Rebating urban consumers from deferral accounts too expensive and complicated: Telus

Telus Corp. has intervened in Barrett Xplore Inc.’s Part VII requesting the commission overturn its decision regarding the use of deferral account money for broadband network expansion by the ILECs. The western-based incumbent telephone company says a rebate program would be too costly and complex. Below is an edited excerpt of Telus’ submission. Mischaracterization of "Subsidy" and "Rebate"BXI mischaracterizes funds in the deferral account as a subsidy that must be rebated to customers. As a matter of law, these funds arose from final rates in urban centres. Competitive pressures have already been created by these final rates and urban Canadians enjoy a wealth of competitive choice. Incumbent local exchange carriers have been and continue to be subjected to these pressures and the pricing constraints imposed by the CRTC. A rebate as proposed by BXI does not address the disparity of broadband service that exists between urban and rural and remote parts of Canada. A rebate is confiscatory and fails to account for the market risk borne by the incumbents. Furthermore, any rebate program would not be cost-effective, as the CRTC has already found as a matter of fact. In short, BXI’s call for a rebate is unlawful, unreasonable and impractical. BXI states that the funds in the deferral account arose as a result of consumers being "overcharged" and deploying these funds to expand broadband facilities amounts to a subsidy that should be rebated. BXI ignores the fact that Telus and the other incumbent local exchange carriers charged consumers the exact amounts permitted in final tariffs. Consumers were not overcharged. Telus and the other incumbent local exchange companies bore the risk and the consequences of rates being set at the levels that were approved on a final basis in urban areas. Consumers and competitors have enjoyed and continue to enjoy the benefits of powerful economic incentives for competitors to enter urban areas. For the record, Telus disagreed with the CRTC’s approach of restricting pricing flexibility and setting high rates in urban areas in order to invite entry by competitors, such as Voice over Internet Protocol ("VoIP") service providers. But that is water under the bridge now. Rates were set on a final basis, consumers paid these rates for services provided and competitive forces have responded. It is not possible to turn back the clock, unwind final rates already paid and pretend the competitive pressures produced by such rates will somehow disappear. BXI sees irony in deferral account funds from rates in urban areas being used to extend wireline service in rural areas. BXI is naturally optimistic that its resale of satellite service will be attractive to rural Canadians. The reality is satellite will not adequately cover all areas, certainly not by 2010 as recommended by the Telecommunications Policy Review Panel. While urban Canadians have a wealth of competitive options, rural Canadians do not. There is symmetry, not irony, in allowing funds that incented urban competition to help address the disparity between urban and rural parts of the country, especially if there is also sensitivity to competitor plans in rural and remote regions. Further, and as a matter of law, the funds are not available to be appropriated by the CRTC for any purpose whatsoever, as BXI assumes. The Supreme Court of Canada issued an important ruling after the record of Decision 2006-9 was completed. In ATCO Gas & Pipelines Ltd. v. Alberta (Energy & Utilities Board), S.C.C. 4, the Court held that a public utility board does not have the prerogative to expropriate property of the regulated company – in that case, final proceeds from the sale of assets. Ordering a rebate of the allocation of the proceeds of the sale would cancel the private nature of the utility. Significantly, while the regulatory body cannot allocate the property of the utility to rate payers, the Supreme Court of Canada opined that it might be permissible for the regulatory body to impose a condition that "the utility re-invest part of the sale proceeds back into the company in order to maintain a modern operating system that achieves the optimal growth of the system." There is no free-floating subsidy contained in the deferral accounts considered by the CRTC in Decision 2006-9. These funds are the proceeds of final rates charged by the incumbent local exchange carriers. Canada’s highest court has said that a public utility regulator cannot take away property rights of the public utility. The sole condition that might legally be imposed by a public utility regulator in these circumstances relates to maintaining a modern operating system to provide service to consumers. This is precisely the condition that the CRTC is contemplating in requesting that the incumbents file plans for broadband expansion. BXI’s theory that the deferral account funds should rebated to consumers is without merit. Even setting aside the illegality of a rebate to consumers, the CRTC has already found that there are serious practical difficulties with a rebate proposal. BXI’s request that the Governor in Council "refer the decision back to the CRTC to consider how to return the deferral account revenues to the consumers who were overcharged," would place the CRTC in the impossible position of having to contradict the Supreme Court of Canada’s latest ruling on public utility regulation and then develop an "overly complex and not cost-effective" rebate scheme.

Rebating urban consumers from deferral accounts too expensive and complicated: Telus

News | September 1, 2006

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