Order CRTC 2001-435

Ottawa, 31 May 2001

Reference: 8662-T3-02/01

1.

In its application dated 28 February 2001, Telesat and TMI (the applicants) requested that Changes to the contribution regime, Decision CRTC 2000-745 be varied to exempt satellite services and MSAT services provided in Canada from the revenue charge.

2.

In the alternative, the applicants requested that they be allowed to reduce their contribution-eligible revenues by the amount of the costs they claimed to incur by providing service to high-cost areas. This would reduce their contribution-eligible revenues to zero.

3.

As a second alternative, the applicants proposed that they receive subsidies in the same way as the local exchange carriers who incur losses from the provision of service in high-cost bands. Telesat estimated an annual cost to the company of $15.3 million. In the case of TMI, the annual cost is estimated to be $17.9 million.

4.

The applicants argued there is substantial doubt as to the correctness of Decision 2000-745 because:

• it is inequitable for Telesat as it does not receive any subsidy to help recover the significant costs of serving rural and remote areas;

• the international competitiveness of Canadian satellite operators will be jeopardized;

• the revenue charge will increase costs for broadcasters who are Telesat's customers; the charge will also undermine the health and expansion of the Canadian broadcasting system;

• TMI is the only service provider in Canada that can provide basic communications services to many remote areas in Canada; and

• the imposition of new revenue charges on TMI is inequitable and impractical, given TMI's financial situation.

5.

The following parties filed comments: Aboriginal Peoples Television Network, Alliance Atlantis Broadcasting Inc., Bank of Montreal, Bell Broadcast and New Media Fund, Bell ExpressVu, Canadian Association of Broadcasters, Canadian Broadcasting Corporation (CBC), Canadian Satellite Communications Inc., Canadian Satellite Users Association, CHUM Limited, CTV Inc., Glentel Inc., Global Link Data Solutions, Globalstar Canada Co., Huckleberry Mines Ltd., Northwestel Inc., Novanet Communications Limited, Pelmorex Communications Inc., Reeves Wireline, le Réseau des sports Inc., Rogers Wireless Inc., Saskatchewan Telecommunications, Schlumberger Oilfield Services, Seimac Limited, la Société de télédiffusion du Québec, TELUS Communications Inc., Vancouver Teleport Ltd. and Wireless Matrix Corporation.

6.

Telesat and many broadcasters claimed that the principle of ratepayer equity is undermined when broadcasters must pay the revenue charge, even though they do not use the telecommunications network (i.e., the public switched telephone network (PSTN)).

7.

The Commission concluded in Decision 2000-745 that the per-minute mechanism should be replaced with a mechanism that better promotes competitive equity and fairness. It determined that it is no longer appropriate for one market segment to provide the sole source of explicit subsidy for the delivery of primary-exchange residential services in high-cost serving areas. Accordingly, all telecommunications service providers (TSPs), subject to a minimum threshold, are required to contribute 4.5% of their contribution-eligible revenues in 2001. The Commission notes that the underlying principle of the per-minute contribution mechanism was that long-distance traffic that accessed the PSTN was subject to contribution. The principle of the revenue-based contribution regime is that the burden of contribution should be spread across all users of telecommunications services, regardless of whether the service accesses the PSTN or not. For example, the provision of private-line telecommunications services, which also do not access the PSTN, is subject to the revenue charge.

8.

Telesat suggested it has financial obligations that other TSPs do not have. Telesat pointed out that the licence to operate a Direct Broadcast Satellite facility included an explicit direct order for Telesat to contribute $2.5 million annually to support services to public institutions in remote areas. Telesat argued the regulatory costs to Telesat are very high and are primarily incurred before the first customer uses the satellite. By contrast, to the extent that the terrestrial wireless operators extend service to any remote areas, they may do so gradually over many years.

9.

The Commission views the conditions of licence obligations of Telesat in the same manner as the spectrum licence fees paid by the wireless service providers. The Commission stated in Order CRTC 2001-219 that conditions of licence should not entitle a TSP to special treatment and that such regulatory obligations are a cost of doing business.

10.

The applicants argued that they incur significant regulatory costs to provide service to rural and remote areas, but are denied the opportunity to receive subsidies from the national fund. The Commission notes that the issue of who is entitled to receive subsidies from the national fund was not a matter determined in Decision 2000-745. Rather, the decision determined how to collect contribution, from whom contribution should be collected and the structure of the national fund. The rules governing who may receive subsidies were established in Local competition, Telecom Decision CRTC 97-8. In Decision 97-8 (paragraph 173), the Commission determined that incumbent local exchange carriers (ILECs) and competitive local exchange carriers (CLECs) have a right to receive subsidies for the provision of local-exchange service to the residential subscribers that they serve in high-cost areas. The Commission notes that Telesat has the option of becoming a CLEC and assuming the obligations of a CLEC.

11.

The applicants argued that Decision 2000-745 undermines the policy objectives of Industry Canada and the Government of Canada to enhance the international competitiveness of Canadian satellite providers. The Commission notes that Decision 2000-745 requires foreign satellite providers that provide telecommunications services in Canada to pay the revenue charge based on their Canadian revenues.

12.

Another argument by Telesat was that it will be forced to pass along the additional burden of the revenue charge to its broadcasting customers. This would undermine the broadcasting policy set out in the Broadcasting Act. Several broadcasters noted that the Commission is directed by section 28(1) of the Telecommunications Act to have regard to the objectives of the Broadcasting Act in its regulation of satellite services. CBC argued that section 28(1) of the Telecommunications Act provides the Commission with the authority to intervene and provide relief to a broadcasting undertaking in the situation where the rate charged for a telecommunications service would hinder the broadcaster's ability to fulfil its mandate under the Broadcasting Act. A further argument made by Telesat and some broadcasters with respect to section 28(1) of the Telecommunications Act is that the impact of the revenue charge unjustly discriminates against Direct-to-Home (DTH) providers compared to cable and other terrestrial distribution undertakings.

13.

The Commission finds that the arguments raised by the parties do not establish that the revenue-based charge imposed by the Commission in Decision 2000-745 would result in an unjust discrimination, undue preference or unreasonable advantage contrary to sections 27(2) and 28(1) of the Telecommunications Act. Under section 28(1) of the Telecommunications Act, the Commission is required to consider the broadcasting policy set in section 3(1) of the Broadcasting Act when it determines whether the discrimination, preference or disadvantage is unjust, undue or unreasonable in relation to the transmission of programs that is primarily directed to the public and made by satellite. This section applies only when the Commission is considering whether a Canadian carrier has conferred an undue preference or has unjustly discriminated in relation to the provision of a telecommunications service that involves the transmission of programs.

14.

Accordingly, section 28(1) of the Telecommunications Act does not apply to this situation. First, the imposition of a revenue-based charge on Telesat pursuant to Decision 2000-745 cannot be said to involve unjust discrimination by Telesat contrary to sections 27(2) and 28(1) of the Telecommunications Act.

15.

Moreover, the record of this proceeding does not substantiate the allegation that broadcast customers would be discriminated against. The Commission notes that Telesat is not obliged to pass along the revenue charge to its customers. Assuming Telesat chooses to pass along the revenue charge to its customers, and that the revenue charge is passed along to all of its customers and not only to broadcasters, broadcaster customers would not be subject to any discrimination, preference or disadvantage.

16.

With respect to TMI, the Commission is not persuaded of any special circumstances that would justify departing from the principles of Decision 2000-745.

17.

The Commission considers that approving the applicants' application would negate the principles of ratepayer equity, fairness, technological neutrality and competitive equity that the Commission sought to achieve with the national revenue-based contribution collection mechanism.

18.

Therefore, the Commission concludes that the applicants have failed to demonstrate that there is substantial doubt about the correctness of Decision 2000-745 and so denies the application.

19.

The Commission notes in passing that, in paragraph 132 of Restructured bands, revised loop rates and related issues, Decision CRTC 2001-238, dated 27 April 2001, the Commission estimated that the revenue charge in 2002 will decrease to approximately 1.5%.

20.

In its comments in response to the application, the CBC requested a modification to the relief sought by Telesat. The CBC submitted that the Commission review and vary Decision 2000-745 to exempt broadcasters from paying the revenue charge on all revenues derived from the provision of satellite and terrestrial transmission services for the purposes of distributing programming to the public.

21.

In the alternative, given both the CBC's unique statutory mandate to provide services throughout Canada and the express commitment of public funds by Parliament to carry out this objective, the CBC requested that the Commission exempt it from paying the revenue charge on all revenues derived from the provision of satellite and terrestrial services to the CBC.

22.

The Commission denies the CBC's request for a specific exemption for satellite services provided to broadcasters in general and to the CBC in particular. The considerations and conclusions of the Commission set out above regarding Telesat's arguments that broadcasters are unjustly discriminated against as a result of Decision 2000-745 apply equally to the arguments raised by the CBC in its comments. In addition, the Commission notes that an exemption for satellite services provided to broadcasters in general, or the CBC in particular, would be inconsistent with the revenue-based contribution collection mechanism established in Decision 2000-745. The decision imposes a revenue-based charge on TSPs and not on end-users of telecommunications services. In addition, precluding TSPs from passing along the revenue charge to CBC in particular, or broadcasters in general, would be inequitable vis-à-vis the other customers of the TSPs. Moreover, the relief requested by the CBC would be complicated and difficult to administer.

23.

The Commission does not consider that the relief requested by the CBC regarding an exemption for terrestrial services provided to broadcasters in general, or alternatively to the CBC in particular, can appropriately be dealt with on the record of this proceeding, which related to exemptions for satellite services. Accordingly, if the CBC wishes to pursue this request for relief, it should file a separate application, serving a copy on all interested parties to Telecom Public Notice CRTC 99-6, as well as any other person or persons that may be affected.

Secretary General

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