ARCHIVED - Order CRTC 2001-778

Order CRTC 2001-778

Ottawa, 25 October 2001

Treatment of sales commissions in the context of the revenue-based contribution regime

Reference: 8695-C12-14/01

The Commission denies the request by Rogers Wireless Inc. (RWI) to allow sales commission expenses as a deduction from contribution-eligible revenues.

The Commission also denies the request by RWI to initiate a public process or a CRTC Interconnection Steering Committee process to debate the treatment of sales commissions expenses in the calculation of contribution-eligible revenues.

Decision CRTC 2000-745, Changes to the contribution regime, dated 30 November 2000, introduced major changes to the contribution regime that subsidizes primary exchange residence services. Since 1 January 2001, all telecommunications service providers (TSPs), with annual Canadian Telecommunications Services Revenues (CTSR) in excess of $10 million have been required to contribute a percentage of their contribution-eligible revenues to a national fund.

By 30 April 2001, all TSPs were required to file with the Commission their year 2000 contribution-eligible revenues along with the relevant financial statements, and a compliance statement attesting to the accuracy of the information.

Contribution-eligible revenues are defined in paragraph 93(b) of the decision as: "total CTSR less contribution revenues received, inter-carrier expenses to other telecommunications service providers, as outlined below, and revenues earned in Canada from retail Internet, retail paging and terminal equipment including related sales commissions".

Commission staff issued letters of clarification regarding several revenue definitions to ensure that the financial information reported is consistent with the directives in the decision.

On 20 August 2001, Commission staff clarified that the intention of paragraph 93(b) was to allow deductions for revenues earned from sales commissions but not the expenses incurred.

This clarification reflects the Commission's position in paragraph 36 of Order CRTC 2001-221, Disputed issues submitted by the contribution collection mechanism (CCM) Implementation Working Groups, dated 15 March 2001, that "the revenue charge, instituted in Decision 2000-745, is intended to be applied to the companies' revenues, not costs, and that only non-contribution-eligible revenues should be deducted in the calculation of contribution-eligible revenues."

In a letter dated 28 August 2001, RWI submitted that Commission staff's interpretation was incorrect and requested that the Commission either initiate a public process or a CRTC Interconnection Steering Committee (CISC) process to address the treatment of sales commissions revenues and expenses in the calculation of contribution-eligible revenues.

RWI argued that paragraph 93 of the decision established various deductions allowable for certain revenues and expenses in order for TSPs to calculate contribution-eligible revenues. The decision should not have precluded and was not intended to preclude the deduction of sales commission expenses.

RWI further submitted that it is unaware of any situation where the deduction for sales commission revenues would be deductible in relation to terminal equipment revenues. RWI submitted that this is not the practice in the industry; the Commission could not have intended to establish a deduction that TSPs could never apply.

The Commission notes that during the proceeding leading to the decision, all participants were asked to provide their views about the deductions from revenues that should be allowed if a revenue-based contribution regime was adopted. In responses to Commission interrogatories, some TSPs submitted that commission revenues earned from the sale of terminal equipment on behalf of a manufacturer should not be contribution-eligible.

The Commission confirms that the definition in paragraph 93(b) of the decision covers situations where sales commission revenues are earned from the sale of terminal equipment. The definition does not cover sales commission expenses.

The Commission is of the view that allowing sales commission expenses as a deduction from contribution-eligible revenues would be inconsistent with the objective of the revenue-based regime, which is predicated on the use of revenues to promote competitive fairness and equality.

The only exception in the decision is the deduction allowed for inter-carrier payments in order to avoid double-counting of revenue.

Therefore, the Commission denies RWI's request to allow sales commission expenses as a deduction from contribution-eligible revenues.

The Commission has fully examined the treatment of sales commission expenses in the context of the revenue-based contribution regime and concluded that only revenues from sales commissions should be deducted from contribution-eligible revenues. Therefore, the Commission considers that further public process is unnecessary.

Therefore, the Commission denies the request by RWI to initiate a public process or CISC process to address the treatment of sales commission expenses in the calculation of contribution-eligible revenues.

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