Larger carriers unimpressed with contribution appeal by independent telcos

Canada’s small independent telcos aren’t finding any allies among their larger brethren in their battle to change the CRTC’s new subsidy regime for local phone service (NL, Apr. 23/01). Bell Canada, SaskTel and Rogers Wireless Inc oppose what they call an attempt by the independents to get preferential treatment under the new rules (Decision 2000-745), which came into effect in January. That’s not the way the small telcos are spinning their appeal to the federal Cabinet. For Amtelecom Inc and Bruce Municipal Telephone System of Ontario, Sogetel Inc of Quebec and Prince Rupert City Telephones (also known as CityTel) of British Columbia, the complaint comes down to simple accounting principles that should work in their favour, if applied properly. Rather, they argue that the new system discriminates against smaller companies like themselves. Under the new rules, telcos that earn total Canadian revenues above $10 million are required to pay contribution, but only on those revenues that are defined as "contribution-eligible". A company that earns under $10 million is let off the contribution hook. The independents say small carriers like themselves should only pay if they generate $10 million in Contribution Eligible Revenues (CER) instead of the same amount for their total Canadian Telecommunications Service Revenues (CTSR). They also object to the imposition of a 4.5 per cent flat tax, recommending instead that a graduated contribute rate be used. "Smaller telephone companies…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 revenues," the Cabinet appeal states. The larger telcos beg to differ, saying the new contribution regime was designed to treat all companies equally. "Any attempt to modify the new contribution mechanism in the interests of one party or another would re-establish the major criticisms of the previous collection mechanism," SaskTel suggests in its May 8 filing. "Furthermore, it would serve to undermine the overriding principles and foundations of Decision 2000-745." Rogers Wireless and the consortium of Aliant Telecom Inc, Bell Canada and MTS Communications Inc appear willing to concede some ground on how eligibility to pay contribution is calculated. However, they strongly oppose any suggestion that the 4.5 per cent levy should be lowered for some companies and not others. Rogers and SaskTel also point out that the independents’ concern with the 4.5 per cent levy doesn’t even apply in year one. "In recent deliberations the commission has indicated that the revenue charge for the new contribution mechanism for the year 2002 and beyond is estimated at approximately 1.5 per cent, not the current rate of 4.5 per cent," SaskTel writes in its intervention to the cabinet appeal. "This markedly reduced contribution charge post-2002 will ease the ‘burden’ for all contributors to the contribution mechanism, including smaller telecommunications service providers."Telcos had supported idea Bell wonders why the independents are bothering to appeal. Canada’s largest telcos notes that all of the small telcos supported the idea of revenue recovery mechanism and a national fund. "When asked specifically, through commission interrogatories, whether there should be a minimum reporting level, the petitioners, represented by their associations, stated that there should be no minimum reporting level, and that all eligible service providers should report," the May 28 Bell submission notes. "CityTel stated that eligible service providers with revenues in excess of $1 million should be required to report. The decision establishes the de minimis rule at a level higher than proposed by the petitioners. Nonetheless, the petitioners are now working to broaden the de minimis rule even further." Rogers agrees with one point Rogers Wireless acknowledges that when it comes to determining what threshold triggers a contribution payment, the independents have a legitimate concern. The wireless carriers says it would support the independents’ request that the contribution eligible revenues be used as the benchmark, provided it doesn’t alter the contribute rate. "Specifically, if total contribution-eligible revenues are used to determine whether or not the telecommunications service provider exceeds the threshold and this causes an increase in the contribution rate, then either it should not be done or the threshold level should be re-examined," Rogers writes. Bell rejects that proposal entirely. It says CTSR is the most appropriate way of setting a threshold. The telecom giant points out that south of the border the Federal Communications Commission has set its exemption level at $10,000 in contribution payments each year. There is no preferential treatment for smaller telcos under the American plan. While Rogers may side with the independents on one point, it still questions the wisdom of changing the rules for one group of companies. It argues that if exemptions are to apply to any one industry, it should be the wireless industry. "While the independent phone industry can rely on rate of return regulation and price caps for a financial return, Rogers Wireless operates in a fully competitive environment," the company notes. If small telcos are granted an exemption, it says, other firms will make similar demands. This will lead to the remaining payers being forced to shell out more.

Larger carriers unimpressed with contribution appeal by independent telcos

News | June 4, 2001

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