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PIAC calls CRTC deferral accounts decision a reasonable conclusion to a flawed regulatory adventure

The CRTC Decisions today concerning the disposition of funds in deferral accounts holding excess residential subscriber rates from the 2002-2006 price cap period that were maintained by Bell Canada, TELUS, and MTS was called “a reasonable conclusion to a flawed regulatory adventure”, by the Public Interest Advocacy Centre (PIAC) that represented consumers throughout a process that has lasted over eight years and involved court challenges to the CRTC’s authority.

“We are pleased that the CRTC has shut the door on the blank check approach of Bell Canada and TELUS to expanding their broadband networks,” Michael Janigan, PIAC’s Executive Director and General Counsel stated. And while $311 million to be rebated is a fraction of the $1,6 billion in excess rates that were collected in the mistaken belief that artificially high incumbent rates would increase business for local service competitors, Janigan noted that it ensures that some recognition of customer interests takes place, and that the additional telephone rates paid into the deferral accounts are not squandered on expenditures benefiting only the telephone companies that collected the excess rates.

PIAC acted for the Consumers Association of Canada and Canada Without Poverty in this matter.

Background

The CRTC is releasing decisions today related to the disposal of the funds remaining in Bell Canada, Bell Aliant, Telus and MTS Allstream’s deferral accounts.

The source of the deferral account funds were foregone price cap formula discounts to residential local telephone rates for the years 2002-2006 for the incumbent local exchange companies (ILECs), Bell Canada, TELUS, MTS, and BellAliant. These discounts would have otherwise been effective in reducing rates for during the price cap period but for the Commission’s desire to maintain local rates at a higher level to encourage entry by local service competitors.

The disposition of these funds was the subject of appeals to the Federal Court of Appeal and the Supreme Court of Canada in 2008 and 2009. The SCC decision in 2009 provided that the broad objectives of the Telecommunications Act allowed the CRTC to increase rates to help competition and to set up deferral accounts to receive the excess rates..

This latter experiment in rate alteration made in Telecom Decision 2002-34, was part of a pattern of initiatives by the Commission that was subsequently rejected by the 2006 Policy Direction of the federal Cabinet, as well as subsequent Governor-In Council Decisions. These initiatives had attempted to provide incentives to competition by mandating increased rates and tariffs charged to customers by the ILECs in order to allow greater room for competitors to enter the market enabled by artificially maintained discounts to the ILEC rates.

The only remaining losers from this discredited strategy were the residential local customers that paid the inflated rates, and whose unpaid rate discounts were housed in ILEC deferral account funds. Most of these funds, ultimately amounting to $1.6 billion in total, went to subsidize discounted access to ILEC digital networks under the same, now inoperative, theory of promoting market entry by artificially lowering competitor costs.

The irony of the Commission’s approach to attempting to jump start local service competition by not applying the price cap formula (where productivity exceeded the inflation factor), was that the measures funded by residential subscriber rates primarily assisted local business service competition. As well, residential local service competition, currently primarily provided by cable companies, received little impetus from the Commission directed subsidies.

The state of affairs before the Supreme Court of Canada in 2009, when the jurisdictional appeals were heard, was that there was to be a significant rebate paid to ILEC customers of about 40% of the remaining funds of $650 million, arising out of the effect of Telecom Decision 2006-9, and Telecom Decision 2008-1. This fact drove the vigorous objections and submissions of the ILECs before the courts that their operations were entitled to the entire remaining amount without a rebate.

This decision will determine if Bell and TELUS can spend the promised customer rebate on new and costly broadband plans (some of which involve insupportable expenditures of $7500 per customer). It cannot surely be regarded as a coincidence that the net result proposed by Bell and TELUS now is virtually the same as the result urged on appeal by the ILECs, albeit achieved through different means. Consumers have accordinglyurged Commission vigilance in protecting the relevance and enforceability of its own decisions.

 

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