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Telecom Decision CRTC 2006-71
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Ottawa, 6 November 2006 |
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Part VII application to revise the Telecommunications Fees
Regulations, 1995
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Reference: 8657-A53-200606692 |
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In this Decision, the Commission
addresses a request by Aliant Telecom Inc. and Bell Canada for
revisions to the Telecommunications Fees Regulations, 1995. The
Commission considers there is merit to initiating changes to the
regulations such that telecommunications service providers, including
those not required to file tariffs, would pay fees using the same
approach that applies under the existing contribution regime. |
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The application
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1. |
Aliant Telecom Inc.1 and Bell Canada (the
Companies) filed an application dated 26 May 2006, pursuant to Part
VII of the CRTC Telecommunications Rules of Procedure,
requesting that the Commission revise the current regulations
regarding telecommunications fees and, in particular, the basis on
which telecommunications fees are determined and levied. |
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2. |
The Companies proposed that the
Commission revise the basis for levying fees by increasing the number
of fee-payers to include all telecommunications service providers
(TSPs) and by expanding the fees revenue base by using Canadian
telecommunications services revenues (CTSR). |
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Process
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3. |
The Companies sent copies of their
application to all TSPs listed on the Commission's website. Comments
from interested parties were to be filed with the Commission and the
Companies by 26 June 2006. |
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4. |
The following parties filed comments: AOL
Canada Inc. (AOL Canada); MTS Allstream Inc. (MTS Allstream); Primus
Telecommunications Canada Inc. (Primus); Rogers Communications Inc.
(RCI); TELUS Communications Company (TCC); Xit télécom inc., on behalf
of itself, Télécommunications Xittel inc., and 9141-9077 Québec inc.
(Xit télécom); and Yak Communications (Canada) Inc. (Yak). |
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5. |
The Companies filed reply comments dated
6 July 2006. |
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Issues raised by the Companies
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6. |
The Companies noted that
telecommunications fees were levied to recover costs that the
Commission determined to be attributable to its responsibilities under
the Telecommunications Act (the Act). The Companies also noted
that the current regulations governing fees, the Telecommunications
Fees Regulations, 1995 (the Fees Regulations), stipulated that the
costs of the Commission's telecommunications activities would be borne
by tariff-filing Canadian carriers. |
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7. |
The Companies identified three broad
issues. They submitted that, first, the current basis on which
telecommunications fees were levied was inequitable; second, the
fee-setting process was inconsistent with Treasury Board policies
related to fees and cost recovery procedures; and third, the
Commission's operating costs, and by extension the fees it charged to
recover these costs, were substantial and increasing. |
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Basis for telecommunications fees
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8. |
The Companies submitted that when the
Fees Regulations were established in 1995, the bulk of the
Commission's telecommunications regulation activities related to
tariff filings. The Companies noted that the telecommunications
industry had changed significantly since 1995, with most traditional
service markets having been opened to competition, and new services
and suppliers redefining the industry. |
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9. |
In their Part VII application, the
Companies put forward three main points identifying perceived
inequities in the current telecommunications fees methodology. They
submitted that: |
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- tariff-related work items represented a small subset of the
Commission's telecommunications activities;
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- the fees formula was inequitable because the scope of
organizations that drove regulatory activity and costs was much
broader than simply those service providers that filed tariffs; and
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- the scope of revenues included in the fees calculation was
inconsistent among fee-payers since some TSPs provided services such
as Internet and wireless through a different entity from that which
filed tariffs.
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10. |
The Companies considered that in keeping
with the Commission's decision to establish more equitable criteria
for contribution payments in Changes to the contribution regime,
Decision CRTC 2000-745, 30 November 2000, it would be appropriate to
also establish more equitable criteria for telecommunications fees.
They suggested that the Commission could broaden the base of parties
bearing Commission costs by using the same criteria it used to
determine both the base of contributing service providers and the base
of revenues used to determine the ratio of contribution payable. |
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11. |
The Companies submitted that the
Commission should secure funding from sources other than fee-payers
for social initiatives such as the establishment and administration of
a national do-not-call list (DNCL). The Companies noted that other
industry regulators did not pass on all of their costs to the
companies they regulated and submitted that it was not inconsistent
with the Act to recover a portion of the Commission's costs by means
other than telecommunications fees. |
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Treasury Board policies and establishing service standards
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12. |
The Companies considered that the current
fee-setting process was inconsistent with the Treasury Board's policy
on cost recovery as well as its Policy on Service Standards for
External Fees. The Companies noted that the Treasury Board had
established principles for government departments and agencies to
follow in the development of user fees and cost recovery procedures,
and that these principles included equity, efficiency, accountability,
and service standards. |
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13. |
The Companies submitted that, consistent
with Treasury Board principles and adopting the User Fees Act
as a guide, the Commission should consult with the industry to
establish measurable service standards associated with its activities
and publish the related performance results on a quarterly basis. The
Companies proposed a financial relief mechanism for fee-payers, to
mitigate the harm that would be created by Commission decision-making
delays if standards were not met. |
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Commission costs
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14. |
The Companies noted that the Commission's
new accelerated tariff approval process had reduced the average time
to dispose of retail tariff applications by 50 percent. They were of
the view that a material reduction in telecommunications fees could be
expected as a result of this process improvement. They noted, however,
that such a reduction had not materialized and telecommunications fees
were expected to increase. |
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15. |
The Companies proposed that the
Commission undertake a review of its cost structure and commit to
reducing activities that did not contribute to the objectives of the
Act. The Companies submitted that until changes could be implemented
such that fees were calculated in a more equitable manner, the
Commission should freeze fees at the 2005-2006 level. Finally, the
Companies requested that the Commission make the 2006-2007 fees
interim pending a review of the Fees Regulations. |
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Positions of other parties
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16. |
TCC supported the Companies' request for
changes to the Fees Regulations. TCC noted that there were a number of
TSPs, such as resellers and Internet service providers, that did not
file tariffs but who generated regulatory costs. |
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17. |
TCC noted that the recently-released
Telecommunications Policy Review Panel Final Report 2006 (the TPR
report) and the Minister of Industry's recent proposed policy
direction to the Commission pointed to the diminished importance of
tariff-related activities as cost-drivers and underscored the point
that the nature and scope of regulatory activity would change in
the future. |
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18. |
MTS Allstream supported the Companies'
proposal to broaden the base of fee-payers and proposed that the Fees
Regulations be amended so that fees would be payable by all TSPs with
annual telecommunications operating revenues greater than $1 million.
MTS Allstream noted that this would decrease the financial burden of
the current fee-payers. |
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19. |
With regard to the Companies' request
that the Commission undertake a review of its cost structure, MTS
Allstream noted that the Companies themselves had been contributing to
the Commission's ever-expanding workload, and that the initiation of
such work was outside the Commission's control. Therefore, MTS
Allstream considered the Companies' request that fees be frozen at the
2006 levels to be unreasonable. |
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20. |
RCI submitted that the Companies'
requests in their Part VII application should be denied. It considered
that the Commission did not pursue activities that did not contribute
to the objectives of the Act, as the Companies had suggested. RCI
noted that the mere fact that total costs were increasing did not mean
that the Commission was not operating in an efficient manner. |
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21. |
Like MTS Allstream, RCI submitted that
much of the intensive activity in the telecommunications side of the
Commission over the past several years had occurred at the request of
the Companies, or as a result of their actions. RCI also submitted
that it was incorrect for the Companies to suggest that only
activities that were labelled tariff applications were associated with
tariffs. RCI considered that the Commission's commitment to dispose
of tariffs more quickly required more resources and, therefore, would
be expected to raise the Commission's costs, not reduce them. |
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22. |
With regard to service standards, RCI
submitted that the Commission had been diligent in establishing
service standards where appropriate, such as for retail tariff
applications. RCI noted that the Commission's regulatory function
meant that many of its activities were unpopular with the incumbent
local exchange carriers. It suggested, however, that it would not be
appropriate to eliminate these activities in the name of cost savings.
RCI also opposed the Companies' proposal to implement a remedial
action plan and financial relief mechanism for fee-payers in the event
that service standards were not met. RCI noted that unanticipated
Part VII requests often required re-allocation of resources, which in
turn caused delays in other activities. |
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23. |
Primus submitted that only one of the
Treasury Board's principles regarding user fees dealt with equity, and
that the majority of the remaining principles dealt with standards of
accountability and efficiency. It also submitted that these principles
must be considered as a package if the Commission determined that
greater equity was required with respect to which TSPs should pay
telecommunications fees. Primus also submitted that since applications
from industry associations, public interest advocacy groups, and
individual citizens resulted in regulatory activity, there would be no
reason to exclude them from any new, wider-ranging fees regime. |
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24. |
Yak took issue with the Companies'
suggestion that CTSR was the basis for TSPs' contribution payments,
noting that CTSR represented a service provider's gross
telecommunications revenues, while contribution was assessed based on
revenues net of certain deductions, including intercarrier payments.
Yak noted that CTSR net of these deductions yielded a service
provider's contribution-eligible revenues, a significantly different
revenue base than the CTSR mechanism the Companies appeared to be
proposing. Yak submitted that allowing these deductions was critical
to avoid a double-counting of revenues and a resulting
disproportionate collection of payments from resellers. |
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25. |
Yak also questioned the validity of
broadening the base of fee-payers for reasons of equity, while at the
same time excluding some organizations that drove regulatory costs.
The company submitted, however, that including such organizations
might not be feasible. It noted that the administrative and
enforcement costs of collecting fees from service providers other than
carriers, as well as interest groups, might exceed the additional fees
collected. |
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26. |
AOL Canada also addressed the issue of
double-counting, noting that third parties that paid access fees to
the tariff-filing carriers were already indirectly subsidizing the
carriers' overall costs of operating the services. |
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27. |
AOL Canada submitted that recent
government policy direction indicated that a re-examination of the
Commission's priorities might soon be underway. It was of the view
that making ad hoc changes to the Fees Regulations, such as those the
Companies had proposed, before the upcoming reform process had been
formally undertaken would contribute to business uncertainty,
discourage investment and innovation, and ultimately harm the state
of competition for telecommunications services in Canada. |
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28. |
Xit télécom supported broadening the base
of fee-payers to include all TSPs and allocating the fees on the same
revenue base as that used to assess contribution payments, but it
opposed the Companies' proposals to freeze fees at the 2005-2006 level
and to make the 2006-2007 fees interim. Xit télécom did not oppose a
review of the Commission's cost structure, but considered even the
Commission's current level of resources to be inadequate. |
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The Companies' reply comments
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29. |
The Companies submitted that only two of
the respondents had disagreed that the Fees Regulations were
inequitable and in need of change. They noted that although there were
alternative views on the revenue base that should be used to calculate
the fees, only RCI and AOL Canada supported the status quo. |
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30. |
In response to RCI's assertion that
regulation was applied through tariffs, the Companies considered that
regulation was not exclusively expressed through the direction to file
tariffs. The Companies cited the regulatory obligation to support
high-cost serving areas through contribution payments and the
competitive local exchange carrier obligation to provide local number
portability as examples of non-tariff regulation. Further, the
Companies noted the significant Commission resources needed for
regulatory framework decisions that dealt with issues much broader in
scope than tariffed services. |
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31. |
The Companies submitted that most
respondents shared the Companies' concern with rising costs and the
burden this placed on all fee-payers. The Companies noted that the
proposed policy direction from the government directed the Commission
to streamline its processes and reduce regulatory cost and burden.
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Commission's analysis and determinations
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Basis for telecommunications fees
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32. |
The Commission considers that it is
arguable that a more equitable recovery of the Commission's
telecommunications costs would require all TSPs, and not just those
that file tariffs, to participate in the payment of telecommunications
fees. In this regard, the Commission notes that TSPs that do not file
tariffs contribute to the Commission's regulatory costs while
receiving the benefit of the Commission's telecommunications
activities. The Commission considers that as the regulatory landscape
evolves, the indication is that although tariffs will remain to some
extent, there will be a move away from reliance on tariffs as one of
the main regulatory drivers. As a result, the Commission considers
that there is merit to initiating changes to the Fees Regulations. |
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33. |
The Commission notes that broadening the
base of fee-payers to include all TSPs would mean that industry
entrants in forborne markets such as long distance and wireless would
pay fees where they did not previously do so. The Commission notes
that while any fees regime under consideration would have winners and
losers, the Commission's objective is to find the best balance between
industry fairness and administrative cost. |
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34. |
In Decision 2000-745 the Commission
implemented a new revenue-based contribution mechanism to subsidize
the high cost of local service in rural areas. Although this new
contribution mechanism resulted in increased costs for some users, the
Commission considered a broadly based revenue regime to be the most
appropriate system to support the policy objective of providing
subsidies to high-cost serving areas. |
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35. |
The Commission notes that the Companies
proposed that fees should be paid by all TSPs, whether or not they
file tariffs, based on the ratio of their CTSR. Currently TSPs –
including all related companies – with more than $10 million annual
total CTSR pay contribution fees. Contribution is assessed based on
contribution-eligible revenues, which are comprised of the CTSR minus
allowable revenue deductions. For example, the Commission determined
in Decision 2000-745 that there should be a deduction for intercarrier
payments to prevent the revenues from resold services from being
assessed contribution more than once, to avoid double-counting the
revenue. The Commission considers that the reasons it set out in
Decision 2000-745 for allowing deductions from CTSR to arrive at
contribution-eligible revenues should also apply to any new fees
mechanism. Accordingly, the Commission considers that the Companies'
proposal to use CTSR as the revenue base for allocating fees would not
be appropriate. |
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36. |
The Commission considers that expanding
the number of fee-payers to include every TSP offering service in
Canada would be too administratively cumbersome. It was for this
reason that the Commission considered it appropriate in Decision
2000-745 to establish a minimum revenue threshold for the current
contribution regime. The Commission considers that, as with the
contribution regime, the application of a $10 million revenue
threshold for fee purposes would be appropriate. |
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37. |
The Commission notes that the Companies
proposed to exclude industry associations and consumer groups from any
new fees methodology, while making a strong argument in their
application that these groups play a significant role in driving
regulatory costs. Since industry and consumer groups do not generate
telecommunications revenues, the Commission considers it would be an
artificial and arbitrary exercise to adjust the current revenue-based
fees mechanism to include non-TSPs. The Commission also concurs with
the view that the administrative and enforcement costs of collecting
fees from organizations other than carriers might exceed the
additional fees collected. |
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38. |
Regarding the Companies' assertion that
the existing fees formula is inconsistent even among current
fee-payers, the Commission agrees that the range of telecommunications
services and, therefore, telecommunications revenues of different
tariff-holding entities included in the telecommunications fee base
may vary from one carrier to the next. The Commission considers that
revised Fees Regulations structured using the same approach that
applies under the contribution regime would address current
inconsistencies due to different TSP corporate structures. |
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39. |
Accordingly, the Commission considers
that a telecommunications fees regime that would increase the number
of fee-paying companies and use the same approach that applies under
the existing contribution regime, including a $10 million revenue
threshold and the same revenue deductions as apply under that regime,
would be appropriate. |
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Treasury Board policies and service standards
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40. |
The Commission notes that in 2004, the
Treasury Board issued Policy on Service Standards for External Fees,
which required government authorities that set fees to provide
stakeholders with fundamental information on the services being
provided and any associated service standards. |
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41. |
The Policy on Service Standards for
External Fees requires that service standards be developed in
consultation with paying and non-paying stakeholders and that they be
reported annually to Parliament, starting with the 2005-2006
Departmental Performance Reports. The Commission notes that in 2002 it
implemented service standards for its telecommunications applications,
including tariff filings, intercarrier agreements, international
licences, and Part VII applications. Since then, the Commission has
also introduced initiatives to improve response time in processing
applications, including greater use of mediation and dispute
resolution, an expedited process for resolving competitive issues, and
streamlined processes for international licensing and retail tariff
filings. |
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Commission costs
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42. |
The Companies' Part VII application
proposed that the Commission undertake a review of its cost structure
and commit to reducing activities that do not contribute to the
objectives of the Act. The Companies further requested that the
Commission freeze telecommunications fees at the 2005-2006 level and
make 2006-2007 fees interim pending review of the Fees Regulations.
Most respondents, to the extent they addressed these issues, did not
support the Companies' requests. |
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43. |
The Commission considers that the
Companies' assertion that the Commission is undertaking activities
that do not contribute to the objectives of the Act is without merit.
The Commission notes that many of the TPR report recommendations
require amendments to the Act. However, until such time as legislative
changes are enacted, the Commission is obligated to fulfill its
mandate under the existing Act. As such, the Commission is not
empowered to undertake activities unrelated to the objectives of the
Act. |
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44. |
With respect to the Companies' request
for a cost review, the Commission notes the government's emphasis on
reducing regulatory costs in the future, but considers that embarking
on a review of the Commission's cost structure now would require it to
divert resources from other priorities already underway. Furthermore,
the Commission notes that it has processes and mechanisms in place to
ensure effective budgetary control and to regularly identify and
implement opportunities for cost savings. Accordingly, the Commission
denies the Companies' request for a review of the Commission's
cost structure. |
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45. |
Regarding the Companies' request to
freeze fees at last year's level, the Commission notes that this
year's increase in telecommunications fees was primarily due to
non-discretionary cost factors, such as increases in salary levels as
a result of newly ratified collective agreements, which are outside of
the Commission's control. Similarly, as noted by several respondents,
the Commission does not control the initiation of many of the
telecommunications activities driving its workload. The Commission
considers that freezing the total amount of fees charged to fee-payers
would be impractical and would seriously hamper the Commission's
ability to dispose of the applications it receives. Accordingly, the
Commission denies the Companies' proposal to freeze
telecommunications fees at the 2005-2006 level. |
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46. |
With respect to the Companies' request to
make the 2006-2007 fees interim, the Commission notes that there is no
provision in the current regulations for making fees interim. Further,
the existing Fees Regulations remain in effect until changed and,
under section 68 of the Act, Treasury Board approval is required for
any changes to the Fees Regulations. Accordingly, the Commission is
not in a position to approve the Companies' request to make 2006-2007
fees interim. |
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47. |
Regarding the DNCL, the Commission issued
Proceeding to establish a national do not call list framework and
to review the telemarketing rules, Telecom Public Notice CRTC
2006-4, 20 February 2006, as amended by Telecom Public Notice CRTC
2006-4-1, 13 March 2006, following legislation passed in 2005. The
Commission considers that the Companies' suggestion that the
Commission should secure DNCL funding from sources other than
fee-payers is being addressed through other Commission initiatives
related to the above proceeding. |
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Conclusion
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48. |
In light of the above, the Commission
considers there is merit to initiating changes to the
Fees Regulations, with the share of fees paid by each TSP being
calculated using the approach that is used under the existing
contribution regime for subsidizing local residential service in
high-cost serving areas. This approach would exempt the TSPs with CTSR
below $10 million. |
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49. |
The Commission notes that changes to the
Fees Regulations require Treasury Board approval and, as such, will
require the initiation of government inter-departmental deliberations.
The Commission intends to commence the necessary process to draft
wording changes to the Fees Regulations. The Commission notes that,
once drafted, the proposed regulations must be published in the
Canada Gazette at least 60 days before their proposed effective
date, and interested parties will be given opportunity to comment on
the proposed regulations. |
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Secretary General |
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This document is available in
alternative format upon request, and may also be examined in PDF format or in HTML at the following Internet site:
http://www.crtc.gc.ca |
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________________ Footnote:
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