First appeal of contribution subsidy filed, others may follow in near future

Canada’s major ILECs and wireless carriers aren’t happy with the CRTC’s new contribution scheme, but they appear willing to set aside certain grievances if the commission slashes their fee payments for 2001. The companies argue that a transition period is needed to minimize the impact of a radically new subsidy regime, particularly for wireless carriers which currently pay little to offset the high cost of local phone service (NL, Dec. 4/00). The review and vary (R&V) applications contesting parts of Decision 2000-745 wasn’t unexpected, although it was unusual to see the Bell Canada family of companies teaming up with Microcell Telecommunications Inc and Rogers Wireless Inc to fight the decisions. Bell’s biggest rival, Telus Corp, didn’t join the appeal but is expected to announce this week whether it will file a separate R&V application on its own. "These folks are competitors but one of the reasons that it’s happened is that we looked at what we thought we could pull together in terms of a solution for the commission and recognized that it would be good for Rogers and Microcell as well and approached them on that basis," explains Robert Farmer, Bell’s VP of regulatory matters. The biggest gripe for Bell, Microcell and Rogers is the CRTC’s plan to introduce full-scale contribution payments beginning Jan. 1. The appellants want to ease into the new regime and have asked the commission to reduce the 2001 payments for wireline companies by 40 per cent, and by 66 per cent for wireless carriers. In contrast, the regulator has set the revenue tax for all telecom companies at 4.5 per cent for 2001, dropping to 2.7 per cent by 2002. "By establishing a 2001 revenue-percentage charge at this level rather than the 4.5 per cent level specified in the decision, the impacts on various players, including wireless carriers, CLECs, and long distance providers, can be phased in, rather than magnified, during the transition year 2001," the telco writes in its Dec. 13 appeal. Farmer says it’s unusual for the CRTC to introduce a tariff at a high rate, only to reduce it the next year. "Generally when there’s a big impact like this, you let these things ramp up so they climb over time until they get to their final point," he says. "What the decision did is it started it high, only to move down later." Telus executives are more concerned about the 2002 payment scheme, which would be the focus of their appeal, if they decide to take that route. "We’re concerned that the commission has decided to reduce the amount of contribution by a formula that is different than what they have done in the past. We’re not sure that they can actually do it the way they described it," says Willie Grieve, VP government and regulatory affairs at Telus. "They’re going to allow incremental costs plus a mark-up for fixed and common costs," adds Grieve. "But they’re not going to allow us any kind of a mark-up for recovery of embedded costs. From our perspective these costs were incurred to meet our obligations to provide service." Telus will announce this week if it plans to seek changes to the decision. The possibilities are filing a R&V with the commission, appealing to the Federal Court or submitting an appeal to the federal cabinet. "I think all three options are open to us, but I think that an appeal to cabinet is least likely," Grieve says. "The other two are the courts and back to the CRTC and we’re sort of juggling between those two. Which do we think would be the best route here?" Farmer agrees they stand to accomplish more with a bureaucratic appeal. "The first course should always be to the commission as opposed to cabinet. I know that’s cabinet’s view as well. They would prefer to see us explore these avenues with the commission before we go to them." Sleeping with the enemy Wireless carriers stand to lose the most from the CRTC’s new contribution regime, which is why two of the country’s largest mobile companies have partnered with Bell Canada and Bell Mobility to fight for a phase-in period. If the 4.5 per cent contribution goes ahead as planned next year, the wireless industry will see its subsidy payments increase from $15 million this year to more than $200 million in 2001. (See story in the Dec. 11 issue of Report on Wireless.) "Not only is this financial impact huge and immediate, but it hits a mature industry that still is not generating positive net income," the Bell appeal states. "Moreover, this industry already has significant public policy obligations (such as its obligations regarding research and development funding) and faces formidable capital costs in 2001, including the significant costs associated in preparing the network for 3G deployment and a PCS spectrum auction." The appellants also point out that it will be difficult for wireless companies to initially pass these costs on to consumers because most are guaranteed fixed prices as part of long term contracts. The higher contribution payments for ILECs and wireless carriers will result in lower fees for companies that provide long distance service. But since wireless companies are not usually integrated with LD, they won’t benefit from the savings, the Bell appeal notes. "For all of these reasons, the companies submit that unique treatment of the wireless industry, for the transition year only, is appropriate," it states. Conceding a national fund Bell has always preferred the creation of a territorial fund for contribution payment, rather than a single national fund, which the CRTC has opted to establish. Although the move still rankles the telco, it does not form the basis of the review-and-vary. "We’ve got some real problems with the national fund," Farmer asserts, "because of the implications it has not only on the management of the companies and the relationships among the companies, but also the implications for our customers. "We continue to dislike the concept of a national fund but the R&V didn’t approach that," he adds. "And the reason it didn’t is we thought if we can at least make this transition work and lower that percentage, it mitigates these negative impacts of a national fund." Farmer doesn’t discount the possibility of raising the question of the Canadian versus territorial fund at a later date. "That all depends on what happens with the request we have in front of the CRTC right now," the Bell VP states. "I’m hopeful that if they were to approve what we have asked for, I think that that’s probably what we would be looking for. If they don’t, then we’re going to have to be re-looking at other options."

First appeal of contribution subsidy filed, others may follow in near future

News | December 20, 2000

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