By Konrad von Finckenstein
IN AUGUST OF 2019, after three years of studying submissions and holding hearings the CRTC delivered a ruling on final rates for wholesale internet access, which are the rates large carriers charge their small competitors to access their networks. Up to that date, the large carriers billed resellers based on CRTC-set interim rates.
The rates released a year ago are lower than the interim rates and retroactive to 2016. Monthly capacity rates are 15% to 43% lower than the interim rates and the access rates are 3% to 77% lower than the interim rates. In addition, by being retroactive to 2016 meant a credit for small competitors of $325 million.
Not surprisingly the incumbent cable and telco carriers reacted with outrage, alleging the costing was faulty, the decision would be a disincentive to investment and further expansion into rural and remote areas (a matter of particular concern to the government) was jeopardized.
They pulled out stops, using all options available to undo the decision, namely a request to the CRTC to Review and Vary its decision, an appeal to Cabinet for a direction to the CRTC to change its decision and an appeal to the Federal Court of Appeal asking for Judicial review.
The case before the Federal Court is proceeding, and an interim order was granted suspending the new rates pending a court decision.
The Commission also started a review of its own decision.
Then, on August 15, 2020 the government issued a release which said, since the CRTC was already reviewing its decision there was no need for a direction at this time. However, the Order-in-Council also observed, pointedly:
“that the rates do not, in all instances, appropriately balance the policy objectives of the wholesale services framework and is concerned that these rates may undermine investment in high-quality networks, particularly in rural and remote areas;”
“retroactive payments to affected wholesale clients are appropriate in principle and can foster cooperation in regulatory proceedings. However, these payments, which reflect the rates, must be balanced so as not to stifle network investments. Incentives for ongoing investment, particularly to foster enhanced connectivity for those who are unserved or underserved, are a critical objective of the overall policies governing telecommunications, including these wholesale rates.”
The CRTC is an independent body charged with regulating broadcasting and telecommunications in Canada. It is also a Court of Record. The government cannot interfere with its decision except as provided by law. One provision is found in section 12 of the Telecommunications Act:
12 (1) Within one year after a decision by the Commission, the Governor in Council may, on petition in writing presented to the Governor in Council within ninety days after the decision, or on the Governor in Council’s own motion, by order, vary or rescind the decision or refer it back to the Commission for reconsideration of all or a portion of it.
“It is a heavy-handed wink by the government that it feels the rates are too low and that the provisions for retroactive application to 2016 are too severe.”
The August 15th release is not an order. It does not vary, rescind or refer the CRTC decision. It is a heavy-handed wink by the government saying it feels the rates are too low and that the provisions for retroactive application to 2016 are too severe.
This really puts the CRTC in a quandary. It can only act on objective evidence presented to it and before it and verified by its own research. It has no direction from the government but instead faces a strong indication of what the government would like the Commission to decide.
However, unless there is cogent new evidence brought before it, the CRTC should stand its ground and uphold rates which were set after three years of deliberations.
It can and should change the retroactive application of the rate, however. Setting new rates after three years with retroactive effect gives the large carriers a direct hit to their bottom line they undoubtedly did not reserve for.
It also represents an unexpected bonus for small carriers for which there is no need. The money has been spent and the independents were pleased with the lower wholesale rates.
A regulator should always try to find a solution that is evenhanded and perhaps grudgingly accepted by both sides. Setting new rates with a considerable reduction and then also making them retroactive for three years shows a lack of evenhandedness.
The CRTC would be wise to change the retroactivity to August 20, 2019; the first date the new rates were published and so should now have been accounted for by the business plans of the large carriers.
Such a decision would provide a more equitable outcome, where the Commission would assert its independence yet ensure there is no disincentive to investment and expansion into rural and remote areas.
Konrad von Finckenstein is a former chair of the CRTC (2007-2012)
