By Ahmad Hathout
OTTAWA – The Canadian Network Operators Consortium say the inflated wholesale rates paid over the years to network owners are akin to its members providing the likes of Bell Canada and others interest-free loans.
CNOC is disputing a legal claim made by Bell which says the retroactive wholesale payments the CRTC demanded in August the incumbents pay resellers is an unconstitutional tax.
In its legal arguments to the Federal Court of Appeal last month, Bell said the repayment demand ordered by the Commission in August is illegal because the Regulator has no authority to levy taxes under the Telecommunications Act.
On Tuesday, CNOC filed its submission with the court which says Bell’s arguments have no merit. “The requirement that the Appellants return the difference between the amounts charged under the inflated interim rates and those that would have been payable in accordance with the final rates serves to reverse what has been essentially an interest-free loan to the incumbents over the course of the interim period,” CNOC argues. “It lacks an essential characteristic of a tax, which is to raise revenues for the public purse or a specific governmental program.
“In any event, the rebate payments owing to the service based providers constitute regulatory charges that are clearly connected to the scheme in the Telecommunications Act,” CNOC continued, adding Bell’s argument would effectively make invalid the CRTC’s power to set interim rates.
Bell argued the retroactive payments of as much as $325 million from the group of telco and cableco incumbents was not “just and reasonable,” as the company would then receive compensation for leasing its network which is below its costs, it said. It’s “simply a subsidy or wealth transfer from Carriers to Resellers, a classic taxation function,” and the payments do not “regulate behaviour by creating incentive structures,” such as a charge for use of a landfill to discourage waste production, Bell illustrated.
“They retrospectively correct for an unjust enrichment in the context of a regulated transaction, and in this way, bear no resemblance to a tax.” – CNOC
However, CNOC said the purpose of the rebate payments is “not to prospectively redistribute wealth within an industry or protect parties from future losses in furtherance of governmental policy… they retrospectively correct for an unjust enrichment in the context of a regulated transaction, and in this way, bear no resemblance to a tax.” That said, CNOC added even if the court finds it has the characteristics of a tax, it should still be considered within the CRTC’s jurisdiction, as it’s connected to a regulatory scheme.
The retroactive payments were part of a faulty judgment on the part of the CRTC when it cut wholesale rates by between 15% and 43% and 3% and 82% for certain kinds of rates, Bell claims. The decision was followed by cuts to investments from the incumbents and to consumer internet prices for customers of the beneficiaries. The incumbents subsequently challenged the decision to the CRTC, the federal cabinet, and the Federal Court of Appeal, which stayed the CRTC’s decision, meaning rates stayed as they were and no retroactive payments were made.
CNOC says the first two of those three appeal avenues the incumbents went through are the only appropriate and allowed methods for their challenge because the wholesale rate appeal does not involve the jurisdiction of the courts, it added in Tuesday’s submission. The organization said the large carriers’ introduction into the case the Supreme Court’s decision in Vavilov – where it determined the court’s discretion when it comes to correctness of administrative decisions – is a “red herring” because that standard of review the court laid out “does not authorize review of determinations that fall outside” the court’s jurisdiction.
“As a judicial body, the Federal Court of Appeal may only interfere with CRTC decisions on legal or jurisdictional grounds,” CNOC said. “It cannot weigh in on issues of fact, policy or discretion — issues that instead fall within the authority of the CRTC and the Governor-in-Council, executive decision-makers responsible for the implementation of governmental policy determinations.”
The organization also argued, despite the claims of the appellants, that the CRTC fully considered the larger carriers’ submissions when it made its decision last summer; the Regulator also did not act “arbitrarily, consider irrelevant factors, ignore evidence, or reach decisions without evidence; and the decision expressly advances several telecommunication policy objectives.”
CNOC also noted in its submission commentary made by analysts about the muted impact of the order on the incumbents, as well as comments from some leaders of the large carriers who said the retroactive payments wouldn’t be significant going forward.
