Telus Corp. has proved true to its word and has initiated a Cabinet appeal over separate CRTC decisions on contribution and rebanding. By doing so, it extends a process that began in November 2000 and has continued since. The western-based telco originally filed a review and vary application with the commission in September 2001. In its filing, it argued that the contribution decision, Telecom Decision 2000-745, and the rebanding ruling, Telecom Decision 2001-238, erred by using national costs for rollout rather than region-specific costs. The CRTC dismissed the motion last year in Telecom Decision 2002-67. When the Part VII application was submitted, Jim Peters, Telus’ executive VP corporate affairs and general counsel, predicted his company would go to Cabinet if necessary (NL, Nov. 6/01). He recognizes the gamble the telco is taking. "An appeal to the Cabinet is an uphill struggle," he tells Network Letter. "On this issue Telus feels quite strongly that this is a fundamental issue that affects the industry as a whole and we’re not just talking about the past."At the heart of the complaint is that by using national standards the CRTC has not taken into account geographic and population differences. The ILECs most affected by this disparity are Telus, SaskTel and Aliant Inc., Peters maintains. That boomerangs onto subscribers. "The use of costs that are too low to calculate the allowed subsidies for residential primary exchange services means that there is now, and will continue to be, insufficient revenues to provide reliable, affordable and high quality telecommunications services accessible to Canadians in both urban and rural areas in all regions of Canada," the appeal states. "A gap has been created between the statutory objective and the availability of funds to pay for that objective." The submission goes on to warn that a competitive market for unbundled local loops will not develop under the new regime. Peters attributes that to simple economic theory. "The CRTC has as one of its fundamental tenets of encouraging competition in Canada is to have a facilities-based model," he explains to NL. "And Telus has spent significant amounts of money building up its infrastructure outside of B.C., Alberta and parts of eastern Quebec. Group Telecom did the same. Group Telecom is actually applying to the CRTC to recover some of its costs, the argument being why would you build your own infrastructure if you can get it at less than what it costs the person who’s having to provide it to you." One of the provisions of Telecom Decision 2002-67 that Telus disagrees with is the CRTC’s claim that it had not departed from its fundamental cost methodology findings established in Decision 98-22. To the contrary, the company tells Cabinet, the use of national values means that Phase II costs are no longer considered representative of incremental costs. The telco is well-armed in its submission to the government. In addition to its 60-page petition and 19-page introduction, it filed five background documents prepared by outside telecom experts exploring various facets of the issue. In one document, American economist Richard Emmerson discusses how economic costs provide a foundation for both market and regulated prices. The costs of inputs differ among firms for several reasons, including labour costs, volume discounts and taxes, he states. Efficient production configurations differ among companies and many non-price competitive variables cause different costs. Telcos experience one-time and sunk costs, which occur at different times. In addition, customers demand a different mix of products in each telco’s territory. "Incumbent telephone companies must not only compete with one another, but they must compete with wireless carriers, satellite carriers, cable TV companies, data network providers, and others," Emmerson writes. "Finding the right mix of service and price packages is a daunting task today. Each company will need to choose a different course of action depending on customer demands and competitive offerings. This will result in very different costs disciplined by different market conditions." In another document, Toronto telecom consultant Mark Goldberg outlines the problems geography presents in various serving areas. In some regions of British Columbia, Telus is forced to install earthquake bracing to protect its equipment from tremors, he notes. Aliant must provide extra bracing on its microwave towers in Newfoundland as a hedge against hurricanes. Companies serving areas with a long winter freeze-up have to deal with higher cable replacement costs, while other regions have construction periods that can only be handled during the winter. Still other parts of the country suffer greater repair costs due to a prolonged wet season caused by rain or spring thaw. Goldberg provides figures showing that the growth rate in residential wireline access was higher in Alberta and in B.C. than in Canada as a whole (see table). In some areas, where high-speed Internet is not readily available, a second line is required for computer access. In other areas, additional lines are brought in for calling, faxing and for Internet access. In another background document, University of Toronto law professor Hudson Janisch gives Cabinet a history lesson about the evolution of telecom regulation in the country. Over time, he indicates, all of Canada’s telcos came under the jurisdiction of the CRTC, which resisted a "one size fits all" policy on costs. "It was simply never envisaged that the new Act would lead to the application of undifferentiated standards across the country," he writes. "Indeed, once the CRTC started regulating the formerly provincially-regulated carriers, it did so on a case by case company-specific basis in a manner which reflected that it appreciated that the object had all along been to create a form of national regulation which recognized local difference and actual company circumstances." Telus is asking Cabinet to order the CRTC to use company-specific costs in rebanding. It also wants the commission to conduct a follow-up hearing to determine how Phase II costs can be incorporated into the new price caps framework.