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Telecom Letter Decision
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Ottawa, 15 September 1989
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Telecom Letter Decision CRTC 89-18
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Mr. Jules Lemay
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Director, Regulatory and Corporate AnalysisCorporate Affairs GroupTeleglobe Canada Inc.680 Sherbrooke Street WestMontreal, QuebecH3A 2S4
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Re: Telecom Decision CRTC 89-9
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The following constitutes the Commission's decision regarding the 14 August 1989 request by Teleglobe Canada Inc. (Teleglobe) to temporarily stay the execution of that portion of Telecom Decision CRTC 89-9 (Decision 89-9) requiring Teleglobe to implement international toll rate reductions designed to offset adjustments to the company's Deferred Tax Liability (DTL) account relating to the period 4 April 1987 to 31 December 1987. The toll rate reductions in question are the subject of an on-going Commission proceeding involving other federally-regulated carriers and, pending Commission approval, are scheduled to take effect on 2 October 1989.
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In its letter, Teleglobe advised the Commission that it intended to seek leave to appeal part of Decision 89-9 to the Federal Court of Appeal, pursuant to section 68 of the National Telecommunications Powers and Procedures Act (NTPPA, by no later than 30 September 1989, and that the stay was requested of the Commission pending final disposition of that appeal. Teleglobe subsequently filed its application for leave to appeal with the Federal Court of Appeal on 31 August 1989.
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In support of its request, Teleglobe stated that in the absence of a stay, it would be required to implement a larger rate reduction on 2 October 1989 than would be the case were the stay to be granted. The company argued that should its appeal of Decision CRTC 89-9 ultimately succeed, Teleglobe would thereafter require a rate increase to recover the revenues it had foregone from 2 October 1989 onward by virtue of the larger rate reduction. Teleglobe submitted that the "...additional set of rate changes would result in an administrative burden on Teleglobe, as well as on members of Telecom Canada", all of which would be required to further revise their respective tariffs and billing systems.
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Teleglobe also argued that without the stay, the company could not at a future date collect higher rates from the subscribers who actually paid the lower rates from 2 October 1989 onwards. Instead, the increased rates would be recovered from a future body of subscribers, to their detriment. Conversely, were the stay to be granted and the company's appeal of Decision 89-9 prove to be unsuccessful, Teleglobe argued that the rate reductions relating to the 1987 adjustments to the DTL account could be implemented at that later date without additional inequity to its future subscribers. This was the case, according to the company, since subscribers receiving rate reductions attributable to Decision 89-9 "are at best proxies for the subscribers who paid the higher rates in the past." Teleglobe concluded that, in these circumstances, the balance of convenience favoured the granting of a stay.
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In the company's application for leave to appeal Decision 89-9 filed with the Federal Court of Appeal, Teleglobe submitted that the Commission erred in law and jurisdiction in ordering the company to implement toll rate reductions, effective 2 October 1989, designed to offset during Teleglobe's 2-year amortization period adjustments to its DTL account relating to 1987. Specifically, Teleglobe argued that, by virtue of the impugned portion of Decision 89-9, the Commission had effectively reviewed the company's revenue requirements for 1987 and, as a result thereof, had reduced its earnings for that year by $2.515M. This, Teleglobe submitted, the Commission lacks the power do so since, pursuant to subsection 29(2) of the Teleglobe Canada Reorganization and Divestiture Act (the Teleglobe Act), the Commission was precluded from exercising its powers, for any period in 1987, in relation to the tolls charged by Teleglobe during that year. Accordingly, the Commission could not have modified the company's revenue requirement and, thereby, its earnings at any point during 1987 since it was statutorily precluded from revising or otherwise dealing with the company's tolls during that period. Teleglobe concluded that the Commission cannot do, by means of a 1989 rate reduction ordered in Decision 89-9, what it could not have done in 1987.
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The Commission has carefully reviewed all of Teleglobe's submissions, including those pending before the Federal Court of Appeal. The Commission has assessed Teleglobe's request for a stay in light of and taking guidance from the three criteria enumerated by the Supreme Court of Canada in Attorney General of Manitoba v. Metropolitan Stores (MTS) Ltd. et al [1987] 1 S.C.R. 110, and recently affirmed in Toth v. Minister of Employment and Immigration [1988], 86 N.R. 302 (F.C.A.), and has concluded that Teleglobe has failed to justify its request for a temporary stay on the balance of convenience, that refusal to grant a stay would not result in irreparable harm to the company, and that Teleglobe's arguments on leave to the Federal Court of Appeal fail to raise a serious question to be tried.
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With regard to the first criterion, the Commission has not been persuaded by Teleglobe's submissions regarding the balance of convenience favouring the grant of a stay. In the Commission's view, if the stay were to be granted, Teleglobe's current subscribers would sustain a level of harm equal to the harm the company would suffer if the stay were to be refused, since these subscribers would lose the immediate benefit of the larger reductions to Teleglobe's international toll rates required under Decision 89-9. The Commission finds that it is in the public interest that subscribers benefit from the greater rate reduction at this time.
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The Commission finds no more persuasive Teleglobe's submission that administrative inconvenience to it and to the member companies of Telecom Canada would result in the absence of a stay, since all of the parties would have to further revise their rates and billing systems should Teleglobe's appeal succeed. The Commission notes that Teleglobe must, in any event, revise its rates, effective 2 October 1989, to account for the excess deferred tax claimed from 1 January 1988 onward. Even if the stay were to be granted, should Teleglobe's appeal ultimately fail, the prospect of a further rate revision at that later date would be likely, as the company has itself pointed out at paragraph 12 of its 14 August 1989 letter.
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Teleglobe has not alleged that it would sustain irreparable harm in the absence of a stay. In this regard, the Commission notes that Teleglobe's total annual revenues for 1988, its most recently completed fiscal year, were $245.5 M. Given the relatively small amount of revenues at stake in this proceeding, the Commission considers it highly unlikely that Teleglobe would sustain irreparable harm as a result of a denial of its request for a stay. Moreover, if the company were to succeed on appeal, Teleglobe would, of course, be at liberty to apply to the Commission at such time for rate increases to recover the amount in question.
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The Commission considers that Teleglobe's application for leave to appeal does not demonstrate any error of law or jurisdiction committed by the Commission. On its face, Teleglobe's conclusion that the Commission has exceeded its authority in taking into account the reduction in Teleglobe's DTL relating to the period 4 April 1987 to 31 December 1987 in Decision 89-9 is itself predicated on the underlying conclusion that the Commission has, by means of a 1989 rate reduction, effectively reduced the company's 1987 return. The Commission is unable to agree with Teleglobe's underlying conclusion. Decision 89-9 will have no effect upon the company's 1987 financial statements. It is evident that the Commission, in its determinations throughout Decision 89-9, took considerable care to ensure, through the application of prospective rate reductions and the fixing of appropriate amortization periods, that there would be virtually no impact on the carriers' rates of return and earnings resulting from the rate reductions and that, to the extent that there was any such impact, it would be experienced over the amortization period and, thereby, affect future, as opposed to past financial statements of the carriers.
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Moreover, it is the Commission's view that subsection 29(2) of the Teleglobe Act, upon which Teleglobe bases its position that the Commission has exceeded its authority by effectively reducing the company's 1987 earnings, is a transitional provision applicable only in respect of specific Teleglobe rate actions for the 1987 period. The Commission regards the provision as having ceased to be of any greater comfort to Teleglobe as of 1 January 1988 than the operation of the general law.
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Subsequent to 31 December 1987, the Commission was precluded by the operation of the general law principle against retroactive rate-making, in the absence of special circumstances such as the existence of an interim order, from revisiting any of Teleglobe's rates that have been approved or deemed to have been approved as just and reasonable. The principle, which was most recently discussed by the Supreme Court of Canada in the as yet unreported case of Canadian Radio-television and Telecommunications Commission v. Bell Canada, judgment rendered 22 June 1989, operates to preserve the finality of not merely Teleglobe's rates from 1987 to the present but indeed of all of the rates which were given final approval, and which generated excessive deferred tax liability for each of the federally-regulated carriers that were parties to Decision 89-9.
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Therefore, the Commission considers that as of the date of Decision 89-9, Teleglobe's 1987 rates were insulated from Commission regulatory action by virtue not only of the Teleglobe Act, as the company has argued, but also by the operation of the general law against retroactive rate-making. As such, for regulatory purposes, the 1987 rates in question are in no way different from Teleglobe's rates in effect from 1 January 1988 onwards or from those of any other federally-regulated carrier in effect during the period in which excessive deferred tax was accumulated. All or any of these rates could have formed the basis of a challenge that, by virtue of the general law rule against retroactive rate-making, the Commission lacked the authority to implement a 1989 rate reduction or, for that matter, that the Commission was powerless to require the carriers to adjust their DTL accounts and return the benefit of the excess DTL to subscribers. However, no party to the proceeding has advanced this argument. In the Commission's opinion, such an argument would be untenable since it misconstrues the Commission's actual basis of authority for the determinations in Decision 89-9 as being in relation to its rate-making powers under the Railway Act. Rather, in rendering Decision 89-9, the Commission has relied upon section 347 of the Railway Act, pursuant to which it is empowered to prescribe the accounting practices of the federally-regulated carriers. In the Commission's opinion, the same confusion respecting the basis for the Commission's authority in rendering Decision 89-9 is also fatal to Teleglobe's arguments before the Federal Court of Appeal.
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Accordingly, the Commission denies Teleglobe's request for a temporary stay of execution of a part of Decision 89-9.
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Fernand Bélisle
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