Wireless industry appeals new contribution regime; seeks fairer treatment

The country’s two largest telcos, and their wireless divisions, find themselves on the same side of a battle to alter a new contribution regime that just came into effect last week. Both the Bell family of companies and Telus Corp are opposed to the new tax regime and are seeking relief from what they consider is an unfair mechanism for collecting subsidies. Canada’s other wireless competitors, Microcell Telecommunications Inc and Rogers Wireless Communications, are also seeking fairer treatment under the new regime and are supporting a Bell review and vary application filed with the CRTC on Dec. 13. They’re particularly upset that their total contribution payments will increase from about $15 million in 2000 to approximately $200 million this year. They also say a more lengthy transition period should have been allowed in Decision 2000-745. Under new rules, the type of companies that pay into the national contribution pool has been expanded to include all telecommunications operators. Each will pay a 4.5 per cent subsidy for the first year, falling to about 2.7 per cent in 2002 (RoW, Dec 11/00). A major point of contention for Bell was the move to create a national contribution pool as opposed to a regional one that it had advocated. It says that by going in this direction, "the national feature of the decision will immediately transfer in the order of $280 million from the Ontario/Quebec geographic market to other regions, primarily the geographic market of Alberta and British Columbia, two of Canada’s wealthiest provinces." Bell Mobility says it paid about $2 million in contribution last year. It figures that number will increase to about 25 per cent of an estimated $200 million that will be paid this year. A jump in payments of that order necessitates a much larger transition period, Bell contends. "Thus, without a transition to mitigate this impact, the currently prescribed charge will result in a massive increase in one of the industry’s cost elements, to come into effect a mere month from the date of the decision," Bell writes in its Dec. 13 appeal. The commission also didn’t pay enough heed to the other regulatory obligations of wireless operators, contends Bell Mobility. In an industry that still reports a negative net income, faces high capital costs, and a two per cent of revenue contribution for research and development, "such an increase represents an unexpected and unfair financial blow," Bell argues. Wireless operators agree that a fee of this sort will be difficult to pass onto its customers, particularly those locked into longer term contracts. Bell notes that more than 50 per cent of revenue is derived from customers under contracts of one or more in length. Bell writes: "… not only because of price elasticity in the wireless market, but also because of the fact that many customers are currently secured under long term agreements with fixed prices … The problem is exacerbated by the very-short lead-time within which the decision is to come into effect." Telus aims to take different approach in its appeal The western-based telco has decided to go over the head of the CRTC and appeal directly to the Federal Court of Canada. Telus is seeking leave to appeal the decision "because, beginning in 2002, the decision explicitly denies recovery of a portion of the costs the regulator has required it to incur in order to provide local residential telephone service," it writes in its Dec. 21 appeal to the Federal Court. Telus contends the 15 per cent mark-up allowed in the decision, which was decreased from 25 per cent under the old regime, isn’t enough to cover its embedded costs. It says the annual depreciation charge only partly covers embedded costs. "Telus will be unable to recover this reduced subsidy amount from other services because other services are either subject to competition or are subject to regulation that prevents the company from raising rates," it writes.

Wireless industry appeals new contribution regime; seeks fairer treatment

News | 01/08/2001 5:00 am EST

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