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The Big Grab and How to Fight It

In 2002, the CRTC set the telephone rates, for the next 4 years, for almost all of Canada’s telephone companies for customers taking local service from those companies. Rates were set by a formula known as a price cap. Each year, you had to start with the old rates and decide how much they are going to change because of basically two factors- inflation and productivity. You take a percentage rate increase for inflation calculated by Statistics Canada then deduct a percentage rate productivity decrease (which is to ensure that the telephone company is efficient – namely that it finds new ways to be more profitable each year). For example, if inflation was 3% and the productivity factor was 1%, rates would go up by 2%

In 2002, the CRTC ruled that Bell Canada, TELUS, Aliant, MTS and SaskTel would be subject to a rate cap that would annually change their local telephone rates by the rate of inflation less 3.5%. The 3.5% figure was considered to be a productivity objective, meaning that the CRTC expected that each telephone company could arrange their operations to be 3.5% more profitable each of the next four years. The CRTC decided on the 3.5% based upon the testimony of all the experts that had testified at the hearing held late in 2001. In fact, each of the telephone companies had been able to exceed a 4.50 % productivity factor in the rate cap in effect in the period from 1998 to 2002. This meant that if inflation remained below 3.5% then local phone rates would go down for residential customers.

In 2002, the CRTC, however, decided that rates for local telephone service would not go down even if the productivity reduction was greater than the inflation addition to rates. The reason was that it was thought the rates would be too low to encourage new companies from offering local service to compete with the existing telephone companies. If residential telephone customers had too low rates, it might ruin the business plan of the new entrant competitors. Any amount that rates would have gone down by the CRTC’s own calculation formula was put in special accounts kept by the telephone companies. The Commission would decide later what to do with the money.

By 2006, some 1.6 billion dollars in missed rate reductions had been put in these special “deferral” accounts. The CRTC had let the telephone spend more than half the money collected on various projects the largest being discounts to telephone company competitors like Sprint, Primus etc. for access to the telephone company networks. The Commission then decided to hold a contest on how to spend the remaining 650 million dollars. The contest winners were (surprise!) the telephone companies themselves who got to spend 95% of the money on paying themselves to install broadband where it was uneconomic to do so (5% was to help them provide disabled access). The CRTC rejected giving back the money to the customers who had paid it so that competing telephone companies could look more attractive because their rates were lower. Honestly, they did that.

The Public Interest Advocacy Centre represented consumer groups in the CRTC proceedings, where all these decisions were made. After the CRTC made the final decision to subsidize the telephone companies broadband operations with the lost rate reductions, we appealed the decision to the Federal Court of Appeal on behalf of the National Anti-Poverty Organization (NAPO) and the Consumers Association of Canada (CAC). We were granted leave to appeal the 2006 CRTC decision that is expected to be heard in January of 2008. We want this money (now approximately $50 per customer) to go back to the local telephone customers who paid too much because the CRTC thought this would help competition (which, when you come to think of it is supposed to lower rates, not raise them). We also don’t think residential telephone customers should be exclusively taxed to pay for special projects in this fashion no matter how high-minded the project.

These appeals cost a lot of money. PIAC has already spent over $30,000 on the preliminary court work with more to come. What is worse is that the CRTC doesn’t have to pay costs even if it was wrong. We are fighting legal counsel hired from Canada’s top firms at top dollar. We need your help.

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