Independent telcos seek to change contribution threshold in cabinet appeal

Four small independent telcos are the latest to challenge the CRTC’s ruling on contribution, but unlike other appellants, have decided to take their case directly to the federal Cabinet – Gazette Notice No. DGTP-007-01. It’s uncertain if the political will exists for MPs to tackle an issue as complex as how local phone subsidies are set, particularly considering that both the CRTC and the Federal Court have already rejected similar appeals to vary Decision 2000-745. The Cabinet appeal was launched by Amtelecom Inc and Bruce Municipal Tele-phone System, both from Ontario, as well as Quebec’s Sogetel Inc and B.C.-based Prince Rupert City Telephones, which operates under the name CityTel. The four question the math used to determine eligibility for exemptions, and complain that the decision establishes a flat tax that penalizes smaller firms. The quartet repeatedly states it does not seek to overturn the whole process, but it does believe the commission’s decision is at odds with key telecom policies. Among those guidelines are the maintenance of universal affordable service and the rollout of infrastructure and service to rural and remote regions. "The decision places in jeopardy many of the building blocks and cornerstones of Canada’s telecommunications policies," the companies warn in their submission filed at the end of February. They add that 2000-745 will undermine their ability to maintain affordability of local service in remote areas and to introduce high-speed services in the regions. Phone parable used The four independent telcos, who are backed in their appeal by the Ontario Tele-communications Association, la Société d’administration des tarifs d’accès des télécommunicateurs and the Canadian Alliance of Public Telephone Systems, illustrate how an inequity can arise under the new rules (see box, Contribution 101). They create two hypothetical local telcos, RuralTel and RemoteTel. RuralTel serves the western half of a small Ontario community; RemoteTel the east. Each firm charges subscribers the same amount for local telephone service and offer no additional services. In 2001 RuralTel’s total operating revenues were set at $9 million. Having a slighter bigger subscriber base, RemoteTel posted its revenues at $9.5 million. Neither fictional firm is required to pay contribution under the standards of 2000-745. But in 2002, RemoteTel starts offering dial-up Internet access to its clients while RuralTel does not. The popularity of the Internet service boosts RemoteTel’s revenues by $600,000 to $10.1 million. RuralTel remains at $9 million. Even though telecoms are not required to pay contribution on revenues from retail Internet service, RemoteTel’s additional earnings from dial-up access put its CTSR above $10 million. Hence it is assessed a 4.5 per cent levy on total contribution-eligible revenues of $7.2 million. The appellants calculate this at $324,000. They further speculate that RemoteTel only made $300,000 profit on its Internet offering. "As a direct result of the CRTC’s new contribution regime," the independents postulate, "RemoteTel decides to discontinue offering its otherwise profitable Internet service in 2003. The economics of providing the service no longer make sense under the contribution decision." This forms the basis for the major portion of the appeal. The companies are asking Cabinet to change the requirement to pay contribution from $10 million of CTSR on line 4 to $10 million of contribution-eligible revenues on line 12. "Local rate increases forced on independent telephone companies and their local residential service customers solely and simply to recover newly-imposed CRTC contribution payments are as needless as they are senseless," the appeal states. "The petitioners submit that raising the price of local service in higher cost areas in order to recover a revenue shortfall caused by payments into a scheme that is designed to subsidize the price of that very service is illogical." Flat tax regime rejected A secondary objection is to the imposition of a flat 4.5 per cent levy. The firms say the flat tax regime ignores important regional concerns. "As a result, smaller telephone companies, such as the notional RuralTel and RemoteTel, providing services on a shoe-string budget with little margin for discretionary spending, will be more seriously impacted than Bell Canada or Telus, or any of the other higher-revenue telecommunications service providers, by the requirement to pay contribution at a flat 4.5 per cent rate on every dollar of their contribution-eligible revenues," the four telcos assert. "Because of their limited means, these companies do not have the ability to pay on the first dollar of revenue they generate. The CRTC cannot have intended such an unfair result for smaller companies providing telecommunications services to higher-cost rural and remote areas of Canada." This appeal is the third different approach to amend Decision 2000-745. Earlier Bell lost a review and vary application to the CRTC (NL, March 26/01) while the Telus appeal to the Federal Court was dismissed (NL, Feb. 26/01). The CRTC has yet to decide on another Part VII application jointly filed by Telesat Canada and TMI Communications Inc (NL, March 12/01).

Independent telcos seek to change contribution threshold in cabinet appeal

News | April 23, 2001

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