Why the Federal Court dismissed the incumbents’ CRTC internet rates appeal

The Federal Court yesterday dismissed an appeal submitted by the incumbent internet service providers last year. The appeal was filed against the Canadian Radio-television and Telecommunications Commission’s (CRTC) new wholesale internet rates that significantly lowered what incumbents are allowed to charge independent internet service providers (ISP).

Why was there an appeal?

The Federal Court’s decision was the latest development in the years-long debate between incumbents, independent ISPs, and the CRTC.

On August 15, 2019, the CRTC issued Telecom Order CRTC 2019-288, which set the final rates that incumbent ISPs (also known as the facility-based providers) are allowed to charge independent ISPs (TekSavvy, Start.ca, etc) for wholesale access and capacity rates. According to Bell’s petition, if the CRTC’s final rates take effect, then the independent ISPs would pay 42 per cent less for access and 90 per cent less for capacity. The pricing is also retroactive to 2016, meaning the incumbents will need to refund three years of overpayment to the independents.

The incumbents challenged the new rates, with a number of them submitting petitions to the Cabinet calling for the rates to be reversed. Additionally, Bell, Bragg Communications, Cogeco, Rogers, Shaw, Cablesystems and Videotron appealed to the Federal Court, arguing that the CRTC committed jurisdictional errors. Following their appeal, the Court stayed the new rates on Sept. 27, 2019.

Why the appeal was dismissed

In their submission, the incumbents argued that the CRTC committed at least one legal or jurisdictional error in issuing or during its rate-setting proceedings of the TO 2019-288. According to the decision published by the Court, the incumbents argued that the CRTC (as summarized in paragraph 52 in the decision):

  1. Breached the principles of procedural fairness and engaged in arbitrary decision-making.
  2. Failed to comply with a statutory reasons requirement.
  3. Imposed an unconstitutional tax (the retroactive payments).
  4. Failed to exercise its powers with a view to ensuring that the appellants’ rates are “just and reasonable”.
  5. Failed to exercise its powers with a view to implementing the Canadian telecommunications policy objectives set out in section 7 of the Act and the Cabinet Direction.

The respondents, consisting of the independent ISPs, said the appeal should be dismissed as it had nothing to do with law or jurisdiction and simply advanced a tax argument.

“It seemed very clear right off the bat that they were not raising legal or jurisdictional grounds,” said Andy Kaplan-Myrth, vice-president of regulatory affairs at TekSavvy. “All of their grounds for appeal were really factual matters or policy matters, and they were dressed up as legal or jurisdictional issues that they could argue to the Court.”

While the Federal Court agreed that the incumbent’s first three points could be examined in a legal context, it considered the last two points to be improper grounds of appeal as the incumbents did not cite evidence that the final rates are insufficient to cover their costs. Although Bell presented more evidence that the CRTC’s new rates are substantially higher than its costs, the Court agreed with the respondents when they claimed that the evidence was not presented to the CRTC and was therefore improperly placed before the Court.

Moreover, the Court dismissed the allegation that the CRTC violated procedural fairness and conducted arbitrary decision-making since the incumbents refused to provide company-specific data to the CRTC in several instances.

The Court also dismissed the argument that the CRTC imposed an unconstitutional tax (paragraph 210). Because the CRTC is a commission, it has the authority to determine any question of law, which includes constitutional issues. The Court found that the incumbents “provided no explanation as to why the unconstitutional tax issue was not raised before the Commission”. Therefore, the same argument could not be presented to the Court.

“As the Court said (paragraph 23 of the Decision), the areas for review of a CRTC Decision by the Court are quite limited, as contrasted with the broad scope that can be reviewed by Cabinet or the Commission itself,” wrote telecom consultant Mark Goldberg. “The Court can only look at questions of law or jurisdiction. The scope of review by the CRTC or the Governor in Council (Cabinet) is unrestricted.

“Despite the way some may characterize the Court’s determination, nothing the Court said was related to the concerns expressed by Cabinet that the CRTC’s ruling didn’t place sufficient attention to balance the importance of maintaining incentives to invest, with a special focus on improving broadband access in underserved rural and remote markets.”

The case was ultimately dismissed. The incumbents also had to pay the cost of the appeal to the members of the Canadian Network Operators Consortium (CNOC) and TekSavvy.

Full decision document here.

What happens now?

Although the stay has been lifted, the new wholesale rates are not yet instated. However, independent ISPs have renewed confidence that the new rates will come into effect soon.

“The rates that are really in effect right now are the rates from the final decision in August 2019,” said Kaplan-Myrth. “The incumbents should be expected to file their tariff pages. And we can start talking about how we will collect the retroactive amounts that are owing and start expecting to be charged those new rates going forward.”

“It’s an extremely quick decision from the Federal Court of Appeal,” said Matt Stein, chairperson of the CNOC. “It’s certainly not the end of the fight, but it’s certainly a pivotal chapter we’ve just completed.”

When the CRTC first announced the new rates in 2019, they gave the incumbents 30 days to file tariff pages. Now with the stay gone, Stein expects the incumbents to submit their respective tariff pages. In a letter published this morning, TekSavvy noted that only Telus and SaskTel have complied with the tariff page submission deadlines relative to the initial rates announcement.

As the independent ISPs wait on CRTC’s decision, Stein expects only small amendments to the rates. And as the CRTC is continuing its process to review their rates at the behest of the incumbents, Stein said further reviews could only cement the rates the CRTC had previously announced.

But both Kaplan-Myrth and Stein are thinking about the incumbents’ next move. They said they’re expecting them to cause another delay.

“The incumbents do everything that they can to delay getting to a final decision,” said Kaplan-Myrth. “I don’t see any other barrier to it [instating the rates], but I know the incumbents, too well to imagine that they won’t be able to come up with something.”

In an email to IT World Canada, a Bell spokesperson said “we’re reviewing the decision and looking at all our options.”

Rogers provided a similar statement. “We are currently reviewing the decision,” Rogers told the publication in an email.

Bell and Rogers declined IT World Canada‘s interview requests.

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Tom Li
Tom Li
Telecommunication and consumer hardware are Tom's main beats at IT Business. He loves to talk about Canada's network infrastructure, semiconductor products, and of course, anything hot and new in the consumer technology space. You'll also occasionally see his name appended to articles on cloud, security, and SaaS-related news. If you're ever up for a lengthy discussion about the nuances of each of the above sectors or have an upcoming product that people will love, feel free to drop him a line at [email protected].

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