ARCHIVED - Telecom Decision CRTC 2002-57

Telecom Decision CRTC 2002-57

Ottawa, 13 September 2002

Canadian Satellite Communications Inc. - Contribution Regime

Reference: 8638-C12-45/00

In this decision, the Commission finds Canadian Satellite Communications Inc. (Cancom) to be a telecommunications service provider and directs Cancom to comply with the filing and payment obligations set out in Changes to the contribution regime, Decision CRTC 2000-745, 30 November 2000.

Background

1.

In Changes to the contribution regime, Decision CRTC 2000-745, 30 November 2000 (Decision 2000-745; the contribution regime), the Commission required that all telecommunications service providers (TSP) pay contribution, based on a percentage of their eligible telecommunications service revenues, to subsidize basic residential local service in high-cost serving areas. To that end, all TSPs are required to file an annual report of their previous year's contribution-eligible revenues along with their estimated allowable deductions and a list of all their subsidiaries, affiliates and related companies.

Cancom's Request

2.

By letter dated 15 January 2001 and in subsequent correspondence with the Commission, Canadian Satellite Communications Inc. (Cancom) requested that the Commission clarify its interpretation of basic telecommunications services and of the persons it identifies as TSPs. Cancom submitted that it does not qualify as a TSP as it does not provide basic telecommunications services and is, therefore, not subject to the contribution regime. In support of its position, Cancom provided a description of the services it provides and reasons why the Commission should not find these services to be basic telecommunications services.

3.

Cancom further requested that the Commission provide clarification, should it determine that Cancom is a TSP, on the appropriate methodology for allocating its inter-carrier payments between contribution-eligible and non-contribution-eligible services and its obligations to file a list of its subsidiaries, affiliates and related companies.

4.

On 25 May 2001, Commission staff issued interrogatories to Cancom requesting further information on the services provided by Cancom. Cancom filed responses to these interrogatories on 15 June 2001.

5.

On 10 December 2001, Cancom was sent additional interrogatories to obtain further information regarding its satellite uplinking services. Cancom filed its response on 21 December 2001.

Matters raised by Cancom

6.

Cancom's request for clarification raises the following matters:

i) which of Cancom's services qualify as contribution-eligible telecommunications services; and

ii) Cancom's obligations under the contribution regime.

Application of the Telecommunications Act to broadcasting distribution undertakings

Cancom's position

7.

Cancom submitted that it is a licensed broadcasting undertaking and that, by virtue of this status, it could not be a TSP subject to the Act. In support of its position, Cancom noted that section 4 of the Act expressly states that the Act does not apply to broadcasting by a broadcasting undertaking. Cancom further argued that the Commission does not have authority under the Act to regulate non-telecommunications services.

Commission's determination

8.

The Commission has already determined in Regulation of Broadcasting Distribution Undertakings That Provide Non-Programming Services, Telecom Decision CRTC 96-1, 30 January 1996 (Decision 96-1) and Regulation under the Telecommunications Act of certain telecommunications services offered by "broadcast carriers", Telecom Decision CRTC 98-9, 9 July 1998, that a broadcasting undertaking licensed under the Broadcasting Act can also be subject to the Commission's jurisdiction pursuant to the Act.

9.

In Decision 96-1, the Commission found that the definition of telecommunications in the Act encompasses broadcasting as defined in the Broadcasting Act, as well as, among other things, any other transmission of intelligence by any wire or other electromagnetic or similar technical system.

10.

The Commission notes, however, that in section 4 of the Act, Parliament specifically excluded "broadcasting" by a "broadcasting undertaking" from the scope of the Act. Section 4 of the Act provides:

This Act does not apply in respect of broadcasting by a broadcasting undertaking.

11.

Consistent with section 4 of the Act, the Commission cannot exclude Cancom from the application of the Act simply because it is a broadcasting undertaking but rather, because it also finds that the activities of the broadcasting undertaking constitute broadcasting as defined in the Broadcasting Act. A broadcasting undertaking that provides telecommunications services other than broadcasting services would not, pursuant to section 4, be excluded from the scope of the Act with respect to those activities.

12.

The Commission must therefore examine each of the services offered by Cancom in order to determine whether any of them fall outside the scope of section 4 before it can consider whether Cancom is a TSP subject to the requirements of Decision 2000-745.

Application of the contribution regime

Cancom's position

13.

In its submissions, Cancom noted that the Commission's authority to require contributions to a fund, pursuant to section 46.5(1) of the Act, is only applicable to TSPs.

14.

Cancom noted that a TSP is defined under section 2 of the Act as a person who provides basic telecommunications services and that the term basic telecommunications services is not defined in the Act.

15.

Cancom noted that the Commission has, however, classified a number of specific telecommunications services as either basic or enhanced telecommunications services. In particular, Cancom noted that, in Enhanced Services, Telecom Decision CRTC 84-18, 12 July 1984, (Decision 84-18), the Commission defined a basic telecommunications service as one that is limited to the offering of transmission capacity for the movement of information. Cancom also submitted that in Identification of Enhanced services, Telecom Decision CRTC 85-17, 13 August 1985 (Decision 85-17), the Commission concluded that a telecommunications service that is not limited to the offering of transmission capacity for the movement of information should be classified as enhanced. Cancom further noted that, in Decision 85-17, the Commission classified radio-paging services and voice mailbox services as enhanced services.

16.

Cancom submitted that, given that none of its services are limited to the offering of transmission capacity, it does not provide basic telecommunications services. Cancom argued that, accordingly, it is not a TSP and is not subject to the contribution regime.

Commission's determination

17.

Section 46.5(1) of the Act states:

The Commission may require any telecommunications service provider to contribute, subject to any conditions that the Commission may set, to a fund to support continuing access by Canadians to basic telecommunications services.

18.

In Decision 2000-745, the Commission exercised its authority, under section 46.5(1) of the Act, to create a contribution regime that required all TSPs earning more than $10 million in Canadian telecommunications service revenues (CTSR) to contribute to the national contribution fund. In paragraph 88, the Commission expressly provided that the contribution regime applied to all TSPs as follows:

..all telecommunications service providers such as ILECs, APLDS, CLECs, resellers, WSPs, international licensees, satellite service providers, internet service providers (if a telecommunications service is provided), payphone providers, data and private line service providers are required to contribute based upon their total Canadian Telecommunications Service Revenues (CTSR), less certain deductions. CTSR are revenues from Canadian telecommunications services.

19.

The term "telecommunications service provider" is defined in section 2 of the Act as:

.a person who provides basic telecommunications services, including by exempt transmission apparatus.

20.

Based on this definition, the Commission must find that an undertaking provides a basic telecommunications service before it can conclude that it is a TSP. The Act defines "telecommunications service" as:

.a service provided by means of telecommunications facilities and includes the provision in whole or in part of telecommunications facilities and any related equipment, whether by sale, lease or otherwise.

21.

The Act does not provide a definition of the term "basic telecommunications service". The Commission notes, however, that it has previously considered the concept of "basic telecommunications service" in Decision 84-18 and Decision 85-17. While these decisions were not made in the context of the contribution regime, the Commission considers that it is appropriate to refer to them in its assessment of whether certain Cancom services are subject to the contribution regime.

22.

If the Commission finds that a telecommunications service falls outside the scope of the section 4 exclusion, it must determine whether the service qualifies as a basic telecommunications service for Cancom to qualify as a TSP. If at least one of Cancom's services does, then all of the telecommunications services Cancom provides are subject to the contribution regime.

Classification of Cancom's Services

23.

Cancom submitted that it provides services through four primary businesses:

Cancom Learning Solutions

Cancom's position

24.

Cancom indicated that its Cancom Learning Solutions business builds and maintains SIDL networks. Cancom Learning Solutions also builds, operates and maintains temporary and permanent private communications networks for national product launches, annual meetings, corporate communications, and private continent-wide broadcasting. Cancom explained that it provides its customers services that include full network design, network implementation, studio operation, uplink network management and technical support. Cancom indicated that its Learning Solutions also owns and operates two automated studios in downtown Toronto.

25.

Cancom indicated that the services provided through Cancom Learning Solutions include a small telecommunications component associated with the provision of satellite-based network transmission services. Cancom submitted that the provision of this transmission capacity is not a basic telecommunications service because it is not offered on a stand-alone basis but rather, as part of an end-to-end service.

26.

Cancom further submitted that the transmission services should not be characterized as basic telecommunications services because the revenues derived from this telecommunications component are negligible. In this regard, Cancom noted that the bulk of its revenues are derived from the construction and maintenance of studios and associated equipment.

27.

Cancom further noted that it was responsible for packaging and formatting the signal that is ultimately broadcast via satellite and that, as a result, the service is not limited to the offering of transmission capacity for the movement of information. Cancom argued that, in accordance with Decision 85-17, the service should, therefore, be classified as enhanced and not basic.

Commission's determination

28.

The Commission considers that the character of a telecommunications service does not change from basic to enhanced depending on how or whether the service is offered with non-telecommunications services. In the Commission's view, it is the telecommunications service itself, and not the surrounding services with which it may be offered, that must be examined in determining whether a service is properly classified as basic or enhanced.

29.

The Commission notes that many other TSPs offer basic telecommunications services bundled with non-telecommunications services. As noted in paragraph 60 of this decision, the Commission has approved rules, developed in cooperation with the industry for the purpose of the contribution regime, for the unbundling of revenues derived from non-telecommunications services.

30.

The Commission notes Cancom's argument that the telecommunications component of the satellite-based network transmission services should not qualify as telecommunications services in light of the negligible portion of revenues these services generate. However, the Commission does not consider that the level of revenues derived from a telecommunications service has any bearing on the classification of the service as basic or enhanced.

31.

The Commission considers that the packaging and formatting of signals for broadcast by satellite serve merely to facilitate the efficient and reliable transmission of the information. In the Commission's view, this aspect of the service cannot be considered enhanced because these activities do not transform the subscriber's information. Given that this aspect of the service is limited to the offering of transmission capacity for the movement of information, the Commission finds that this service is a basic telecommunications service, as contemplated in Decision 84-18 and Decision 85-17.

32.

Given that Cancom provides a basic telecommunications service through the Cancom Learning Solutions service, the Commission concludes that Cancom is a TSP under the Act and that, pursuant to Decision 2000-745, the revenues derived from the telecommunications component provided through the Cancom Learning Solutions service and from any other telecommunications services it provides are contribution-eligible.

Cancom Tracking Solutions

Cancom's Position

33.

Cancom submitted that Cancom Tracking Solutions provides satellite tracking and messaging services to the Canadian trucking industry and that this service is analogous to a radio paging service.

34.

Cancom explained that the tracking component of this service involves the transmission via satellite of one-way signals emitted from trucks equipped with satellite antennas, to a central dispatch location. The geographic coordinate information contained in the signals allows trucking companies to determine the location of their trucks at all times.

35.

Cancom indicated that the messaging component of the service supports unidirectional in-bound or out-bound messaging from trucks. The service does not support a simultaneous two-way communications path. Cancom submitted that the messaging service is typically used by drivers to send or receive brief text messages regarding their progress on a particular job. Cancom also noted that it recently added voicemail capabilities to this service.

36.

Cancom argued that this service does not qualify as a basic telecommunications service noting that, in Decision 85-17, the Commission determined that both radio paging and voice mailbox services were enhanced telecommunications services.

37.

Cancom submitted that, should the Commission determine that Cancom's tracking and messaging service is a basic telecommunications service, then other providers of this type of service should also be found to be TSPs. Cancom noted, for example, that General Motors provides an analogous service and submitted that Parliament never intended this type of service provider to be subject to the contribution regime established by the Commission.

38.

Cancom further submitted that, in the event that Cancom were found to be a TSP, then Cancom's messaging services should be considered similar to retail paging services and the associated revenues should be eligible as a deduction in the calculation of the company's contribution-eligible revenues, as set out in Decision 2000-745.

Commission's determination

39.

In Industry Consensus Reports submitted by the Contribution Collection Mechanism (CCM) Implementation Working Groups, Order CRTC 2001-220, 15 March 2001 (Order 2001-220), the Commission approved the definition of retail paging service as a wireless and/or satellite-based service that permits a customer to receive and/or send uni-directional messages from one or more individual receivers. The Commission further agreed that retail-paging service may also contain, but is not limited to, voice, text, audio, video and data.

40.

The Commission notes that the satellite tracking and messaging services provided by Cancom's Tracking Solutions involve the emission of one-way signals for tracking the geographical co-ordinates of each vehicle and support uni-directional messaging to and from the vehicle. As these services do not support a simultaneous two-way telecommunications path, the Commission concludes that these services fall within the definition of retail paging services set out in Order 2001-220 and, consistent with Decision 85-17, are considered enhanced telecommunications services.

41.

In accordance with Decision 2000-745, any revenues generated from the provision of these services in Canada must be reported as CTSR for the purposes of the contribution regime. However, given that these services fall within the definition of retail paging services, the revenues derived from these services should be deducted in the calculation of the company's contribution-eligible revenues.

DTH, SRDU and uplinking services

Cancom's position

42.

Cancom indicated that it is licensed as a SRDU under the Broadcasting Act to distribute programming and non-programming services to other broadcasting distribution undertakings (BDUs). Cancom noted that, under its SRDU licence, it is authorized to distribute only over-the-air conventional television and radio programming services and not specialty services. Cancom noted that it is responsible for choosing, packaging, organizing and formatting or compressing the programming and non-programming services that are distributed to other BDUs. Cancom submitted that, as a licensed SRDU, it is also responsible for the content it transmits and is prohibited from transmitting certain types of content.

43.

Cancom noted that it is also licensed under the Broadcasting Act to distribute digital video and audio programming services via satellite to Canadian residences and commercial establishments through its DTH satellite distribution undertaking (DTH distribution undertaking), Star Choice Residential Services. Cancom noted that, similar to its SRDU activities, it is responsible for choosing, packaging, organizing and formatting or compressing the programming and non-programming services that are provided to its subscribers. Cancom submitted that, as a licensed DTH distribution undertaking, it is also responsible for the content it transmits and is prohibited from transmitting certain types of content.

44.

Cancom also indicated that it offers satellite uplinking services to BDUs. Cancom noted that it enters into agreements that permit its BDU customers to receive specialty services, using Cancom's services, in order to distribute these services to their subscribers. These agreements are always premised upon the originator of the specialty service having authorized such reception by the BDU.

45.

Cancom noted that it must uplink the programming signal of specialty services to its satellite in order to offer specialty services to its DTH subscribers. Cancom explained that, in order to offset some of the costs of its DTH operations, it offers the licensees of specialty services the opportunity to use Cancom's DTH uplinking operations in order to deliver their services to the head-ends of cable BDUs throughout the country. Cancom indicated that this activity does not require any additional satellite capacity, given that it already uplinks the programming service's signal to the satellite as part of its DTH activities. Cancom noted that it simply authorizes the receiving cable company to decode the programming service's signal, which is already being distributed from the satellite.

46.

Cancom submitted that, since the uplinking services, by their very nature, include compression and multiplexing services, the uplinking services are not basic telecommunications services, based on the principles enunciated by the Commission in Decision 84-18.

47.

Cancom further submitted that all of its uplinking agreements contemplate the integration of signals with the subscriber access control stream signals that are essential for the operation of Star Choice's DTH distribution undertaking. In Cancom's view, this integration not only supports its view that the uplinking services are not basic telecommunications services, but also demonstrates that the uplinking services are integral to the operation of its licensed DTH distribution undertaking.

48.

Finally, Cancom argued that, in providing these services, Cancom is engaged in broadcasting by a broadcasting undertaking, which falls outside the scope of the Act pursuant to section 4.

Commission's determination

49.

The Commission notes that Cancom's SRDU and DTH distribution undertaking are licensed broadcasting undertakings under the Broadcasting Act.

50.

Broadcasting is defined in section 2(1) of the Broadcasting Act as follows:

Any transmission of programs, whether or not encrypted, by radio waves or other means of telecommunications for reception by the public by means of broadcasting receiving apparatus, but does not include any such transmission of programs that is made solely for performance or display in a public place.

51.

In Policy Framework for the Introduction of Competition to the Satellite Relay Distribution Industry, Public Notice CRTC 1998-60, 23 June 1998, the Commission recognized that SRDUs were carrying out broadcasting activities. In describing applications from parties who wished to establish SRDUs in competition with Cancom, the Commission stated:

All of these contemplate the introduction of competition, whether on a national or regional basis, to Cancom's licensed broadcasting activity, that being the distribution of television services to terrestrial BDUs and direct-to-home (DTH) BDUs.

52.

A DTH distribution undertaking distributes programming to individual subscribers via satellite. The Commission considers that the activities of a DTH distribution undertaking clearly fall within this definition as they involve the transmission of programs for reception by the public by means of broadcasting receiving apparatus.

53.

The Commission notes that Cancom's uplinking services allows specialty programming service providers the option of using Cancom's uplinking activities as part of its DTH operations to distribute their signals to cable head-ends. The Commission also notes that, in order to provide this service, Cancom is not required to purchase extra satellite capacity. Cancom merely allows the recipient cable company to decode the programming signal, which Cancom has already uplinked to the satellite for its DTH operations.

54.

The Commission notes that it is the responsibility of the licensees of specialty services to deliver their signals to cable head-ends. As such, Cancom's uplinking operations form part of the delivery of the specialty programming services by the licensees of specialty services to BDUs for reception by the public.

55.

In light of the above, the Commission concludes that Cancom's DTH, SRDU and uplinking activities constitute broadcasting by a broadcasting undertaking which are excluded from the scope of the Act pursuant to section 4. Accordingly, the revenues earned from the DTH, SRDU and uplinking activities are not contribution-eligible revenues under the contribution regime.

Obligations under the contribution regime

56.

Given that the telecommunications component of the Cancom Learning Solutions service is a basic telecommunications service and that Cancom qualifies as a TSP under the Act, the Commission concludes that Cancom is subject to the requirements of the contribution regime established by the Commission in Decision 2000-745 and, therefore, all other telecommunications services provided by Cancom in Canada are contribution-eligible services.

57.

The Commission directs Cancom to file with the Commission, in accordance with the requirements set out in Decision 2000-745, its financial information for the years 2000 and 2001, within 15 days of this decision.

Bundled Revenues

Cancom's position

58.

Cancom submitted that most of the telecommunications services it offers are provided within a bundled package of broadcasting or non-telecommunications services. Cancom noted that under the terms of Decision 2000-745, all bundled service revenues that include a telecommunications component are contribution-eligible.

59.

In Cancom's view, levying contribution on all bundled revenues, including broadcasting and non-telecommunications revenues, falls beyond the scope of the Act.

Commission's determination

60.

The Commission notes that, subsequent to Cancom's submissions, it established the rules for unbundling telecommunications revenues from a bundled package of telecommunications and non-telecommunications services in Order 2001-220 and in Disputed issues submitted by the Contribution Collection Mechanism (CCM) Implementation Working Groups, Order CRTC 2001-221, 15 March 2001 (Order 2001-221).

61.

Given that Cancom's concern is addressed in Orders 2001-220 and 2001-221, the Commission finds that it is not necessary to further address this matter.

Financial Consequences for Cancom

Cancom's position

62.

Cancom expressed concern that Cancom's suppliers of telecommunications services, notably Telesat Canada (Telesat), may attempt to recover from Cancom the contribution charges that are payable by these suppliers. Cancom submitted that, if this were the case, its costs would increase significantly and would materially interfere with its ability to meet the public policy mandates for which it has been licensed under the Broadcasting Act. Cancom noted that this issue was the subject of a review and vary application filed with the Commission by Telesat on 28 February 2001.

63.

In addition, Cancom submitted that should the Commission require it to remit contribution charges in respect of its uplinking activities, such charges would significantly increase the costs of its licensed DTH distribution undertaking and impair its ability to compete effectively in the broadcasting distribution market, unless it was able to recover such charges from its uplinking customers. Moreover, if the charges could be recovered from its customers, then these would significantly increase the costs of the various licensed programming undertakings that use such services to distribute their programming to the cable head-ends.

Commission's determination

64.

The Commission notes that Cancom's arguments are substantially the same as those put forward by Telesat in its application to review and vary Decision 2000-745. The Commission addressed these arguments in Order CRTC 2001-435, 31 May 2001, as follows:

.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...The Commission considers that approving the applicant's 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.

65.

In the Commission's view, this statement continues to be appropriate as Cancom has not demonstrated why the Commission should depart from the principles established in Decision 2000-745.

Allowable Deductions

Cancom's position

66.

In Decision 2000-745, the Commission indicated that telecommunications service providers would be permitted to deduct from their contribution-eligible revenues, payments made for inter-carrier services, to the extent that the inter-carrier services are used to provide contribution-eligible services.

67.

Cancom submitted that it makes use of the same inter-carrier services and facilities to provide both contribution-eligible and non-contribution-eligible services and that, accordingly, it would need to allocate its inter-carrier payments between contribution-eligible and non-contribution-eligible services. In Cancom's view, inter-carrier payments should be allocated on a causal basis and, where this is not possible, they should be shared equally between contribution-eligible and non-contribution-eligible services.

Commission's determination

68.

The Commission finds that Cancom's proposed methodology to allocate its inter-carrier service payments on a causal basis is appropriate. Where it is not possible to use this methodology, the Commission finds that an allocation on the basis of the proportion of contribution-eligible revenues to non-contribution-eligible revenues would yield a more appropriate distribution of inter-carrier payments than one based on equal shares.

69.

The Commission, therefore, directs Cancom to allocate its inter-carrier payments on a causal basis and, where this is not possible, on the basis of the ratio of contribution-eligible to non-contribution-eligible revenues. The Commission also directs Cancom to provide all assumptions and calculations used to determine the inter-carrier payments that are deducted from the CTSR as part of the calculation of its contribution-eligible revenues, regardless of the approach used.

List of Affiliates and Related Companies

Cancom's position

70.

Cancom noted that, in paragraph 128 of Decision 2000-745, the Commission requires TSPs to file a list of all of their subsidiaries, affiliates and related companies. Cancom submitted that the terms subsidiary, affiliate or related company are not defined in the Act or in Decision 2000-745.

Commission's determination

71.

The Commission has adopted the practice of using the definition of subsidiaries, affiliates and related companies set out in Section 3840 of the Canadian Institute of Chartered Accountants (CICA) handbook.

72.

The Commission therefore directs Cancom to file the list of its subsidiaries, affiliates and related companies in accordance with the definition set out in the CICA handbook.

Secretary General

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