Telecom - Procedural Letter addressed to Samer Bishay (Iristel Inc.)

Ottawa, 23 October 2020

Our reference: 8662-J64-202005595

BY EMAIL

Mr. Samer Bishay
Chief Executive Officer
Iristel Inc.
675 Cochrane Drive, East Tower, 6th Floor
MARKHAM ON  L3R 0B8
regulatory@iristel.com

RE: Application by Iristel Inc. to Review, Vary, and Stay Telecom Decision 2020-268

In Telecom Decision 2020-268^Footnote1 (Decision), the Commission modified and made interim Iristel Inc.’s (Iristel) long distance call termination rate (also known as interexchange service provider (IXSP) rate or long distance IX termination rate) from $0.038 to $0.0098125, which was to become final 90 days from the date of the decision, and to take effect retroactively to 23 November 2018^Footnote2 if Iristel had not filed, by 16 November 2020, a tariff notice supported by a Phase II cost study proposing an alternate rate.

On 2 September 2020, Iristel requested pursuant to section 62 of the Telecommunications Act (the Act) that the Commission review and vary certain aspects of the Decision and Telecom Notice of Consultation (NoC) 2020-269^Footnote3 (R&V). It also requested, on an expedited basis, a stay of the coming into force of the new IX termination rate established in the Decision, that would remain in force until such time as the Commission rules on its R&V and, in any event, until the Commission concludes the proceeding initiated by NoC 2020-131.^{Footnote4Footnote5}

The applicable test

The criteria that the Commission has generally chosen to apply to assess applications for a stay are those set out by the Supreme Court of Canada in RJR-MacDonald Inc. v. Canada (Attorney General) [1994] 1 S.C.R. 311 (RJR-MacDonald). These criteria (the RJR-MacDonald criteria) are that: a) there is a serious issue to be determined; b) the party seeking the interim relief will incur irreparable harm if the relief is not granted; and c) the balance of convenience, taking into account the public interest, favours granting the stay. To be granted a stay, an applicant must demonstrate that its application meets all three criteria.

Is there a serious issue to be determined?

The Commission finds that Iristel meets the first criterion of the test given that there is a serious question to be determined concerning the modification of Iristel’s IX termination rate and the stay request is neither vexatious nor frivolous.

Will Iristel suffer irreparable harm if the stay is not granted?

Iristel argued that it would suffer irreparable harm due to: 1) the costs of conducting a Phase II cost study; 2) the possibility that any such cost study may be wasted depending on the outcome of NoC 2020-131; and 3) its inability to recover underpaid amounts from carriers incentivized to deploy facilities in the North and interconnect directly with it.

TELUS Communications Inc. (TCI) submitted that Iristel would not suffer irreparable harm because: a) the costs of a Phase II cost study costs are not unquantifiable and are the cost of doing business, particularly for a wholesale service provider; b) if the interim modified IX termination rate remains interim until the R&V is decided, any underpayments by carriers will not be unrecoverable by Iristel, as the Commission can issue a decision on the final rate with retroactive effect; and c) it would take considerable time and significant capital expenditures to deploy facilities in the North, and it would be economically irrational for any carrier to do so on the basis of an interim rate that is subject to change.

Commission’s analysis and determination

The threshold for irreparable harm is high.^Footnote6 An applicant must demonstrate that the harm is real, definite, unavoidable, and cannot be repaired later.^Footnote7 Harm is also more likely to be irreparable when there is a loss that is unquantifiable, that the applicant may not be able to recover, or that a final order may not be able to redress.

With respect to Iristel’s first argument, Iristel may suffer irreparable harm if: a) the stay is not granted; b) Iristel incurs the expense of a Phase II cost study; and c) the Commission eventually restores Iristel’s tariffed IX termination rate to match Northwestel’s tariffed CAT rate of $0.038 in the R&V decision. In those circumstances, the harm would be real, definite, unavoidable, and could not be repaired later as the cost study expense, although quantifiable, would have been unnecessary and Iristel would be unable to recover it.

This finding is unique to the specific circumstances of this case. The costs of preparing a Phase II cost study are generally considered a cost of doing business, and would not in every case constitute irreparable harm. Nonetheless, the Commission has generally permitted the use of proxies by non-incumbent or smaller companies specifically because it can be extremely difficult and resource intensive for them to conduct such studies when their staff have little experience doing so. In the present case, requiring Iristel, to conduct a Phase II cost study before the R&V is decided could amount to irreparable harm.

Iristel’s second argument is speculative and the Commission does not consider that Iristel would suffer irreparable harm absent the granting of a stay as the outcome of the NoC 2020-131 proceeding is unknown and the Commission may or may not make any modifications to its costing methodology and, if it does, it is uncertain to which entities such changes would apply as well as how the transition would occur.

Iristel’s third argument concerning carriers deploying facilities in the North is very speculative since it would be economically irrational for any carrier to incur the financial risk of doing so to take advantage of a rate subject to change.

Accordingly, Iristel has met the second criterion in part. It has demonstrated that it would suffer irreparable harm regarding specifically the filing of a tariff notice supported by a Phase II cost study if the stay is not granted. However, Iristel has not met the second criterion with respect to the interim rate as it has not demonstrated that it would suffer irreparable harm if the modified interim rate is kept in place pending a decision on the R&V.

Does the balance of convenience favours granting the stay?

Iristel submitted that no carrier has directly interconnected with it in the North and thus no carrier is currently paying its tariffed IX termination rate; therefore, no party is prejudiced by the status quo (i.e., maintaining the rate of $0.038 as prior to the Decision). It stated that, in contrast, as described above, it will suffer irreparable harm if a stay is not granted.

Iristel submitted that if carriers do start interconnecting with it pursuant to the modified interim IX termination rate, it will have no choice but to find means to offset the loss, which may include higher prices for consumers in the North and/or reducing investments in Northern communities. Iristel argued that this outcome would not be consistent with the public interest and thus a stay should be granted so that Iristel may make its case as to why the Commission seriously erred in its conclusions in the Decision.

TCI noted that the Commission has found Iristel to have engaged in traffic stimulation not once, but twice, and one of those findings was not under review.^Footnote8 TCI noted that the Commission determined that the IX termination rate of $0.038 was the incentive for the form of arbitrage identified at paragraph 60 of the Decision. TCI argued that it was not in the public interest to allow the opportunity for significant arbitrage to continue unabated. In its view, the Commission ought to err on the side of the measure that is more likely to discourage further traffic stimulation. TCI submitted that for this reason, the modified interim IX termination rate of $0.0098125 must remain in place until a final decision on the R&V.

Commission’s analysis and determination

Under the balance of convenience criterion, an assessment is made as to which of the parties would suffer greater harm from the granting of the stay request. In addition, either party may raise arguments regarding harm caused to the public interest.

Since all three criteria of the RJR-MacDonald test must be met, and given that Iristel has only met the second criterion regarding the filing of the tariff notice supported by a Phase II cost study, the balance of convenience criterion would only need to address that issue. Nevertheless, the Commission also provides an analysis regarding maintaining the modified IX termination rate.

Iristel would suffer the greater harm if it did file the Phase II cost study and it was ultimately successful on its R&V. In that case, the cost study would have been unnecessary and Iristel would be unable to recover the costs. Further, TCI would not suffer any harm if Iristel is not required to file the cost study before the Commission makes a decision on the R&V.

The public interest also favours granting the stay with respect to filing the Phase II cost study, as there is no harm to the public interest in extending the deadline that Iristel has to file the Phase II cost study until further notice.

Accordingly, with respect to the filing of the Phase II cost study, Iristel has met the third criterion, as it would suffer the greater harm if it were required to file the cost study before a decision on the R&V and considerations of public interest support this view.

Regarding maintaining the modified IX termination rate, if, as Iristel states, no party is paying the IX termination rate, no party is harmed by maintaining the modified interim rate. The argument that Iristel will have no choice but to find means to offset the loss, which may include higher prices for consumers and/or reducing investments, if carriers do start interconnecting with Iristel pursuant to the modified interim IX termination rate, is highly speculative.

Iristel has failed to demonstrate that carriers intend to interconnect while using the modified interim IX termination rate, and there is no clear link, or none was demonstrated, between carriers using the new interim rate and Iristel’s need to curtail its investments or increase consumer prices in the North. Therefore, the impact on consumers of maintaining the modified interim IX termination rate has not been demonstrated.

On balance, the Commission considers that the public interest favours maintaining the modified rate pending a decision on the R&V which also contributes to regulatory certainty. The Decision addressed, among other things, serious issues in relation to Iristel’s IX termination rate and the stimulation of traffic to area code 867 in the North benefiting Iristel to the detriment of other service providers. Maintaining the modified interim rate will allow for a fulsome examination of the R&V while avoiding interjecting additional uncertainty regarding Iristel’s IX termination rate.

Should the Commission implement a modified test?

Iristel requested that if the Commission finds that it does not meet the irreparable harm component of the RJR-MacDonald criteria, the significant public interest at stake justifies using the modified test^Footnote9 for a stay. TCI opposed using the modified test.

Commission’s analysis and determination

The circumstances of the modified test stemmed from determinations in Telecom Regulatory Policy 2015-326^Footnote10 and Telecom Decision 2016-379,^Footnote11 which were the results of an extensive review of the regulatory framework for wholesale wireline services, and involved broad policy considerations impacting multiple stakeholders. That case can be distinguished from the present one since the dispute underlying Iristel’s stay request is mainly a bilateral one between that company and TCI which does not involve primarily broad policy considerations impacting an extensive number of parties. Therefore, there are no special or unique circumstances in Iristel’s stay request that would warrant a departure from the Commission’s general practice and implement the public interest test used in the modified test.

Summary of Commission’s determinations

Given all of the above, and based on the RJR-MacDonald criteria, the Commission denies Iristel’s stay application regarding the modification of the IX termination rate and approves the stay application regarding an extension to the deadline to file a tariff notice with a Phase II cost study until the Commission provides further direction. For greater certainty, Iristel’s IX termination rate of $0.0098125, modified effective the date of the Decision, will remain interim until the Commission provides further notice.

Policy Directions

In arriving at these determinations, the Commission considered the 2006 Policy Direction^Footnote12 and the 2019 Policy Direction.^Footnote13 The 2006 Policy Direction requires that the Commission rely on market forces to the maximum extent feasible and regulate, where there is still a need to do so, in a manner that interferes with market forces to the minimum extent necessary to meet the policy objectives of the Act; and that the Commission, when relying on regulatory measures, specify the policy objective that is advanced by those measures. Its present recommendations serve to further the achievement of the policy objectives set out in paragraphs 7(a), (b), (c), and (f) of the Act.^Footnote14

The Commission’s determination that Iristel’s interim IX termination rate of $0.0098125 remain interim pending disposition of the R&V is consistent with the 2006 Policy Direction. In compliance with subparagraphs 1(b)(ii), the Commission considers that the measure to maintain on an interim basis Iristel’s modified IX termination rate until further notice allows the Commission to review the adequacy of that rate, if necessary, without any further changes to the interim rate. This measure neither deters economically efficient competitive entry into the market nor promotes economically inefficient entry.

The 2019 Policy Direction provides that when the Commission is exercising its powers and performing its duties under the Act, it should consider how its decisions can promote competition, affordability, consumer interests, and innovation. The Commission must also demonstrate how its decisions conform to the Policy direction.

In compliance with subparagraph 1(a)(iii) of the 2019 Policy Direction, the Commission considers that the regulatory measure set out above – specifically, the continuation of an modified interim IX termination rate for Iristel – ensures that affordable access to high-quality telecommunications services is available in all regions of Canada and advances the policy objectives set out in the Act, as referenced above. Furthermore, an orderly telecommunications system which allows all calls to be routed and completed in an efficient manner and does not incent traffic stimulation that benefits one telecommunications carrier over others is in the public’s interest.

In light of the above, the Commission considers that its determinations will promote investment, competition, affordability, and innovation.

Sincerely,

Original signed by

Claude Doucet
Secretary General

c.c.:  Tacit Law Regulatory, regulatory@tacitlaw.com
Public Interest Advocacy Centre, jlawford@piac.ca
Competitive Network Operators of Canada, regulatory@cnoc.ca
Rogers Communications Canada Inc., rwi_gr@rci.rogers.com
Stephen Schmidt, TELUS Communications Inc.,regulatory.affairs@telus.com
Marc Lange, marc8lange@gmail.com
ZenoRadio bh@zenoradio.com

Date modified:

2020-10-23