In the hearing of two related appeals, the Court upheld the decision of the Respondent Canadian Radio-television and Telecommunications Commission (the “CRTC”) to make directions with respect to deferred funds of telecommunications carriers

Administrative law – Decisions of administrative tribunals – Canadian Radio-Television and Telecommunications Commission – Regulation of rates – Disposition of deferral accounts – Judicial review – Compliance with legislation – Standard of review – Reasonableness simpliciter

Bell Canada v. Bell Aliant Regional Communications, [2009] S.C.J. No. 40, Supreme Court of Canada, September 18, 2009, McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell JJ.

In 2002, the Canadian Radio-television and Telecommunications Commission (the “CRTC”) established a formula to regulate the maximum prices that could be charged by carriers for certain services including residential phone services in rural areas (the “Price Caps Decision”). As part of the formula, carriers were required to keep separate ledgers recording the difference between the rates actually charged and the rates required by the formula. The difference was called the “Deferral Accounts”.

In 2003, Bell Canada (“Bell”) sought approval from the CRTC to use the funds in its deferral account to expand high-speed broadband internet services in remote areas. The CRTC considered this issue and, in 2006, ordered that the deferral account funds should be used to improve access to services for people with disabilities and for broadband expansion (the “Deferral Accounts Decision”). The CRTC further ordered that any residual funds were to be distributed to current subscribers as a one-time credit.

Bell Canada (and TELUS Communications Inc.) appealed the Deferral Accounts Decision, taking issue with the order that carriers distribute one-time customer credits. The Consumers’ Association of Canada (the “Association”) and National Anti-Poverty Organization (the “Organization”) appealed the CRTC decision and focused their appeal on the direction that the funds be used to expand broadband services. The Federal Court of Appeal dismissed both of the appeals and both appellants appealed that decision to the Supreme Court of Canada. The Court heard the appeals together.

The Court reviewed the relevant provisions of the Telecommunications Act, which give the CRTC considerable discretionary powers to determine whether a rate is just and reasonable. The Act also gives the CRTC broad powers to order a carrier to adopt “any accounting method or system of accounts” in line with the proper administration of the Act. The Deferral Accounts Decision involved the CRTC’s exercise of its specialized authority and the standard of review was reasonableness.

Bell argued that the CRTC did not have the authority to change “final” rates and order that the funds in the deferral accounts were to be distributed as “rebates” to customers. TELUS also added the argument that the Deferral Accounts Decision constituted a confiscation of its property. The Court rejected the Bell and TELUS arguments and held that the funds did not ultimately belong to the carriers and were not “final” rates but were always understood to be encumbered revenues subject to future CRTC directions.

In the Association and Organization appeal, the issue was whether the rates charged by carriers were just and reasonable since the Association and Organization argued that the users of one service (residential subscribers in certain areas) were forced to subsidize users of another service (future users of broadband services). The Association and the Organization argued this was an indication that the rates charged to residential customers was not just and reasonable and, therefore, the balance in the deferral accounts should be paid to customers.

The Court held that the deferral accounts ensured that the rates were just and reasonable. The Act contemplates a national telecommunications framework and the CRTC does not have to consider only the service at issue in determining whether rates are just and reasonable. The CRTC is authorized to determine a tolerable level of cross-subsidization between services.

The Court dismissed the appeals.

This case was digested by Scott J. Marcinkow of Harper Grey LLP. If you would like to discuss this case further, please feel free to contact him directly at smarcinkow@harpergrey.com or review his biography at http://www.harpergrey.com.

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