Canadian wireless industry could be forced to pay significantly more into contribution

The Canadian wireless industry could be on the hook for a much larger portion of the national local telephone subsidy pool unless the CRTC changes the way it calculates contribution-eligible revenue stemming from the sale of handsets. Telus Communications Inc. and Tele-Mobile Co. filed a Part VII application with the commission on September 21 seeking a change in the way the commission determines how much of the revenue derived from wireless terminal sales is counted as contribution-eligible. Unless the current method is changed, say the duo, the wireless industry could pay $40 million too much on top of the $200 million it expects to pay this year. They want the commission to allow WSPs to exempt the full cost of handsets from contribution – not just the price consumers pay at the cash. The western-based telco is concerned that the regime is being administered in such a manner as to disallow wireless service providers from deducting the full cost of the handset from its contribution-eligible revenues. Under the new contribution regime, WSPs pay a 4.5 per cent levy on those revenues into the national subsidy pool, which helps fund the provision of local telephone service in high-cost areas of the country. When those rules for WSPs were originally drafted last November, it was widely assumed that companies would be able to deduct their handset cost from contribution, a potentially large difference as they continue to subsidize the price of handsets by sometimes hundreds of dollars. In all, say Telus and Tele-Mobile, they could end up paying as much as 20 per cent too much into the contribution pot. In its application, Telus states that 20 per cent constitutes an onerous burden on an industry already reeling from a nearly 1,200 per cent increase in contribution as a result of the new regime. Since handset sales were exempted as contribution eligible in the original ruling (Decision 2000-745), the company believes that the full amount should be taken into consideration and not just the up-front cost. "The Applicants submit that it is incorrect to characterize the gap between the up-front sale price paid by the customer for the terminal and the cost of the terminal, as ‘an expense of doing business’ or as a ‘means of seeding the market’," Telus writes in its application to the commission. Telus contends that in subsequent clarifications related to contribution the commission decided to narrow the scope of the decision in mid-stream and levy an additional tax on the wireless industry to make up for an expected shortfall in contribution revenue. In its Sept. 21 submission, Telus explains that much like the telephone industry before the 1980s when the terminal price was bundled with service, the wireless industry uses the same strategy. "During the many years that a bundled service was offered, no one would have suggested that the terminal was provided for free, or that no part of the monthly service charge was attributable to the rental of the telephone set," it writes. "Yet this is precisely the argument faced by the wireless industry in connection with the implementation of the new contribution regime," the company continues. "Commission staff has effectively ruled that only the up-front payment constitutes ‘revenue’ earned from the sale of the retail terminal equipment." There are simple solutions to this dilemma, but it should not be up to the wireless industry to undertake, Telus explains. "It was surely the intent of the commission to promote equity among telecommunications service providers when it established the principles that guided its evaluation criteria for the new contribution regime," the company writes. "There is a need to take a more flexible approach to implementing the new regime that will produce a fair and equitable result for WSPs without forcing a fundamental and disruptive change in marketing or pricing strategy," Telus concludes.

Canadian wireless industry could be forced to pay significantly more into contribution

News | 10/15/2001 4:00 am EDT

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