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Order CRTC 2001-253

  Ottawa, 21 March 2001
 

The CRTC, by majority, approves Bell Canada's tariff proposals to raise rates for various optional local services

  Reference: 8662-B2-05/00
1. In Orders CRTC 2000-1148 and 2000-1149, dated 18 December 2000, the Commission denied, by majority, Bell Canada Tariff Notices 6523 and 6524. In these tariff notices, the company had proposed to increase rates for certain calling features and packages thereof. In its decisions, the Commission expressed concerns about the significant additional revenues the company was able to generate from rate increases to calling features approved by the Commission since the implementation of price cap regulation and about the limited level of competition in the local telephone market.
2. On 22 December 2000, Bell Canada filed an application pursuant to section 62 of the Telecommunications Act and part VII of the CRTC Telecommunications Rules of Procedure requesting that the Commission review and vary Orders 2000-1148 and 1149 so as to approve, effective 1 February 2001, the changes originally proposed in Tariff Notices 6523 and 6524. Two customers filed comments in support of the Commission's decision in Orders 2000-1148 and 1149.
3. Bell Canada submitted that the denial of its tariff proposals is inconsistent with the parameters established for the current price cap regime and with every Commission decision relating to price changes for calling features of any incumbent local exchange carrier subject to the current price cap regime. The company noted that in Price cap regulation and related issues, Telecom Decision CRTC 97-9, dated 1 May 1997, the Commission had intentionally excluded optional local services from the price cap formula. The company also noted that since the start of the price cap regime in January 1998, the Commission has consistently approved price increases to calling features as proposed by a number of incumbent telephone companies.
4. Bell Canada stated that all of its tariff proposals related, directly or indirectly, to services that had not been subject to a price increase since 1994. The company further noted that, with one very minor exception, the rates proposed in Tariff Notice 6523 were no higher than the rates currently approved for other telephone companies subject to price cap regulation.
5. Bell Canada submitted that it had a legitimate expectation that the Commission would treat the proposed rate increases in Tariff Notices 6523 and 6524 in a manner consistent with the Commission's regulatory framework and practice.
6. Bell Canada further submitted that Orders 2000-1148 and 1149 are fundamentally at odds with the Commission's decision implementing changes to the contribution regime issued less than one month earlier. The company noted that in Changes to the contribution regime, Decision CRTC 2000-745, dated 30 November 2000, the Commission determined that it would use a fixed annual implicit contribution target amount of $60 per network access service per year in determining the annual subsidy requirement amount applicable to high-cost areas in the year 2002 and beyond. The company argued that it is fundamentally unfair to establish a target as an incentive and, at the same time deny it the flexibility to achieve or beat that target.
7. Bell Canada also questioned the appropriateness of the reasons given in Orders 2000-1148 and 1149 for denying the company's tariff proposals. The company noted that in Decision 97-9 the Commission decided not to cap prices for optional local services because they were discretionary, and not based on the extent of local competition. The company submitted that Decision 97-9 established a regulatory regime based on price regulation, and not on the regulation of revenues or earnings. Bell Canada submitted that the Commission's observation that previously approved rate increases for various calling features were anticipated to generate significant additional revenues should not justify denial of the company's pricing proposals.
8. Bell Canada noted that the price cap framework consists of a number of complex and interrelated rules and was established for a pre-determined four-year period. The company argued that it would be inappropriate to change one of the rules of the regime in midstream or to apply it in a different manner. It argued that if the Commission were nevertheless to contemplate changing the framework or the application of its principles, procedural fairness would demand that any such changes during the four-year regime be made only after a full public process, including an opportunity for interested parties to comment.
9. Bell Canada submitted that the Commission's decision in this case amounts to a denial of natural justice and an error in law. The company argued that the Commission should apply existing rules and practices pending re-examination of the rules, rather than changing its existing practice prior to such a re-examination. It argued that to do otherwise is fundamentally unfair.
10. Bell Canada concluded that, for the above noted reasons, there is substantial doubt as to the correctness of Orders 97-9. The company submitted that they are inconsistent with the framework and practices established by the Commission, and consequently undermine confidence and predictability in the regulatory process and in the Commission's decision-making.
11. Prior to 1998, prices for local services were regulated based on the incumbent local exchange carrier's earnings. In other words, prices were set to generate specific levels of revenues and earnings that were determined to be reasonable by the Commission. In Decision 97-9, the Commission established a four-year price cap plan, commencing on 1 January 1998. Under price cap regulation, the focus of regulation is on prices and not on revenues or earnings. The Commission is therefore of the view that, under price cap regulation, it is inappropriate to deny tariff proposals based on their expected revenue impact.
12. At paragraph 142 of Decision 97-9, the Commission also determined that there was no need to establish an upper pricing constraint on optional local services because of their discretionary nature; the extent of local competition was not a consideration.
13. The Commission agrees with Bell Canada that Orders 2000-1148 and 1149 represent a major and unexpected departure from the rules for the price cap regime established in Decision 97-9, and from the Commission's practice since the implementation of that regime. The Commission further considers that the denial of the proposed rate increases for optional local services could be inconsistent with Decision 2000-745, in that it might deny the company the flexibility to achieve the contribution target amount of $60.
14. The Commission, by majority, is therefore of the view that there is substantial doubt as to the correctness of Orders 2000-1148 and 1149. The Commission approves Bell Canada Tariff Notices 6523 and 6524 effective immediately.
  Secretary General
  This document is available in alternative format upon request and may also be examined at the following Internet site: www.crtc.gc.ca 
 

Dissenting opinion of Commissioner Stuart Langford

  I disagree with the majority in this matter and would have denied Bell Canada's (Bell's) Review and Vary application. To do otherwise is to accept an interpretation of process and substance when it comes to rate increase applications for optional services that, in my opinion, is not only incorrect but which, at least until the present Price Cap regime is reassessed, will drastically curtail the Commission's ability to fulfill its legislated mandate. Canadians expect the Commission to meet its statutory responsibilities in a responsive, even-handed and pragmatic manner. The majority decision may cause them to question the reality of such an expectation; the speed with which this order was processed and finalized may further raise concerns.
 

Timing

  From start to finish, this Review and Vary (R&V) application has taken under three months. The matter was considered and voted upon within 30 days of filing. While many R&Vs have multiple parties and often have additional process steps like interrogatories I note that the average processing time for all other R&Vs in the year 2000 was 199.2 days. One is reminded of an ancient maxim of the Roman slave turned author, Publilius Syrus: "Nothing can be done at once hastily and prudently." Having decided in haste, the Commission may find itself with a good deal of time for regrets. This decision may come back repeatedly to haunt it.
 

Carte blanche

  The majority has accepted Bell's flawed interpretation of what might be called the "regulatory bargain" struck between the Commission and local service providers under the Price Cap regime. It has with this decision given local service providers carte blanche to charge whatever they wish for optional local services, such things as, call-forwarding, call waiting and call answering. Henceforth, the Commission has reserved for itself only one role, a role of questionable value, that of protecting the interests of largely non-existent local competitors. It has abandoned Canadian consumers to fend for themselves, at least until the present Price Cap regime expires, when it comes to the cost of optional services and, arguably, it has ceded the authority to respond quickly to changing conditions in an unpredictable telecommunications market.
 

The regulatory bargain

  What happened to the way the Commission regulates the pricing of discretionary or optional services on May 1, 1997, the day Decision CRTC 1997-9 (97-9) was released? According to paragraph 12 of today's majority decision, "upper pricing constraint" on those service were rejected unconditionally. In the words of the majority, "the extent of local competition was not a consideration." If by this paragraph the majority is saying that under the Price Cap regulatory bargain formalized in 97-9, there is no connection between the pricing of optional services and the state of competition in the market, it has in my view reached a conclusion that is not supported by history or the record.
  One of the very foundation stones underpinning the new Price Cap approach to regulation unveiled on May 1, 1997 was competition. On the same day, Decision CRTC 97-8, (97-8) interestingly subtitled LOCAL COMPETITION, was also released. An official CRTC news release, entitled, Green Light To Local Telephone Competition, accompanied the two decisions as well as a third permitting telephone companies to hold broadcasting distribution licences. The very first sentence of that news release reads as follows: "The CRTC today announced a series of decisions which will result in the entire Canadian telecommunications market being open to competition." The reference in this trumpeting of a brave new competitive world is to "a series of decisions". Competition is the thread that binds them, the goal underpinning all three, 97-9 included. The second sentence of the May 1st news release makes particular reference to local competition: "In addition to consumers having a choice in long distance companies, they will now have the opportunity to choose among a number of local telephone service providers."
  With specific regard to the new price cap regulatory bargain contained in 97-9, the May 1st news release states: "The Commission has recognized that this new competitive regime which will stimulate new service innovation and price competition requires new approaches to regulation. The Commission also felt it was in the public interest to achieve a fair balance between the interests of consumers, existing telephone companies, and new competitors." Competitor, competition, competitors: three variations on a theme word in two sentences introducing Price Cap to Canadians. An accident? I think not.
 

Finding balance

  The majority is quite correct, as far as it goes, when it states in paragraph 12 of its decision that, "At paragraph 142 of Decision 97-9, the Commission also determined that there was no need to establish an upper pricing constraint on optional local services¼ " But the majority errs, in my view when it adds that there was "no need" to do so, "because of their discretionary nature" and that "the extent of local competition was not an issue." There was no perceived need to do so, granted, but that was precisely because the Commission anticipated that local competition by itself would do the job.
  The Commission did not abandon consumers in 97-9 as the majority decision threatens to do today, it merely came to the mistaken conclusion that consumers would require no protection when it came to the ceiling prices of optional service because that protection would come naturally in the form of competitive market forces. In order to ensure the maintenance of the "fair balance" of stakeholder interests it referred to in its news release of May 1, 1997, the Commission set up a framework that combined regulatory and competitive checks and balances underpinned by its ongoing statutory mandate to guarantee "just and reasonable" rates and by its own commitment in paragraph 181 of 97-9 to maintain "consumer safeguards".
  Taken in context of the Commission's legislated mandate and its expectations for the rollout of local competition, 97-9 actually establishes a regulatory bargain that is far different than the simple sky's-the-limit approach to the pricing of optional services set out in paragraph 12 of the majority decision. To protect new competitors against anti-competitive predatory pricing, rate increase applications must be accompanied by an imputation test proving that proposed rates are not below cost. To protect consumers, it was believed that new competitors would chop prices of optional services in an attempt to gain market share. That was the "fair balance" the Commission believed 97-9 struck, a balance among incumbents, consumers and new competitors maintained by a combination of market forces and anti-predatory pricing rules.
 

Best laid plans

  Unfortunately one half of the competitive/regulatory bargain or equation never came to pass. The imputation test set out in 97-9 ensures that prices will not fall below cost but effective local competition never materialized. The non-development of local competition has, according to Bell and the majority in this matter, left consumers with only two options, a true Hobson's choice, when it comes to discretionary services: pay or cancel. That is no more than the right to fall into line or vote with one's feet; in truth, no protection at all. It would be a sad commentary, indeed, on the state of public interest regulation if the Commission were to so abdicate its responsibilities to consumers.
  Yet this appears to be the message underlying the majority decision. The statutory duty to ensure "just and reasonable" rates and the 97-9 commitment to "consumer safeguards" both appear to have been forgotten. Local competition has not evolved to the point where market forces can be relied upon to keep rates for optional services reasonably priced. Instead of stepping in to exercise its mandate in the public interest the majority has stepped aside. Canadian telecommunications subscribers are on their own. Bell has declared that because earlier applications have been approved, so must this one. The majority agrees. I do not.
 

Trends develop slowly

  The majority decision refers to what Bell characterizes as a "legitimate expectation" that because other similar applications had been approved its application to raise rates for five calling features (Call Waiting, Call Return, Call Forwarding, Three-way Calling and Call Screen) as well as for usage charges and bundles of optional services would also be approved. In its R&V application, Bell, expanding on the source of this "legitimate expectation" argument noted that: "Since the start of the price cap regime in January, 1998, the Commission has consistently approved price increases to calling features as proposed by a number of incumbent telephone companies."
  Though their reference to the Commission's voting record on optional services rate increase applications under Price Cap is accurate, Bell Canada's expectations were prematurely formed. The Commission has approved all applications so made but not automatically and, recently, not by unanimous decisions. It has taken time for it to become apparent that an unforeseeable trend was developing, that a pricing scheme anchored in a firm belief that competition was imminent had come adrift. Gradually, it has become apparent that consumers, unless the Commission stepped in to safeguard their interests, might soon find themselves paying exorbitant prices for services which, though technically discretionary, they have come to rely upon and treat as part of their basic telephone package. Bell Canada had only to review the majority and dissenting opinions in recent rate increase orders to see that the Commission was far from united on the issue of pricing optional services.
  Over the past months, Commissioners have become aware that a trend was developing. Initially, one or two Commissioners demonstrated their concern by opposing rate increase applications and recording their objections in the form of dissenting opinions. By December, 2000, a majority of Commissioners, sensing this trend, voted to deny the applications that are the source of this R&V procedure. Bell condemns this development or progression as one that. "¼ undermines the credibility and predictability of the regulatory process." It suggests that the Commission cannot respond to unexpected trends and declares: "¼ there is little doubt that the Orders (2000-1148 and 1149) establish a new principle."
  This is little more than the blinkered rhetoric of the committed advocate. It is, to borrow from Shakespeare, "¼ full of sound and fury, Signifying nothing." The denials contained in Orders 2000-1148 and 1149, were rendered after a process that followed established Commission "rules and practices." There was no "new principle" established. Legislated direction and policy commitments were honoured. This was no exercise in ad hoc decision making, quite the contrary. The Commission identified a disturbing trend, one not anticipated, one at odds with its statutory mandate to ensure that rates are "just and reasonable", one that cried out for the exercise of its stated intention to ensure "consumer safeguards" and it responded. It denied the applications to raise rates and declared that as part of the scheduled Price Cap review process it would "¼ re-examine the pricing of optional local services¼ "
 

Consider the alternative

  For Bell to complain that such a process was unfair is tantamount to declaring that the Commission has no jurisdiction to respond to developments in the areas it is charged by law to regulate. What is the alternative? According to Bell Canada, once the Commission establishes a position, it must stick with it, whatever the circumstances, until it initiates and completes a public process to examine the situation at issue: "While the Commission is not rigidly bound by its own decisions, when it establishes rules as it has in this case for a pre-determined four year period, it must abide by them during that period unless and until it reviews those rules in a public process."
  The majority appears to have accepted Bell Canada's interpretation of regulatory discretion: "The Commission agrees that Orders CRTC 2000-1148 and 1149 represent a major and unexpected departure from the rules for the price cap regime established in Decision 97-9, and from the Commission's practice since the implementation of that regime." But how far are we to take such an approach? It appears to be Bell and the majority's position that once a line of decisions has been made the Commission locks itself in. It must slavishly follow precedent until the precedent line is made the subject of evaluation and review in a public process.
  I profoundly disagree with such an interpretation of the Commission's discretion in regulating pricing matters, particularly when, as noted previously, both section 27 of the Telecommunications Act ("just and reasonable") and paragraph 181 of 97-9 ("consumer safeguards") direct the Commission to exercise its discretion in the public interest. Even if I were to accept Bell Canada's and the majority's limitations, however, I would point out that Orders CRTC 1148 and 1149 meet the test. The Commission did not simply deny the rate increase applications, in those Orders, it denied them and announced that it would: "re-examine the pricing of optional services in the upcoming proceedings to review the price cap regime." In my view it need not have gone that far but having done so it has met Bell's test and left Bell's true motivation in launching this R&V exposed for all to see.
 

Give us the money

  This application is not about practice, process, equity or natural law. It is about money. There are many millions of dollars at stake here and Bell wants them. It is not satisfied to put its income projections on hold while the very public process it demanded as a pre-condition to change is undertaken. Neither is it about to clarify why its pricing demands are justified. By taking the approach that no justification is required, that all it need do is ask and fulfill what is in my view only half the burden of proof established under Price Cap (to prove no anti-competitive pricing), Bell argues absolute entitlement. By accepting that approach, the majority has left itself with virtually no regulatory function and consumers across Canada without any protection but to discontinue service.
  If Bell Canada is correct, if as the majority decision suggests, the Commission has no option but to acquiesce, a proposition which I reject, then Canadians are in trouble. The system of pricing optional services leaves them vulnerable to price gouging. If that is how the 1997 plan to balance the interests of stakeholders has developed, it is past time to heed another of the maxims of Publilius Syrus: "It is a bad plan that admits of no modification." I would have begun the process of modification precisely in the manner set down in the orders appealed in this R&V proceeding, by denying the rate increases and re-examining the whole issue of rates during the upcoming Price Cap review.
1 CRTC internal statistics.
2 Maxim 557, Darius Lyman translation.
3 See Decision CRTC 1997-9.
4 Majority decision, at paragraph 12.
5 Public Notice CRTC 1997-49.
6 May 1, 1997 News Release, at page 2.
7 Telecommunications Act [S.C. 1993, c.38] section 27(1) "Every rate charged by a Canadian carrier for a telecommunications service shall be just and reasonable."
8 Decision CRTC 1997-9, at paragraph 181. In this paragraph the Commission established an expedited procedure for processing tariff applications but stated that it would scrutinize such applications to ensure, "that they meet all the Commission's criteria concerning matters such as the imputation test, consumer safeguards and privacy."
9 Majority decision, at paragraph 5.
10 Bell Canada application (Dec. 22, 2000), at paragraph 15.
11 See, for example, Order CRTC 2000-674, Order CRTC 2000-675 and Order CRTC 2000-654.
12 Bell Canada application (Dec. 22, 2000), at paragraph 36.
13 Id., at paragraph 37.
14 Macbeth, V, v, 27.
15 Orders CRTC 2000-1148 and 1149, at paragraph 3.
16 Bell Canada application (Dec. 22, 2000), at paragraph 31.
17 Majority decision, at paragraph 13.
18 Orders CRTC 2000-1148 and 1149, at paragraph 3.
19 Bell Canada has filed the precise dollar figures in confidence.
20 Maxim 469.

Date Modified: 2001-03-21

Date modified: