CRTC decision sparks outrage

Consumer advocacy groups are outraged at the Canadian Radio-television and Telecommunications Commission’s (CRTC)decision, announced yesterday, to funnel $652.7 million resulting from deliberate overbillings of telephone customers to expansion of broadband services instead of refunding the money. There is no legal precedent [for the CRTC decision] across North America, said Michael Janigan, executive director of the Ottawa-based Public Interest Advocacy Centre.

“This is not a happy birthday fund for the Commission,” said  Janigan, whose organization represents a coalition of consumer groups. “This money was held in trust for ratepayers, andshould be returned to ratepayers.”

The history behind the decision is complex. In 2002, the CRTC decided to set telephone rates higher than necessary to allow telcos to recoup costs in order to attract new entrants and encourage competition in the telco space. In effect, rates have had a built-in buffer for three years that telcos such as Bell Canada and Telus Corp. were told to place into deferral accounts.

But the federal regulator ruled yesterday that most of the money – about $50 per customer – is to be used to expand high-speed Internet broadband offerings in underserved markets such as rural and remote communities, on the grounds that this is an important social and economic goal.

“Canada is a world leader in broadband access and today’s decision builds on this enviable record. It serves to ensure that reliable, affordable, high-quality telecommunications services areextended to Canadian who would not otherwise be served,” said Charles Dalfen, CRTC chairman, in a statement.

The CRTC is charged with setting just and reasonable rates for local telephone services for companies across Canada, says Janigan.When price caps were set in 2002, he says, the idea was to build in a cushion to cover inflation. But if the telcos’ productivity is greater than the rate of inflation, then rates are supposed to be reduced, according to standard price cap theory. But the Commission rejected this option, he says.

“The rates would be too low for competitors to come in and provide service at that price. Of course, the very reason you want competition in the telco space is to lower price, so it’s kind of a strange argument,” says Janigan. “Rates that are too high for competitors is not one of the factors the CRTC is supposed to look at under the act in order to set just and reasonable rates.”

Janigan points out that the funding for expansion of broadband services into high-cost serving areas is coming out of residential customers’ pockets only. “Only they are being asked to contribute to this. The higher rates are set for residential customers, but business and other customers that will be using these broadband services won’t be contributing a nickel,” he says.

The CRTC’s decision is unprecedented, says Janigan. In filing their arguments against it, PIAC commissioned a regulatory expert from Michigan State University to conduct research into the disposition of deferral funds in similar scenarios in other jurisdictions. “He could not find any example of anything of this kind. There is no legal precedent across North America,” he says.

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