ARCHIVED - Telecom Decision CRTC 2003-41

Telecom Decision CRTC 2003-41

Ottawa, 20 June 2003

Aliant Telecom Inc. - Part VII application with respect to late payment charges

Reference: 8622-A53-01/02

In this decision, the Commission denies an application by Aliant Telecom Inc. requesting that the Commission find that late payment charges (LPCs) are not a telecommunications service or, in the alternative, if LPCs are found to be a telecommunications service, that the Commission forbear from regulating LPCs.

1.

The Commission received an application by Aliant Telecom Inc. (Aliant Telecom), dated 6 March 2002, filed pursuant to Part VII of the CRTC Telecommunications Rules of Procedure requesting that the Commission confirm, by order, that late payment charges (LPCs) are not a "telecommunications services" within the meaning of the Telecommunications Act (the Act), or in the alternative, that, pursuant to section 34 of the Act, the Commission forbear from regulating LPCs.

2.

The Commission received comments from Action Réseau Consommateur, the Consumers' Association of Canada, the Fédération des associations coopératives d'économie familiale, and the National Anti-Poverty Organization (ARC et al.) dated 13 March 2002, TELUS Communications Inc. (TCI) dated 14 March 2002, and Call-Net Enterprises Inc. on behalf of itself and GT Group Telecom Services Corp. (Call-Net et al.) dated 5 April 2002. Aliant Telecom filed reply comments dated 16 April 2002.

Issue 1: Whether LPCs are telecommunications services

Aliant Telecom's application

3.

Aliant Telecom submitted that LPCs were not a "telecommunications service" within the meaning of sections 2 and 23 of the Act.

4.

With respect to section 2 of the Act, Aliant Telecom noted that the definition referred to a service provided by means of telecommunications facilities, and submitted that LPCs amounted to the extension of credit by the company, and, hence, did not come within that definition.

5.

Aliant Telecom submitted that the issue as to whether LPCs came within the meaning of section 23 of the Act raised two questions: first, whether LPCs were incidental in nature; and second, if they were, whether they were incidental to the business of providing telecommunications services.

6.

With respect to the first question, Aliant Telecom submitted that LPCs were incidental in nature because they pertained to the extension of credit to customers, which was incidental to the principal business of the company.

7.

With respect to the second question, Aliant Telecom submitted that LPCs were cash management tools commonly used by many different types of commercial businesses and, hence, were not part of the essence of a telephone business. Aliant Telecom further submitted that while LPCs are incidental to the conduct of commercial business activities, they are not specifically incidental to the provision of telecommunications, and, hence, are not a "telecommunications service" within the meaning of section 23 of the Act.

8.

Aliant Telecom submitted that there are many credit facilities available to its customers with respect to the payment of their telephone bills, and that the company should be free to manage its credit activities without being subject to regulated credit conditions.

9.

Aliant Telecom submitted that the current regulation of LPCs could be due to historical practice under the Railway Act, the predecessor legislation to the Act. Aliant Telecom further submitted that precedents established under the Railway Act had very little relevance to the current telecommunications environment as the industry was then regulated as a monopoly, and the Commission did not have the power to forbear under the Railway Act. Aliant Telecom also argued that the current definitions in the Act supersede the requirements of the Railway Act or any historical practices.

Position of interveners

10.

ARC et al. and Call-Net et al. submitted that LPCs constitute a "telecommunications service" within the meaning of section 23 of the Act. In this regard, ARC et al. submitted, among other things, that LPCs, like security deposits, were clearly incidental to the provision of telephone service. ARC et al. argued that when LPCs were automatically applied by the telephone service provider, they were merely one aspect of the price paid for telephone service.

11.

ARC et al. and Call-Net et al. submitted that the Commission's previous rulings supported their position that LPCs are incidental to the provision of telephone service and, hence, a "telecommunications service" within the meaning of the Act. Among the rulings relied on by Call-Net et al. was Telecom Order CRTC 94-876, 27 July 1994, specifically the finding by the Commission that the provision of liability insurance to certain sharing groups by BC TEL and Manitoba Telephone System constituted the provision of a telecommunications service.

12.

ARC et al. submitted that their position was consistent with the approach used by the Commission in Bell Canada - Provision of telephone directory data base information in machine-readable form, Telecom Decision CRTC 90-12, 14 June 1990 (Decision 90-12) to determine whether a service was "incidental to a telephone business", and, hence, a "toll" within the meaning of the Railway Act. ARC et al. stated that the Commission's approach set out in Decision 90-12, where it found that the provision of subscriber listing information by Bell Canada to Tele-Direct was a service "incidental to a telephone business" within the meaning of the Railway Act, was to consider the extent to which the service in question engaged fundamental elements of the telephone system and the relationship that the service in question bore to the essential nature of the telephone business. ARC et al. argued that, like directory databases, LPCs are used and relied upon by Aliant Telecom in the normal course of its business as a telecommunications service provider, and that to the extent that billing is a fundamental element of the telephone system, LPC are, if not a "telecommunications service" within the meaning of section 2 of the Act, at least "incidental to the business of providing telecommunications services" within the meaning of section 23 of the Act.

13.

In support of their position, Call-Net et al. relied on British Columbia Telephone Co. v. Canadian Radio-television and Telecommunications Commission, [1979] F.C.J. No. 407, May 30 1979 (BC Tel v. CRTC), a unanimous decision of the Federal Court of Appeal that upheld the Commission's finding in In the matter of a proposed charge by British Columbia Telephone Company (BC Tel) respecting receipt of NSF cheques, Telecom Order CRTC 79-32, 9 February 1979 (Order 79-32), that a charge for insufficient funds was a "toll" within the meaning of the Railway Act. Call-Net et al. noted that, in that decision, the Court had stated:

We are all of the view that the $5.00 charge here in question is a toll within the meaning of the Railway Act. If the appellant were to impose such a charge, it would, in effect, require from its customers, as a condition for the continuation of its telephone services, that those customers promise to pay the charge. Such a promise, as we see it, would be given by the customers in consideration for the telephone services of the appellant and, for that reason, would be a promise to pay a toll or charge.

14.

Call-Net et al. submitted that the definition of a "toll" and a "telephone toll" under the Railway Act was very similar to the definition of a "telecommunications service" under the Act. Call-Net et al. further submitted that LPCs were similar to charges for insufficient funds that were the subject of the Federal Court of Appeal's decision in BC Tel v. CRTC, and were credit facilities provided in consideration of a customer's promise to pay the charge. These parties argued that customers give such a promise in consideration of the telecommunications services provided by Aliant Telecom and not for any financial services received from the company. Call-Net et al. submitted that, therefore, LPCs were rates charged in respect of telecommunications services.

15.

Call-Net et al. also submitted that LPCs were financing charges or monetary consideration in return for extending the period during which a customer could pay for the telecommunications services provided. In addition, Call-Net et al. argued that any monetary consideration charged in respect of the delivery of telecommunications services, including a monetary consideration levied as a financing charge in respect of late payment of the bill for the service, was a "rate" within the meaning of sections 2 and 25 of the Act.

16.

Call-Net et al. also submitted that the Commission had asserted jurisdiction over bill management tools (BMTs) in Local service pricing options, Telecom Decision CRTC 96-10, 15 November 1996 (Decision 96-10), by directing the incumbent local exchange carriers (ILECs) to file tariffs for a number of BMTs, including instalment payment plans. In Call-Net et al.'s view, LPCs were similar to payment instalments, and were clearly subject to the Commission's jurisdiction.

Aliant Telecom's reply

17.

Aliant Telecom submitted that the rulings under the Railway Act, and the Federal Court of Appeal's decision, relied on by ARC et al. and Call-Net et al., were of minimal relevance as they were made under very old legislation, which did not provide for forbearance and in the context of a monopoly telecommunications environment that no longer existed.

18.

In Aliant Telecom's view, it was no longer reasonable for a regulatory body to regulate LPCs affecting one segment of the company's business when services provided by most other segments of the company were fully competitive and forborne.

19.

Aliant Telecom submitted that a plain reading of section 23 of the Act suggested that there must be a threshold at which an activity either is, or is not, incidental to the business of providing telecommunications services. The company further submitted that the test for that threshold must be whether there is a rational and functional connection to the operation of the telephone system. Because they are cash management and credit tools employed by many government and commercial entities, Aliant Telecom argued that LPCs could not be reasonably viewed as having a rational and functional connection to the operation of the telephone system.

20.

With respect to the application of the Commission's approach in Decision 90-12, Aliant Telecom submitted that because LPCs are cash flow and credit management tools commonly used by many commercial and government entities, they do not engage fundamental elements of the telephone system or relate to the essential nature of the telephone business.

Commission's analysis and determinations

21.

The Commission notes that LPCs have historically been considered to be telecommunications services and are currently charged by ILECs pursuant to tariffs approved by the Commission.

22.

Section 2 of 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".

23.

Section 23 of the Act provides that "telecommunications service", for the purposes of Parts III and IV of the Act, which are the relevant Parts for the purpose of this decision, "has the same meaning as in section 2 and includes any service that is incidental to the business of providing telecommunications services".

24.

The Commission notes that in Order 79-32, it found that charges for NSF cheques came within the meaning of a "telephone toll" or "toll" as defined in the Railway Act, and, hence, could only be applied pursuant to a tariff approved by the Commission.

25.

The Commission further notes that in BC Tel v. CRTC, the Federal Court of Appeal upheld Order 79-32.

26.

The Commission notes that the above rulings were made within the framework of the Railway Act, where the issue was whether a particular service came within the definition of a "telephone toll" or "toll" in section 2 of the Railway Act, which read as follows:

Any toll, rate or charge to be charged by any company to the public or to any person, for the use or lease of a telephone system or line or any part thereof, for the transmission of a message by telephone, for installation and use or lease of any instruments, lines or apparatus attached to, or connected or interconnected in any manner whatever with, a telephone system, for any services provided by the company through the facilities of a telephone system or for any service incidental to a telephone business;

27.

The Commission further notes that in interpreting the meaning of the words "service incidental to a telephone business" under the Railway Act, in Decision 90-12, it stated that:

The Commission's approach has been to consider the extent to which the service in question engages fundamental elements of the telephone system or the relationship that the service in question bears to the essential nature of the telephone business. The greater the degree to which the service in question involves components or facilities fundamental to the provision of telephone services and the more closely related the services may be to those generally provided by telephone systems, the more likely is the service to be one contemplated by the definition of "toll" in the Railway Act.

28.

In the Commission's view, although Order 79-32 and the subsequent Federal Court of Appeal ruling were made under the Railway Act, they are relevant in this proceeding. In this regard, the Commission considers that the difference between section 2 of the Railway Act, which refers to "any service incidental to a telephone business", and section 23 of the Act, which refers to "any service that is incidental to the business of providing telecommunications services", is not material with regard to LPCs. Accordingly, the Commission considers that it is appropriate to have regard to its previous interpretations of section 2 of the Railway Act when interpreting section 23 of the Act.

29.

The Commission considers that a finding that LPCs is a "telecommunications service" would be consistent with the Federal Court of Appeal's reasoning upholding the Commission's ruling that a charge for insufficient funds was a " toll" within the meaning of section 2 of the Railway Act. Like a charge for insufficient funds, in the case of LPCs, a telephone company would, in the words of the Federal Court of Appeal, "require from its customers, as a condition for the continuation of its telephone services, that those customers promise to pay the charge."

30.

The Commission is not persuaded that a service must be specifically incidental to the provision of telecommunications services in order to come within the definition of a "telecommunications service" under section 23 of the Act. In the Commission's view, the mere fact that LPCs are used by many commercial enterprises does not mean that they are not incidental to the business of providing telecommunications services.

31.

With respect to the application of the framework set out in Decision 90-12 referred to above, the Commission notes that LPCs are not stand-alone services, but are used and relied upon by telephone companies as an integral aspect of the billing mechanism they use in the normal course of their business as providers of telecommunications services to the public. Accordingly, the Commission considers that, to use the words of Decision 90-12, LPCs engage fundamental elements of the telephone system, and are very closely related to the essential nature of the telephone business.

32.

In light of the above, the Commission finds that LPCs are "incidental to the business of providing telecommunications services", and thus constitute a "telecommunications service" within the meaning of section 23 of the Act. Accordingly, the Commission denies Aliant Telecom's request for an order confirming that LPCs are not a "telecommunications service" within the meaning of the Act.

Issue 2: Whether the Commission should forbear from regulating LPCs

Aliant Telecom's application

33.

Aliant Telecom submitted that, if the Commission were to determine that LPCs were a "telecommunications services", the Commission should forbear from regulating LPCs pursuant to section 34 of the Act.

34.

In support of its application, Aliant Telecom relied on the forbearance criteria identified by the Commission in Review of regulatory framework, Telecom Decision CRTC 94-19, 16 September 1994 (Decision 94-19). Aliant Telecom also submitted that its request for forbearance was consistent with various Canadian telecommunications policy objectives set out in section 7 of the Act.

35.

Aliant Telecom submitted that the relevant market to be considered in determining whether forbearance was appropriate was the overall credit market in its operating territory. Aliant Telecom submitted that there was active competition in this market given that there were numerous institutions that could provide credit and provide substitutes for the company's LPC finance charges, including banks, credit unions, credit card providers, savings and loan companies and similar lending institutions. Aliant Telecom also submitted that retail credit cards and other billing arrangements were available, and that consumers could switch at almost no cost between alternative credit suppliers.

36.

Aliant Telecom argued that the company accounted for an insignificant market share of the credit market in its operating territory, and that credit financing was not Aliant Telecom's core business.

Position of interveners

37.

TCI supported Aliant Telecom's application for forbearance and proposed that forbearance should be extended simultaneously to other carriers whose LPCs were subject to tariff approval.

38.

ARC et al. and Call-Net et al. opposed Aliant Telecom's forbearance request. In this regard, ARC et al. submitted that consumers generally did not choose to forego paying their utility bills, and that failure to pay was either a matter of oversight or inability to pay. ARC et al. submitted that not all customers had credit alternatives, and many did not qualify or have access to credit arrangements such as credit cards, accounts at financial institutions or personal loans. ARC et al. further submitted that personal loans were not an alternative for paying telephone bills, as considerable effort and expense were incurred in arranging such loans.

39.

Call-Net et al. submitted that the general credit market was a poor substitute for carrier-provided late payment arrangements because credit facilities were not available to all customers, and interest rates were too high for many customers. Call-Net et al. further submitted that, while alternative credit providers derived their primary profit from interest rates, carriers' LPC revenues were only incidental to their primary source of profit, and that, therefore, they did not need to have interest rates as high as those charged by alternative credit providers.

40.

Call-Net et al. also argued that Aliant Telecom had failed to properly identify the relevant market in respect of which forbearance should be assessed. They submitted that the relevant market in these circumstances was the market for the telecommunications services in respect of which the rate was charged. In Call-Net et al.'s view, forbearance applied to the underlying service as a whole, not merely to the rates charged for the service. Call-Net et al. further argued that it was not open to the Commission to forbear from LPCs if the telecommunications services, in respect of which the LPCs were billed, were not forborne or were not eligible for forbearance.

Commission's analysis and determinations

41.

In Decision 94-19, the Commission established an analytical framework for determining whether or not it should forbear with respect to a service or a class of services pursuant to section 34 of the Act. The first step in the analysis involves a determination of the relevant market.

42.

The Commission notes that parties disagreed as to what is the relevant market for the purpose of determining whether forbearance in this case is justified. In the Commission's view, the appropriate starting point in the determination of the relevant market in the circumstances of this case is Decision 96-10.

43.

In Decision 96-10, the Commission addressed affordability of local exchange service. In doing so, the Commission examined the appropriateness of BMTs, such as instalment payment plans and LPCs, because of their impact on the affordability of local exchange service and on subscribers' access to, and ability to remain on, the telephone network. Given the close relationship between LPCs and the provision of local exchange service, the Commission considers that, in the circumstances of this case, the relevant market for the purpose of considering Aliant Telecom's forbearance application is the local exchange service market in the company's territory. Based on the foregoing, the Commission considers that Aliant Telecom's application effectively constitutes an application for partial forbearance from the regulation of the company's local exchange service.

44.

The Commission notes that Aliant Telecom did not submit an analysis of the local exchange market to support its application. Further, the Commission notes that in its second monitoring report, Report to the Governor in Council: Status of Competition in Canadian Telecommunications Markets - Deployment/Accessibility of Advanced Telecommunications Infrastructure and Services, December 2002, it found that in 2001, the company's market share was an average of 98.06% of the local lines in the company's serving territory. Given Aliant Telecom's considerable market power, the Commission finds that there would be insufficient competition to protect the interests of users if LPCs in the company's territory were deregulated. Accordingly, the Commission denies Aliant Telecom's application that the Commission forbear from regulating the company's LPCs.

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