price in the peak period will equal the social marginal cost of production. Theprivate cost to the firm of providing service is c. But there is a second social cost,

which is essentially an opportunity cost: the cost of providing service to a subscriberwith a higher willingness to pay than p* is that at the margin a consumer withwillingness to pay ofp* is unable to consume. Hence the costs of congestion are thelost benefits of marginal consumption. This rationing cost is the difference betweenthe consumers willingness to pay and the costs of production: p*-c. The total socialmarginal cost is therefore c + p*-c= p*. So as expected the efficient price involvesmarginal cost pricing.

32. The social value of increasing capacity is the reduction in congestion costs. At themargin the costs of congestion are only p*-c, the costs of not having capacity in thepeak period. If this exceeds the cost of having another unit of capacity in both periods,

then capacity should be expanded. The benefit of expanding capacity is the reductionin congestion costs and that exceeds the per unit costs of capacity. In this case there isno benefit in having additional capacity in the off peak period, only in the peak period.Hence users in the peak period bear the burden of paying the costs of capacity for bothperiods. Off peak users pay only short run marginal cost.

8The following is based on Church and Ware (2000) Section 25.3. Independent demands means that the cross-price

elasticity between the two periods is zero.


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33. The efficiency gain from moving from an average uniform price (with capacity thatmeets peak demand) to peak-load pricing arises from two effects. The first is areduction in peak consumption. Under uniform pricing, peak consumers paid a priceless than the efficient price since off peak consumers also paid a price above c. Sinceoff peak consumers made some contribution to capacity costs, peak period consumers

have to pay less. But of course this means that peak period consumers paid a price lessthan the social marginal cost, while off peak period consumers pay a price greater thanmarginal cost. Peak-load pricing eliminates the subsidization of peak periodconsumption by off peak consumers. As a result inefficient consumption in the peakperiod (where marginal cost was greater than consumption benefits) is reduced andless peak capacity is required. Second the reduction in the price in the off peak periodleads to more intensive utilization of the network in the off peak period, an increase inusage and consumer benefit.

34. If off peak period demand at c is greater than capacity, then price in the off peakperiod will rise above c in order to ration capacity efficiently. If this price is p**, thenthe cost of rationing in the off peak period will be p**-c. At the optimal level of

capacity the reduction in rationing costs in the peak period plus the reduction inrationing costs in the off peak period will equal the per unit cost of providing capacityacross the two periods. Hence peak and off peak period consumers will makecontributions to cover the costs of capacity.

II. Congestion and Internet Pricing35. The second example recognizes that when facilities are shared, increased usage might

result in congestion and that the costs of congestion are increasing in usage andincurred by all users. This arises because capacity is assumed to be shared and as theratio of usage to capacity increases, the benefits to all users decreases. This is unlikethe previous example where there were no costs of congestion until the capacity limit

was reached and those who received service did not suffer any congestion costs.However in this example demand is constant across periodsthere is not a peak-loadtrade off.9

36. Efficient use of a network with a given capacity requires that each user sets theirmarginal benefit of additional usage equal to the marginal private cost of their serviceprovider plus the marginal congestion cost their additional usage creates. The marginalcongestion cost their additional usage creates is the aggregate value of congestioncosts imposed on all other users. This negative externality is ignored by a user if theprice they face for usage depends only on the private costs of their service provider.The efficient price equals the short run marginal cost of usage plus the marginal social

cost of usage.37. Expanding capacity is optimal if the aggregate reduction in congestion costs exceeds

the cost of expanding capacity. If congestion is priced optimally, then capacityexpansion is optimal when the revenues from the congestion charge exceed the costsof the capacity expansion. The price of congestion plays two roles: it measures the

9 This example is based on the analysis of MacKie-Mason and Varian (1995a).


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costs of congestion from increased usage for a fixed level of capacity and it alsomeasures the value of a change in capacity.

38. Broadband service providers will have an incentive to internalize the marginal socialcost of usage in the prices they charge their subscribers. Broadband providers willchoose prices and capacity knowing the effect of usage on the quality of service and

how the quality of service affects demand.

III. Metering and Congestion Pricing39. If demand and supply are uncertain, then the congestion price should vary as

conditions on the network change and for efficiency there should be a price for everynetwork element. At any instant in time the lowest price to complete a request wouldbe communicated to each user before they sent or received data. The user would thencompare this price to their benefit they expect from using the network.10 If the benefitexceeded the price, they would use the network, if not they would defer, reduce, orcancel their planned network usage.

40.The transaction costs of determining prices and informing users are prohibitive. Evenjust providing instantaneous usage information appears to be prohibitively costly givenexisting technology. The principles under which the Internet operates appear topreclude congestion based metering. Data traffic is divided up into packets that arethen sent individually and reassembled at their destination. Different packets may takedifferent routes and use different network elements.11 The transaction costs of insteadusing time of day as a proxy for congestion and billing on that basis also appear to beprohibitive or sufficiently large that they exceed the benefits of moving to time of daypricing.

41. On the other hand, as originally suggested by Coase (1974) in the context oflighthouses, it may be possible to relatively easily measure proxies for user created

congestion and base congestion charges on these proxies. Spulber and Yoo (2009)have suggested that limits on bandwidth usage are based on similar logic.12 In the nextsection I explain that usage based billing in conjunction with different qualities ofservice could play a similar role.

10

Mackie-Mason and Varian (1995b) suggest a decentralized mechanism to set the price for congested networkelements. Users would assign bids to packets for processing at each congested element, with those with the

highest willingness to pay awarded priority access. See Gupta, Stahl, and Whinston (2005) for a critical

assessment of implementation difficulties.11 See Spulber and Yoo (2009) at pp. 420-421.12

See Spulber and Yoo (2009) at pp. 419-429. Lighthouses are often used as an example of a pure public good. A

pure public good is both non-excludable and non-rivalrous in consumption. Non-excludability means that the

transaction costs of metering and charging for usage (benefits) are prohibitive and suggest that private provision

is not likely. Coase documented the existence of private lighthouses that imposed tolls on access to proximate

ports.


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3. CONGESTION MANAGEMENT,FIXED COST RECOVERY,AND UBB42. Table 1 shows the broadband plans currently offered by Rogers and Bell. The plans

are differentiated by bandwidth (maximum transfer rates), flat rate, monthly volumecap, and overage charge. The lower bandwidth plans have lower flat rates, but theirUBB components, are less attractive, i.e., lower aggregate cap and a higher overagecharge.

43. These plans thus are similar to a multipart tariff for a given speed. There is a fixedaccess fee equal to the flat rate charge, a marginal price of zero in the first block, and apositive marginal price in the second block.

44. In the next two sections I suggest that these plans are consistent in form with efficientcost recovery and congestion management.

3.1.1.Fixed Cost Recovery45. As expected there is a trade off between speed and the flat fee: higher quality service

is provided at a higher flat fee. Moreover the UBB components operate as theorywould predict. Lower speed plans have more stringent UBB restrictions, making themeven less attractive to high volume/high value users. This means that the total highervolume/high value users will pay (access fee and total usage charges) can be increasedbefore the cost of their plan becomes sufficient to tempt them to substitute to a lowerspeed plan.

46. Moreover the price of usage is zero in the first block, with most of the tariff made upof the fixed fee, i.e., the charge for access. Since most of the cost of service (excludingcongestion) are fixed and sunk network costs, it is appropriate to recover most of thesecosts through the access fee. Assuming the absence of congestion and if there was asingle quality offered, then there would be a trade off between an access fee and a

usage fee above marginal cost of network usage. The access fee might be reduced andthe usage fee raised above marginal cost of usage if access was price sensitive. Thiswould encourage low value subscribers to join, even though their usage would belimited. Instead under the Bell and Rogers plans incentives for low value subscribersare provided by offering lower price and lower quality options.

3.1.2.Congestion Management47. Given economies of scale and scope, we might have expected that an efficient (or

profit maximizing) menu of pricing plans would feature decreasing marginal blockpricing. The typical trade off is to lower the marginal price to encourage usage byraising the fixed fee and/or charging higher prices in initial blocks. The increasing

block price in the broadband plans offered by Bell and Rogers suggest the importanceof managing congestion. Increasing block prices are consistent with increasing socialmarginal cost attributable to congestion as usage increases.

48. Congestion arises when the demands for bandwidth at a point in time exceed thecapacity of a network element. Hence as discussed in the previous section, congestionpricing should be based on the costs of congestion created by a subscribersinstantaneous use of the network. It is the bandwidth demand of a subscriber at the


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peak times that contributes to congestion and creates congestion costs. Their use at offpeak times is unlikely to contribute much to congestion or create congestion costs. It isnot their total monthly usage, per se, that creates congestion. However, monthlyvolume usage might be a reasonable proxy, given the transaction/metering costsassociated with real time congestion pricing.

49. Traffic data for Rogers network suggest the traffic peak is for a four hour periodbetween 20:00-24:00 or 19:00-23:00 on weeknights, though the shoulder period onweekends indicates substantial use (as a percentage of peak traffic) from 12:00onwards. Based on this data, it seems reasonable to estimate that between 25% and30% of total daily usage occurs within the peak hours. This is between 1.5 and 2 timeswhat might be expected if demand was uniform, i.e. constant per hour.

50. There is evidence that suggests that bandwidth demand by heavy users does contributeto congestion. High end users generate most of the traffic on the Rogers network.Table 2 shows that the top 1% of Rogers users accounted for #% of total volume(April 2010), the top 5% of users, #% of all traffic, and the top 10% more than #% ofall traffic. The bottom 75% of users account for only just over #% of total monthlyusage.

51. In April 2010, the average data usage across all Rogers high-speed Internet customerswas # GB.13 Table 2 shows that the average user in the top 1% transferred # GB, theaverage user in the top 5%, # GB, and the average user in the top 10%, # GB. Further,the average transfer of the top 12 (i.e., roughly the top 0.01%) subscribers in April2010 was almost # GB.

52. The sheer dominance of the high volume users in aggregate usage data virtuallyensures that they are also substantial contributors to peak usage.

53. For instance, it must be the case that the top 25% of users are making somecontribution to peak hour usage, which accounts for at least around 25% of total dailyusage. If this were not the case, one would then have to believe that a group (thebottom 75%) that accounts for just around #% of total monthly usage, manages toaccount for all of the usage during the peak period, which is 25% of daily traffic.

54. Of course it is also likely the case, especially given the hours of the peak period thateven light users contribute to peak demand.

55. Hence as an alternative to the first best of precise metering and charging users bymeasured contribution to peak traffic, it could be second best to price congestion onthe basis of total volumes used for all users. Since the overage charge is playing tworoles, encouraging monthly usage by high value/high volume users, but also curbing

congestion, it is difficult to infer much from the fact that the overage charge declinesas the volume cap rises.

56. Table 2 also shows the revenue share of the top 1%, 5%, 10% subscribers fromJanuary 2011. The revenue share for the bottom 90% is #%, its traffic share #%. The

13 Note that this average is skewed upwards by the exceptional usage volumes in the top 10% of users. Median usage

is a mere # GB.


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revenue shares are substantially less than the traffic shares.14 This is not consistentwith a conclusion that UBB congestion charges are disproportionately restricting useby the high volume users.

57. Figure 1 shows the increase in total download traffic volume on the Rogers networkfrom January 2008 to July 2009 and the total number of ports available.15 While total

traffic has grown substantially, the growth in ports is more than # the growth intraffic (#% versus #%), while the growth in subscribers was only #%. The increase intraffic is driven by an increase in the average volume per subscriber of almost #%.

58. Rogers is adding capacity to avoid congestion and deterioration in the quality ofservice. Capacity is not just there to be utilized, but must be augmented as demandgrows and the increase in capacity is clearly correlated with total traffic volume.

59. The information in Figure 1 and Table 2 suggests that Rogers puts a greater weight onexpanding its network to manage congestion than it does on aggressiveimplementation of UBB.

4. WHOLESALE UBB60. The present proceeding addresses usage based billing in the wholesale provision of

high speed internet access by the incumbent telcos (ILECs) and cable carriers,collectively the incumbents. The incumbent providers typically utilize usage basedbilling for their retail services. The issue is whether there should be symmetry betweenthe retail and wholesale high speed internet services of the incumbent networks withrespect to usage based billing.

4.1. Mandated Wholesale Access of High Speed Internet61. In Telecom Decision 2008-17 the Commission determined that aggregated ADSL and

third-party Internet access (TIPA) service were conditional mandated non-essential.These services provide both access to a customers premise and transport to a singlepoint of interface with the network of an ILEC or a single point of interface in ageographic area with the network of a cable company. Hence they provide both accessand transport, limiting the investment required by entrants to compete in the provisionof broadband service.

62. The Commission found that ADSL access service was conditional essential. ADSLaccess service provides competitors with a connection between the customers premiseand the central office over which it can offer high speed internet services. This accessservice was deemed essential but only until functionally equivalent alternatives

14 I acknowledge that the revenue shares and the traffic data are from different months. I have no reason to believe

that the qualitative analysis would be different if the data was for the same month.15A port is the interface on the CMTS router than connects the cable network to the IP network. Increasing the

number of these interfaces is typically one of the first steps in dealing with congestion.


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available to the competitors were sufficiently available that withdrawal of mandatedaccess would not substantially lessen competition in the retail high-speed internetmarket (hence access is conditional until this occurs).

63. High speed service could be offered by competitors using ADSL access service, selfsupplied transport and co-location. So while the Commission found that competitors

could duplicate the transport functionality of aggregated ADSL and TIPA, it also heldthat in most cases co-location and self-supplied transport would not be a cost-effectivealternative. Presumably by this it meant self supply of transport while possible wouldnot provide much of a competitive constraint on the ILECs (and by extension the cablecarriers). Hence the determination that aggregated ADSL and TIPA were not essentialbut mandated access was required until wholesale alternatives exist which wouldconstrain the market power of the ILEC.

64. The Commission confirmed its view of the importance of mandated access toaggregated high speed access in its matching speed decision (Telecom Decision 2010-632) released August of 2010. In this decision it imposed a condition on the ILECsand cable carriers requiring that they must provide at wholesale options that match allthe speeds they provide at retail. The Commission determined that if equivalentwholesale access was not mandated, the competitive constraint (if any) of thecompetitors would erode as the incumbents upgraded the speed of their retail products.

65. In Telecom Decision 2010-255 (May 2010) the Commission approved usage basedbilling by the Bell companies for their aggregated ADSL service (GAS). The threemain provisions of the approved UBB were that Internet service providers providingservice using GAS would pay (i) a monthly flat rate up to a usage threshold; (ii) abovethe threshold they would pay a per-gigabyte overage charge; and (iii) total overagecharges were capped. The monthly flat rate is cost plus a mark-up, while the overagecharge was 25% less than the market based rate Bell charged its own retail customers.

66. In Telecom Decision 2010-802 (October 2010) the Commission varied 2010-255 andeliminated the 25% discount off residential UBB rates for wholesale aggregated ADSLservice. It did so to maintain symmetric regulatory treatment with TPIA serviceoffered by the cable carriers. At the same time the Commission initiated a publichearing to determine the discount on overage charges for both TPIA and aggregatedADSL. In Telecom Decision 2011-44 (January 2011) it set the discount at 15%.

4.2. Regulatory Arbitrage and Its Effects67. In this section I consider the effect of not mandating UBB at wholesale. This would

mean that, at least initially, the incumbent carriers would use UBB at retail, but atwholesale they would have to provide essentially the same service at a cost plus mark-up flat rate with unlimited monthly usage.

68. Competitive ISPs have substantial incentives to oppose the introduction of UBB atwholesale or support UBB at wholesale only if the discount on the overage charge was50%. Regulation banning wholesale UBB could easily create the opportunity forindependent ISPs to engage in profitable regulatory arbitrage.


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69. The average usage level in April 2010 for a Rogers subscriber in the top 1% ofsubscribers by volume was # GB. If a user with this level of monthly usage were toselect the Rogers plan that minimises their overall monthly bill, they would select thefastest option, the Ultimate plan. Based on Rogers current rates their monthly charge(based on Table 1) would be $# (which includes an overage charge of $# ). If the

flat rate lease is $89.17 (as per Rogers proposed tolls),

16

the margin an independentISP has for its other costs is $#. If it is subject to the same UBB overage rate as a retailuser, however, the margin for its other costs falls to $#.

70. In contrast the average usage level of a subscriber in the bottom 50% of Rogerssubscribers by volume in April 2010 was # GB. A subscriber with this level of usagewould minimize their expenditures by choosing Rogers Ultra-Lite option. Theirmonthly charge would be $# (which includes an overage charge of $# ). If the flatrate lease is $19.42 (as per Rogers proposed tolls),17 the margin an independent ISPhas for its other costs is $#. If it is subject to the same UBB overage rate as a retailuser, the margin available to cover its other costs falls to $#.

71. These calculations show the extent to which avoiding the UBB overage rate providesan extra margin for the independent ISP. That extra margin is much more significantfor the high volume user, providing the independent ISP with considerable incentive tocream skim. Cream skimming refers to the incentive and ability of the independentISP to compete away mainly the high value customers from Rogers.

72. When Rogers loses an Ultimate plan customer to an independent ISP, Rogers networkcosts do not change: the reduction in its revenues from $# to $89.17 are not matchedby a reduction in network costs since Rogers still provides the same networkservice.18 To the extent they were required for Rogers to cover its sunk network coststhe effect is to expropriate Rogers network investment by reducing its quasi-rents.This is a form of regulatory hold up. Regulatory hold up occurs when a firm makes an

investment in sunk assets with the expectation that those expenditures will berecovered, but a change in regulatory policy reduces their expected revenue belowtotal costs.19 The effect on the incentives for all network carriers to continue tomaintain their networks, let alone upgrade is counter-productive.

73. In addition, the effect of significant losses to Rogers of its high volume/high valuecustomers will harm all users because the costs of the Rogers network will increase.The reason is that if the high volume users are no longer subject to a cap on usage,they will have an incentive to use the Rogers network more extensively. This willeither push up Rogers network costs if it maintains network quality, increaseaggregate costs of congestion, or provide incentives for Rogers (and other networkowners) to substitute more heavy handed measures to control congestion. These

effects will be amplified if in response to the effects of regulatory arbitrage Rogers(and the other incumbents) abandon UBB at retail.

16 Rogers Tariff Notice 18, Revised, March 11, 2011.17 Rogers Tariff Notice 18, Revised March 11, 2011.18 Off setting this Rogers will save its avoidable retail costs.19 See Church and Ware (2000) at pp. 768-769.


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5. TABLES AND FIGURESTable 1: Ontario prices and service offerings for Bell and Rogers

Notes:

1.Bellplandetailsfromhttp://www.bell.ca/shopping/PrsShpInt_Access.page

2.Rogersplandetailsfrom

htttp://www.rogers.com/web/Rogers.portal?_nfpb=true&windowLabel=...compare&HiSpeed

Browse_1_2productID=WAVE&pageLabel=Inter_HISPEED3.Rogersoffersdiscountsof5%,10%,15%ifpurchasedwith1,2,or3otherservices.

4.Bellpricesarediscountedbyaround25%formanyservicesifpurchasedwithotherservices

inabundle.

BellService

Max

Speed

Max

Speed

Monthly

Bandwidth

Cap

AdditionalUsage

Chargeper

GB

Max

Usage

Billing

MonthlyServiceFee

incl.

modem

Download Upload

Fibre25 25Mbps 7Mbps 75GB $1.00 $60 $74.90




Performance 6Mbps 1Mbps 25GB $2.00 $60 $48.90

EssentialPlus 2Mbps 800Kbps 2GB $2.50 $60 $38.90

RogersService

Max

Speed

Max

Speed

Monthly

Bandwidth

Cap

Additional

Usage

Chargeper

GB

Max

Usage

Billing

Monthly

ServiceFee

incl.

modem

ON Download Upload

Ultimate-Ontario 50Mbps 2Mbps 175(GB) $0.50 $50 $103.99

ExtremePlus 25Mbps 1Mbps 125(GB) $1.25 $50 $73.99

Extreme-Ontario 15Mbps 1Mbps 80(GB) $1.50 $50 $63.99

Express 10Mbps 512Kbps 60(GB) $2.00 $50 $50.99

Lite-Ontario 3Mbps 256Kbps 15(GB) $4.00 $50 $39.99

Ultra-Lite 500Kbps 256Kbps 2(GB) $5.00 $50 $31.99


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Table 2: Rogers Wireline Internet Usage and Revenue

Top%of

InternetBase

%ofTotalWireline

InternetGrossRevenue

%of

Aggregate

Traffic

AverageGB

perMonth

1 # # #5 # # #

10 # # #

Notes:

1. RevenuesharedatafromJan2011.Revenuesincludemonthlyfeesandoverages.2. UsagedatafromApril2010.


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Figure 1: Ports and Downstream Volume (TB) on Rogers Wireline Internet network

#


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6. REFERENCES

Braeutigam, R. 1989. "Optimal Policies for Natural Monopoly." In R. Schmalensee and R.Willig, ed., Handbook of Industrial Organization. 2. Amersterdam: North-Holland,

1289-1346.

Brown, S., and D. Sibley. 1986. The Theory of Public Utility Pricing. Cambridge: Cambridge

University Press.

Church, J., and R. Ware. 2000. Industrial Organization: A Strategic Approach. San Francisco:

McGraw-Hill.

Coase, R. 1974. "The Lighthouse in Economics." Journal of Law and Economics 17: 357-376.

Gupta, A., D. Stahl, and A. Whinston. 2005. "Pricing Traffic on Interconnected Networks:

Issues, Approaches, and Solutions." In S. Majumdar, I. Vogelsang and M. Cave, ed.,

Handbook of Telecommunications Economics. Vol. 2. Amsterdam: Elsevier, 413-439.

Jamison, M., and J. Hauge. 2009. "Dumbing Down the Net: A Further Look a the Net

Neutrality Debate." In W. Lehr and J. Pupillo, ed., Internet Policy and Economics.

Second Edition. New York: Springer, 57-72.

MacKie-Mason, J., and H. Varian. 1995a. "Pricing Congestible Resources." IEEE Journal on

Selected Areas in Communications 13: 1141-1149.

MacKie-Mason, J., and H. Varian. 1995b. "Pricing the Internet." In B. Kahin and J. Keller, ed.,

Public Access to the Internet. Englewood Cliffs, N.J.: Princeton University Press,

Spulber, D., and C. Yoo. 2009. Networks in Telecommunications. New York: Cambridge

University Press.

Tirole, J. 1988. The Theory of Industrial Organization. Cambridge, Mass.: MIT Press.


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Jeffrey Robert Church Exhibit-1March 2011

_______________________________________Contact Information Department of Economics University of Calgary 2500 University Drive, N.W. Calgary, Alberta T2N 1N4 Phone:(403) 220 6106 Fax: (403) 282-5262 e-mail:[email protected]_______________________________________Citizenship

Canadian_______________________________________Education and Professional Qualifications

! Ph.D., Economics, University of California, Berkeley 1989, specialization in IndustrialOrganization and International Trade. Supervisory Committee Richard Gilbert, Michael

Katz, and Jeffrey Perloff.

B.A. First Class Honours (Economics), University of Calgary 1984. Qualified as an expert witness before the National Energy Board, the Alberta Energy

Utilities Board, the Canadian Radio-Television and Telecommunications Commission, the Federal Court of Canada, and Supreme Court of British Columbia.

______________________________________Positions Held

Academic Appointments Professor, Department of Economics, University of Calgary (since July 1, 2001). IAPR Professor, Institute for Advanced Policy Research, University of Calgary,

Coordinator of the Markets, Institutions, and Regulation Working Group (July 1, 2006 to June 30, 2009).


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Associate Professor, Department of Economics, University of Calgary (1994-2001). Assistant Professor, Department of Economics, University of Calgary (1989-1994). Other Appointments Chairperson, Terra Nova Reference Price Committee, Newfoundland (2007 and 2010-). Fellow, Economics Network for Competition and Regulation (ENCORE), Netherlands,

(since 2007).

Founding Academic Director, Centre for Regulatory Affairs in the Van Horne Institute forInternational Transportation and Regulatory Affairs, University of Calgary (1998-2001).

T.D. MacDonald Chair in Industrial Economics, Competition Bureau, Industry Canada, Hull, Quebec (1995-1996). President, Church Economic Consultants Ltd. (1992-). Director, Berkeley Research Group (2010-)._______________________________________Academic Awards and Distinctions

Teaching Awards Faculty of Social Science Distinguished Teacher Award, University of Calgary 1994 and

2004.

Superior Teaching Award, Department of Economics, University of Calgary, 1997, 1999,2000, 2002, 2003, 2004.

Students' Union Teaching Excellence Award, University of Calgary 1994-95. Major Academic Distinctions Faculty of Social Sciences Gold Medal, University of Calgary 1984. Listed as one of the leading competition economists in the world in the Directory of

Competition Economists in The International Whos Who of Competition Lawyersand

Economists. London: Global Competition Review 1998 onwards.

_______________________________________Research Interests

Industrial Organization Economics of Regulation Competition Policy

Jeffrey Church March 2011Curriculum Vitae Page 2 of 17


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_______________________________________Publications

Refereed Journal Articles Indirect Network Effects and Adoption Externalities. (with N. Gandal and D. Krause)

Review of Network Economics 7: 325-346, 2008.

The Church Reports Analysis of Vertical and Conglomerate Mergers: A Reply toCooper, Froeb, OBrien and Vita. Journal of Competition Law & Economics 1: 797-802,

2005.

"Specification Issues and Confidence Intervals in Unilateral Price Effects Analysis." (withO.Capps, Jr. and H.A. Love) Journal of Econometrics 113, 3-31, 2003.

"Systems Competition, Vertical Merger, and Foreclosure." (with Neil Gandal) Journal ofEconomics and Management Strategy 9, 25-52, 2000.

"Abuse of Dominance under the 1986 Canadian Competition Act." (with Roger Ware)Review of Industrial Organization 13, 85-129, 1998.

Strategic Entry Deterrence: Complementary Products as Installed Base. (with NeilGandal) European Journal of Political Economy 12, 331-354, 1996.

"Delegation, Market Share and the Limit Price in Sequential Entry Models." (with RogerWare) International Journal of Industrial Organization 14, 575-609, 1996.

"Complementary Network Externalities and Technological Adoption." (with Neil Gandal)International Journal of Industrial Organization 11, 239-260, 1993.

"Bilingualism and Network Externalities." (with Ian King) Canadian Journal ofEconomics XXVI, 337-345, 1993. Reprinted in Economics of Language. ed. D.

Lamberton. International Series of Critical Writing in Economics, Vol. 150, Northampton,

MA.: Edward Elgar Publishing, 2002.

"Comment on Energy Politics in Canada, 1980-81: Threat Power in a SequentialGame." Canadian Journal of Political Science XXVI, 61-64, 1993.

"Integration, Complementary Products and Variety." (with Neil Gandal) Journal ofEconomics and Management Strategy 1, 651-675, 1992.

"Network Effects, Software Provision and Standardization." (with Neil Gandal) Journalof Industrial Economics XL, 85-104, 1992.

Invited Papers "Trade-Dress and Pharmaceuticals in Canada: Efficiency, Competition and Intellectual

Property Rights," (with Roger Ware) Policy Options 18: 9-12, 1997.



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Books and Monographs The Impact of Vertical and Conglomerate Mergers on Competition Brussels: European

Commission, 2004 at http://europa.eu.int/comm/competition/mergers/others/#study.

Published as European Commission, 2006, The Impact of Vertical and ConglomerateMergers on Competition Luxembourg: Office for Official Publications of the European

Communities.

Industrial Organization: A Strategic Approach (with Roger Ware) San Francisco: IRWIN/McGraw-Hill, 2000. Second edition forthcoming from Cambridge University Press.

Traditional and Incentive Regulation: Applications to Natural Gas Pipelines in Canada (with Robert Mansell) Calgary: Van Horne Institute, 1995.

Econometric Models and Economic Forecasts: A Computer Handbook Using MicroTspNew York: McGraw-Hill, 1990.

Chapters in Books "Conglomerate Mergers." in W.D. Collins ed., Issues in Competition Law and Policy

Volume 2 Chicago: American Bar Association, pp. 1503-1552, 2008. "Vertical Mergers." in W.D. Collins ed., Issues in Competition Law and Policy Volume 2

Chicago: American Bar Association, pp. 1455-1502, 2008.

"Platform Competition in Telecommunications." (with N. Gandal) in M. Cave, S.Majumdar, and I. Vogelsang eds., Handbook of Telecommunications Vol. 2Amsterdam:

North-Holland, pp. 119-155, 2005. "Mergers and Market Power: Estimating the Effect on Market Power of the ProposedAcquisition by The Coca-Cola Company of Cadbury-Schweppes Carbonated Soft Drinks

in Canada." (with A. Abere, O. Capps, Jr. and H.A. Love) in D. Slottje ed., Economic

Issues in Measuring Market Power, Contributions to Economic Analysis, Vol. 255,

Amsterdam: North-Holland, pp. 233-294, 2002.

"The Economics of Coordinated Effects and Merger Analysis." in D. Houston ed., CBACompetition Law Conference 2000 Juris Publisher: Yonkers, N.Y., pp. 561-575, 2001.

"Network Industries, Intellectual Property Rights, and Competition Policy." (with RogerWare) in N. Gallini and R. Anderson eds., Competition Policy, Intellectual Property

Rights and International Economic Integration Calgary: University of Calgary Press, pp.

227-285, 1998.

Papers and Proceedings The Interface Between Competition Law and Intellectual Property in Canada: An



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Uneasy Alliance or Holy War? on CD-ROM, 2005 Annual Fall Conference on

Competition Law. Ottawa: Canadian Bar Association, 2005.

The Economics of Exclusionary Contracts and Abuse of Dominance in Canada. onCD-ROM, 2003 Annual Fall Conference on Competition Law. Ottawa: Canadian Bar

Association, 2003. "Competition Policy and the Intercity Passenger Transportation System in Canada." in M.Duncan, ed. Directions: A New Framework for Transportation Calgary: Van Horne

Institute, pp. 21-25, 1993.

"Commodity Price Regulation in Canada: A Survey of the Main Issues." (with RobertMansell) Papers and Proceedings of the Fifth Annual Regulatory Educational

Conference, Canadian Association of Members of Public Utility Tribunals, 1991.

Public Reports Transmission Policy in Alberta and Bill 50 (with William Rosehart and John

MacCormack). School of Public Policy, University of Calgary Research Paper, 2009.

Buyer Power: Background Note. Competition Committee, Directorate for Financial and Enterprise Affairs, OECD, Paris, 2009, Available at http://www.oecd.org/dataoecd/ 38/63/44445750.pdf.

Vertical Mergers: Background Note. Competition Committee, Directorate for Financialand Enterprise Affairs, OECD, Paris, 2007. Available at http://www.oecd.org/dataoecd/

25/49/39891031.pdf.

An Evaluation of Traditional and Incentive Regulation for Canadian Natural GasPipelines. (with Robert Mansell) Study submitted to, and available from, the National

Energy Board of Canada, 1992.

Methodology for Evaluating Natural Gas Transmission System Reliability Levels andAlternatives. (with Robert Mansell) Study prepared for, and available from, the Canadian

Petroleum Association, 1991.

Public Regulatory Interventions Submission of The Director of Investigation and Research to Industry Canada re: Canada

Gazette Notice No. DGTP-008-95 Review of Canadian Overseas Telecommunications

and Specifically Teleglobe Canada's Role October 27, 1995 (with David Smith).

Reply Comments of The Director of Investigation and Research to Industry Canada re:Canada Gazette Notice No. DGTP-008-95 Review of Canadian Overseas

Telecommunications and Specifically Teleglobe Canada's Role December 11, 1995 (with

David Smith).

http://www.oecd.org/document/38/0,2340,en_2649_37463_2474918_1_1_1_37463,00.htmlhttp://www.oecd.org/document/38/0,2340,en_2649_37463_2474918_1_1_1_37463,00.htmlhttp://www.oecd.org/document/38/0,2340,en_2649_37463_2474918_1_1_1_37463,00.htmlhttp://www.oecd.org/document/38/0,2340,en_2649_37463_2474918_1_1_1_37463,00.htmlhttp://www.oecd.org/document/38/0,2340,en_2649_37463_2474918_1_1_1_37463,00.htmlhttp://www.oecd.org/document/38/0,2340,en_2649_37463_2474918_1_1_1_37463,00.html


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Submission of The Director of Investigation and Research to The Canadian Radio-Television and Telecommunications Commissions re: Telecom Notice CRTC 95-36

Implementation of Regulatory Framework, Local Interconnection and Network

Component Unbundling January 26, 1996 (with Cal Gundy and Patrick Hughes). Final Argument of The Director of Investigation and Research to The Canadian Radio-Television and Telecommunications Commissions re: Telecom Notice CRTC 95-36

Implementation of Regulatory Framework, Local Interconnection and Network

Component Unbundling October, 1996 (with Cal Gundy and Patrick Hughes).

Final Oral Argument of The Director of Investigation and Research to The NationalEnergy Board in PanCanadian Petroleum Limited application dated 26 July 1996 for an

order requiring Interprovincial Pipe Line Inc. to transport natural gas liquids for

PanCanadian Petroleum Limited from Kerrobert, Saskatchewan (MH-4-96) November

1996 (co-author).

Opening Statement to the Alberta Utilities and Energy Board in Federated Pipe Lines Ltd.Application to Construct and Operate a Crude Oil Pipeline from Valhalla to Doe Creek,

Alberta Energy and Utilities Board March (Decision 98-12) March 1998.

Final Argument of The Director of Investigation and Research to The Canadian Radio-Television and Telecommunications Commissions re: Telecom Notice CRTC 98-10 Local

Competition Start-Up Proceeding November, 1998 (with Cal Gundy).

Commissioner of Competition Intellectual Property Enforcement Guidelines, Hull,Quebec: Competition Bureau. External member Commissioner of Competition's DraftingTeam,first draft released in June 1999, second draft released April 2000, final version

released September 2000.

Final Argument of The Commissioner of Competition to The Canadian Radio-Televisionand Telecommunications Commissions re: Telecom Notice Public Notice 2001-37 - Price

Cap Review and Related Issues October 2001 (with Cal Gundy).

Comments of The Commissioner of Competition to The Canadian Radio-Television andTelecommunications Commissions re: Telecom Notice Public Notice 2001-47

Framework for the expansion of local calling areas and related issues November 2001

(with Cal Gundy and Masood Qureshi).

Written Comments of the Competition Bureau to the Alberta Electricity IndustryStructure Review February 2002 (with David Krause and Mark Ronayne).

Final Submission of the Commissioner of Competition to the Ontario Energy BoardsNatural Gas Forum Consultation on the Ontario Natural Gas Market November 2004

(with Mark Ronayne).



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The Commissioner of CompetitionEvidence, Final, and Reply Argument, The CanadianRadio-Television and Telecommunications Commissions re: Telecom Notice Public

Notice2005-2, Forbearance from Regulation of Local Exchange Services June,

September, and October 2005 (part of the Competition Bureaus drafting team). Market Power and the Mackenzie Gas Project, Evidence filed before the National EnergyBoard, Mackenzie Gas Project, GH-1-2004, June 2005.

The Commissioner of CompetitionEvidence, Supplementary Material, Final Argument,and Reply Argument, The Canadian Radio-Television and Telecommunications

Commissions re: Telecom Notice Public Notice2006-14, Review of Regulatory

Framework for Wholesale Services and Definition of Essential Service 2007 (part of the

Competition Bureaus drafting team).

Commissioner of Competition, Abuse of Dominance Provisions as applied to theTelecommunications Industry, Hull, Quebec: Competition Bureau. External member

Commissioner of Competition's Drafting Team,first draft released September 2006, final

version released June 2008.

Foreign Ownership Restrictions of Canadian Telecoms: An Analysis of Industry CanadasProposals (with assistance of BRG) re Industry Canada Consultation on Opening

Canada's Doors to Foreign Investment in Telecommunications: Options for Reform, July

2010. Available online at http://www.ic.gc.ca/eic/site/smt-gst.nsf/vwapj/Rogers.pdf/$file/

Rogers.pdf.

Spectrum Policy as Competition Policy: A Good Choice for Canada? (with assistance ofBRG) re Industry Canada Consultation on a Policy and Technical Framework for the

700MHz Band and Aspects Related to Commercial Mobile Spectrum Gazette NoticeSMSE-018-10, February 2011. Available online at http://www.ic.gc.ca/eic/site/smt-

gst.nsf/vwapj/smse-018-10-jeffreychurch-rogers.pdf/$FILE/smse-018-10-jeffreychurch-

rogers.pdf.

Book Reviews Competition Policy: A Game -Theoretic Perspective (by Louis Phlips) for The Economic

Journal, 107, 1590-1592, 1997.

Websites Industrial Organization: A Strategic Approach. URL: http://www.econ.ucalgary.ca/

iosa/ Industrial Organization: A Strategic Approach Instructor's Manual. URL: http://

http://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf09947.htmlhttp://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf09947.htmlhttp://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf09947.htmlhttp://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf09947.htmlhttp://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02690e.htmlhttp://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02690e.htmlhttp://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf09947.htmlhttp://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf09947.htmlhttp://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf09947.htmlhttp://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf09947.htmlhttp://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf09947.htmlhttp://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf09947.htmlhttp://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02690e.htmlhttp://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02690e.htmlhttp://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02690e.htmlhttp://www.competitionbureau.gc.ca/epic/site/cb-bc.nsf/en/02690e.html


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www.econ.ucalgary.ca/iosa/IM/

_______________________________________Research In Progress

"Network Externalities, Technological Progress, and Competitive Upgrades." (withMichael Turner) Mimeo, Department of Economics, University of Calgary 2002.

Direct and Indirect Strategic Effects: A Taxonomy of Investment Strategies. (with L.Moldovan) Mimeo, Department of Economics, University of Calgary 2006.

Market Power in the Alberta Red Meat Packing Industry. (with D. Gordon) IAPRTechnical Paper 07-004, Institute for Advanced Policy Studies, University of Calgary

2007.

! Platform Competition with Software Bundling. (with J. Mathewson) Mimeo,Department of Economics, University of Calgary 2007.

Asymmetries, Simulation and the Assessment of Input Foreclosure in VerticalMergers. (with A. Majumdar and M. Baldauf) Mimeo, Department of Economics,

University of Calgary 2010.

! Coase, Hotelling and Capacity Constraints in Discrete Time: A Difference inEconomics (with L. Vojtassak and J. Boyce) Mimeo, Department of Economics,

University of Calgary 2010.

_______________________________________Presentations

Regulatory Governance and the Alberta Integrated Electric System. 11th AnnualAlberta Power Summit, Calgary, November 2010.

Asymmetries, Simulation and the Assessment of Input Foreclosure in Vertical Mergers.Bates Whites Seventh Annual Antitrust Conference, Washington, D.C., June 2010.

The Competition Act and the Fair Efficient and Open Competition Regulation.Workshop for the Alberta Utilities Commission, Calgary, April 2010 (with Barry

Zalmanowitz).

Transmission Policy in Alberta and Bill 50. School of Public Policy Workshop,Electricity Transmission Policies: Issues and Alternatives, Calgary, October 2009 and the

National Energy Board, Calgary, February 2010.

Economics of Vertical Mergers. British Institute for International and ComparativeLaw, 7th Annual Merger Conference, London, November 2008.

Telecommunications in Canada: Market Structure and the State of the Industry. 2008Telecommunications Invitational Forum, Landgon Hall, Ontario, April 2008.



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Cartel Cases Under Section 45: Is Proof of Market Definition the Achilles Heel?Panelist, Competition, Crime and Punishment, Canadian Bar Association National

Competition Law Section Spring Conference, Toronto, April 2008.

Forbearance of Local Telecommunications in Canada: One Back, Two Forward?Telecommunications and Broadcasting Current Regulatory Issues and Policy InsightCommunications Conference, Ottawa, April 2007.

The Economics of Non-Horizontal Merger Guidelines. ENCORE Workshop on theAssessment of Non-Horizontal Mergers, The Hague, April 2007.

Stumbling Around in No Mans Land is Dangerous: Competition Policy, the CRTC, andDeregulation of Local Telecom in Canada. Competition Policy in Regulated Industries:

Principles and Exceptions, C.D. Howe Institute Policy Conference, Toronto, November

2006.

Competition in Local Telecommunications in Canada: Grading the CRTC. DeltaMarsh Annual Conference, Department of Economics, University of Manitoba,

Winnipeg, October 2006.

Grading the CRTC: Forbearance from the Regulation of Retail Local Exchange ServicesTelecom Decision 2006-15. part of the Panel on Local Competition at the Annual

Meetings of the Canadian Economics Association, Montreal, May 2006.

The Interface Between Competition Law and Intellectual Property in Canada: AnUneasy Alliance or Holy War? Presented at the Canadian Bar Association Annual Fall

Conference on Competition Law, Gatineau, November 2005.

Game Theory and Industrial Organization: An Introduction. Competition Tribunal,Knowlton, Quebec, October 2005.

The Impact of Vertical and Conglomerate Mergers on Competition: An Overview of theSurvey And Implications for Competition Policy. DG IV European Commission,

Brussels, July 2004, UK Competition Commission, London, September 2005, British

Institute of International and Comparative Law/Competition Law Forum, Brussels,

September 2005 and Conference on Economics in Competition Policy, Ottawa, April

2006.

The Economics and Competition Policy of Exclusionary Agreements. CompetitionBureau, Gatineau, April 24-25, 2005.

Intellectual Property Issues and Abuse: The IP/Competition Policy Interface in Canada.2004 Competition Law and Policy Forum, Langdon Hall, Cambridge, Ontario, April

2004.

Efficiencies Gained and Paradise Lost? Or the Inverse? Comments on the PropaneCase. Economics Society of Calgary Seminar Regulation vs. Competition: Different



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Shades of Grey, Calgary, October 2003.

The Economics of Exclusionary Contracts and Abuse of Dominance in CanadaPresented at the Canadian Bar Association Annual Fall Conference on Competition Law,

Hull, October 2003.

Network Externalities, Technological Progress, and Competitive Upgrades Presented atPIMS-ASRA Alberta Industrial Organization Conference, Calgary, November 2002.

Panelist, The Changing Competition Law Landscape, Osler, Hoskin & Harcourt, Calgary,June 2002.

Panelist, Efficiencies in Mergers Under the Competition Act, Annual Meeting of theCanadian Economics Association, Calgary, June 2002.

"Specification Issues and Confidence Intervals in Unilateral Price Effects Analysis"Presented at the Annual Meeting of the Canadian Economics Association, Calgary, June

2002.

The Economics and Econometrics of Unilateral Effects Analysis. Competition Bureau,Gatineau, January 7th and 8th, 2002 (with Oral Capps, Jr. and H. Alan Love).

Economics and Antitrust of Network Industries. Competition Bureau, Gatineau,January 2001.

"The Economics of Coordinated Effects and Merger Analysis." Presented at the CanadianBar Association Annual Fall Conference on Competition Law, Ottawa, September 2000.

"Network Externalities, Technological Progress, and Competitive Upgrades." Presented atthe Annual Meeting of the Canadian Economics Association, Vancouver, June 2000.

"Competition Policy for Network Industries." Presented at Centre for the Study ofGovernment and Business New Challenges for Competition Policy Panel, Annual

Meeting of the Canadian Economics Association, Vancouver, June 2000.

"Applying Antitrust Concepts in IT Industries." Presented at Roundtable on Reassessingthe Role of Antitrust in Mega-Mergers and IT Industries Faculty of Law, University of

Toronto, June 2000.

"The Economics of Electricity Restructuring: The Case of Alberta." Canadian Law andEconomics Conference, Toronto, September 1999.

"Refusals to License and the IP Guidelines: Abuse of Dominance and Section 32."McMillan Binch Symposium on Intellectual Property Rights and Competition Policy,

Toronto, June 1999.

"The Economics of Electricity Restructuring: The Alberta Case." presented at EconomicSociety of Calgary conference Alberta's Electricity MarketMoving Towards

Deregulation, Calgary, May 1999.

"Competition in Natural Gas Transmission: Implications for Capacity and Entry."



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presented at Van Horne Institute conference The New World in Gas Transmission:

Regulatory Reform and Excess Capacity, Calgary, April 1999.

"Bill 27: The Regulatory Framework." presented at Canadian Institute of Resources Lawconference on Restructuring Alberta's Electricity System: How will It Work?, Calgary,

June 1998. Panelist, Antitrust and Telecommunications, Global Networking '97 Conference, Calgary,June 1997.

"Network Industries, Intellectual Property Rights, and Competition Policy." presented atAuthor's Symposium on Competition Policy, Intellectual Property Rights and International

Economic Integration, Ottawa, May 1996.

Panelist, Symposium on Barriers to Entry, Bureau of Competition Policy, Ottawa, March1995.

"Branded Ingredient Strategies," presented at the Summer Conference on IndustrialOrganization, University of British Columbia, Vancouver, August 1994.

"Equilibrium Foreclosure and Complementary Products," the Annual Meetings of theEuropean Association for Research in Industrial Economics, Tel-Aviv, September 1993, the

Annual Meeting of the Canadian Economics Association, Ottawa, June 1993 and the Mini-

Conference on Network Economics at Tel Aviv University, July 1992.

"Competition Policy and the Intercity Passenger Transportation System in Canada,"presented at the Van Horne Institute for International Transportation and Regulatory Affairs

symposium on TheFinal Report of the Royal Commission on National Passenger

Transportation, The University of Calgary, February 1993. "Integration, Complementary Products and Variety," presented at the Annual Meeting of theCanadian Economics Association, Prince Edward Island, June 1992 and

Telecommunications Research Policy Conference, Solomons Island, MA, September 1991.

"The Role of Limit Pricing in Sequential Entry Models," presented at the Twenty-FifthAnnual Meeting of the Canadian Economics Association, Kingston, June 1991.

"Commodity Price Regulation in Canada: A Survey of the Main Issues," presented at theFifth Annual Regulatory Educational Conference, Canadian Association of Members of

Public Utility Tribunals, May 1991.

"Complementary Network Externalities and Technological Adoption," at the Twenty-FourthAnnual Meeting of the Canadian Economics Association, Victoria, June 1990 and at the

Fifteenth Canadian Economic Theory Conference, Vancouver, June 1990.



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_______________________________________Invited Seminars

Faculty of Commerce and Business Administration, University of British Columbia, April2002 Department of Economics, University of Toronto, March 2002

School of Business & Economics, Wilfred Laurier University March 2002 Competition Bureau, January 2002 Department of Economics, University of Laval, April 1996 Department of Economics, Carleton University, Ottawa, January 1996 Stern School of Business, New York University, December 1995 Bureau of Competition Policy, Industry Canada, Ottawa, March 1994 Department of Economics, Simon Fraser University, November 1992 Department of Economics, University of Victoria, November 1992 Department of Economics, University of Toronto, October 1991 Department of Economics, Queen's University, Kingston, October 1991 Department of Economics, University of Alberta, February 1990_______________________________________Refereeing

American Economic Review, Canadian Journal of Agricultural Economics, CanadianJournal of Economics, Canadian Journal of Political Science, Canadian Public Policy,C.D. Howe Institute, Energy Journal, European Economic Review, FCAR, Information

Economics and Policy, International Economics and Economic Policy, International

Economic Review, International Journal of the Economics of Business, International

Journal of Industrial Organization, Journal of Econometrics, Journal of Economic

Behavior and Organization, Journal of Economic Education, Journal of Economic

Psychology, Journal of Economics, Journal of Economics and Business, Journal of

Economics and Management Strategy, Journal of Industrial Economics, Journal of

International Economics, Journal of Law, Economics, & Organization, Management

Science, Marketing Science, National Science Foundation, RAND Journal of Economics,

Journal of Economic Surveys, Review of Industrial Organization, Review of Network

Economics, Routledge , SSHRC, University of Cambridge Press



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_______________________________________Professional Service

Chair Canadian Bar Association National Competition Law Section Economics and LawCommittee, 2005-2007. Vice-Chair Canadian Bar Association National Competition Law Section Economics andLaw Committee, 2004-2005.

Juror, James M. Bocking Memorial Award,Canadian Bar Association NationalCompetition Law Section, 2006, 2007, 2008, 2009, 2010.

Co-Editor, Journal of Economics & Management Strategy, 2001-2007. Editorial Board, Canadian Journal of Economics, 1993-1996. Theme Head Economics Sessions and Programme Committee, International

Telecommunications Society and the International Council for Computer Education

Global Networking '97 Conference, Calgary, June 1997.

Organizer, Roundtable on Vertical Mergers, Competition Committee, Directorate forFinancial and Enterprise Affairs, OECD, Paris, 2007. See http://www.oecd.org/dataoecd/

25/49/39891031.pdf

Organizer, Roundtable on Buyer Power, Competition Committee, Directorate forFinancial and Enterprise Affairs, OECD, Paris, 2008. See http://www.oecd.org/dataoecd/

38/63/44445750.pdf

External Examiner for E. Croft Ph.D, Policy Programme, Faculty of Com

Documents

Appendix a (Abridged) of Rogers Comments - Economic Principles and Usage Based Billing - JChurch - TNC 2011-77 Mar28-11