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Legal Opinion of Barbara A. Cherry, J.D., Ph.D.


In CRTC Telecom Notice 2010-43 Obligation to Serve
INTRODUCTION
Classifying a firm or industry under the heading public service impose[s] an explicit set of
obligations on that firm or industry. In this respect the public service concept differs from other types
of regulation and has important policy consequences (Stone, 1991, p. 28). These obligations include
the duty to serve.

In CRTC Telecom Notice 2009-575 (par. 3), the Commission described the

obligation to serve as including the obligation to provide service to: existing customers; new customers
requesting service where the carrier has facilities (including the requirement to act as carrier of last
resort); and new customers requesting service beyond the limits of the carrier's facilities.
There is an important common law history underlying designation of a firm or industry that
bears the obligation to serve. It is critical that this legal history be properly understood and interpreted
in order to guide the Commissions consideration of the obligation to serve in the present proceeding.
The common law history of the obligation to serve has often been misunderstood. Some
modern commentators focus on a modern concept of economic criteria and overlook the importance of
the historical social criteria for imposing this special obligation on an industry or firm. In particular,
some erroneously interpret legal history by claiming that common law imposition of a duty to serve
requires the existence of monopoly. As will be discussed, under the common law the imposition of the
duty to serve was originally, and often continues to be, independent of the existence of monopoly.1
Furthermore, the legal history shows that the scope of the duty to serve has evolved over time.
Public service companies must serve not only within existing capacity, but also have an affirmative
obligation to extend their facilities within their service area and usually have a barrier to exit. History
also shows that industries to which the common law duty to serve may be imposed changes over time,
such as due to changes in transportation and communication technologies. During the nineteenth
century, the common law duty to serve was imposed on new technologies such as railroads, telegraphy,
telephony, as well as gas and electric utilities. The extension of the duty to serve to new technologies
and services is relevant to inquiry as to whether the duty should be extended to broadband service.

This is true however monopoly is defined actual, natural, virtual or practical.

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Michael H. Ryans (2010) legal opinion submitted in this proceeding reflects some of the
misunderstandings of other commentators. The most fundamental error throughout his analysis is the
claim that the common law obligation to serve requires a practical monopoly. This claim arises from
a misinterpretation and misapplication of foundational Canadian and U.S. cases, Chastain v. British
Columbia Hydro and Power Authority, (1973), 32 D.L.R. (3d) 443, [1973] 2 W.W.R. 481
(Chastain), and Munn v. Illinois, 94 U.S. 113 (1876), respectively.2

It is also a factual

misrepresentation of the common law, even for the telecommunications sector itself because both
telegraph and telephone systems were considered public service companies during competitive eras.
Ryans opinion also appears to conflate the common law of common carriers and public utilities.
Telecommunications carriers are both common carriers and public utilities under the common law, and
failure to appreciate the dual classification is likely to misdirect inquiry in this proceeding. Finally, in
my view, Ryans conclusions as to whether a carrier may be required to provide broadband service is
inconsistent with both the common law and the contextual analysis required by Metcalfe Telephones
Limited v. McKenna et al, [1964] S.C.R. 202, 43 D.L.R. (2d) 415, reversing (1963), 85 C.R.T.C. 157
(B.T.C.). For all the foregoing reasons, I disagree with some of Ryans conclusions, which are
articulated with specificity throughout my opinion.
The structure of my opinion is organized as follows. To most effectively demonstrate the
fundamental error flowing throughout Ryans analysis (his claim that the common law obligation to
serve requires a practical monopoly), it is necessary to start with an examination of the common law
origins of the duty to serve. Awareness of this foundational legal history is critical for correctly
interpreting more modern Canadian case law, and in particular Chastain which is the case on which
Ryan most directly relies. Therefore, my analysis starts in Section 1 with a review of the origins and
subsequent evolution of the common law duty to serve as well as a brief discussion of statutorily
imposed duties to serve. Section 2 then examines the correct interpretation of Chastain and Munn v.
Illinois, and explains why Ryans analysis is a misinterpretation and misapplication of these cases.3

Chastain briefly describes some aspects of the ancient English common law duty to serve, but then directs the
reader to the U.S. Supreme Courts examination in Munn v. Illinois of the historical roots of this principle that
the United States and Canada have applied in common.
3
Section 2 also discusses a second U.S. Supreme Court case, Nebbia v. New York, 291 U.S. 502 (1934), that
clarifies how to correctly interpret Munn v. Illinois.

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Section 3 explains why Ryans claim of practical monopoly is factually inaccurate for the

telecommunications industry itself, and a why a duty to serve is consistent with regulatory policy based
on competition and forbearance. Section 4 discusses the evolution of the scope of the duty to serve to
require extension of facilities within an existing service area in order to preclude selective refusals to
serve customers. It discusses the necessity of contextual evaluation of circumstances in enforcing such
a duty under Metcalfe Telephones Limited v. McKenna, and why Ryans conclusions as to broadband
are inconsistent with this case. Section 4 concludes with discussion of the evolution of the scope of the
duty to serve to include a barrier to exit (prior regulatory agency approval to discontinue service or
abandon facilities), and the challenges of applying the carrier of last resort obligation in a competitive
environment.

1. THE COMMON LAW OBLIGATION TO SERVE


1.1. Origins During Feudalism: Public Callings
From medieval times under English common law, public callings (or common callings) bore
unique obligations under tort law merely by virtue of their status as public employments. Public
callings were simply undertakings to serve the public,4 unlike the performance of services within the
feudal relation of lord to man that was considered private employment. During the medieval period,
the state of society was so primitive that most economic activities were conducted in the context of
private rather than public employments (Burdick, 1911, p. 522). Moreover, public employments bore
obligations as a matter of law under tort law, as the common law of contract did not yet exist.5
Public callings included not only common carriers and innkeepers, but also other occupations
such as blacksmiths, surgeons, tailors, barbers, bakers and ferrymen.6 The tort obligations of public
callings are a duty to serve all upon reasonable request without unreasonable discrimination at a just
and reasonable price and with adequate care.7

The tort obligations borne by public callings were

The term common calling meant that the practitioner of an occupation (1) performed the occupation as a
means of livelihood and (2) held himself out to serve the public at large, as distinct from performing the services
exclusively under private arrangements (Payton, 1981, p. 147 n. 1).
5
For a discussion that the common law obligations of public callings arose under the English common law of
tort, see Cherry (1999), pp. 8-10. See also Burdick (1911), at pp. 516-517.
6
For a discussion of public callings, see generally Adler (1914).
7
See Adler (1914) at pp. 159-161; Stone (1991), at pp. 29-30; Payton (1981), pp. 122-136, 144.

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based solely on their status as public employments and not on the existence of monopoly.8

Unfortunately, modern commentators have inappropriately attributed the public callings duty to serve
to the existence of a virtual monopoly.
Some modern commentators have attributed the duty to serve to the fact that the
innkeeper, the smith, and the common carrier have a virtual monopoly vis--vis their
individual customers. Although the concept of virtual monopoly may appeal to the
modern mind because it makes imposition of the duty to serve economically rational,
we should recognize that contemporaries would have been baffled by such an
explanation. The monopoly theory does not account, however, for the other bases of
the duty in cultural expectations and public policy that can plainly be seen underlying
the law. (Payton, 1981, pp. 130-131, footnote omitted).
The duty to serve was imposed under local custom, or custom of the realm (Payton, 1981, pp. 123131). In addition, one of the grounds underlying the common law obligations of innkeepers,
blacksmiths and common carriers is that they were essential to travelers, a uniquely vulnerable class
of people whose safety and well-being were important for the good of the realm (Payton, 1981, p.
130).

1.2. Transition to Capitalism: Survival of Common Law Duty for Some Public Callings
During the latter part of the seventeenth century, most trades began to do business as public
employments, so the concept of a public calling began to lose its significance (Stone, 1991, pp. 29-30;
Burdick, 1911, p. 522). By the end of the eighteenth century [i]n ordinary trades there ceased to be
any need for a distinction between the common and the private exercise of trade (Adler, 1914, p. 157,
emphasis in original). Although the original economic reasons for the idea of common calling
disappeared, the concept underwent an important transformation (Stone, 1991, p. 29).9
Certain kinds of businesses, most notably common carriers by land and water and
innkeepers, were treated differently, mark[ing] the beginning of the idea of the public service

For a discussion that classification of a public calling is not based on the existence of monopoly, see Adler
(1914), at pp. 146-152, 156; Stone (1991), at p. 29; Payton (1981), at pp. 130-131.
9
[M]any commentators have noted the remarkable capacity of common law judges to transform concepts and
ideas that originated in feudal and agrarian England into ones that are functional in a capitalist industrial
society (Stone, 1991, p. 29).

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company. (Stone, 1991, p. 30).10 The common law tort obligations of public callings remained for

these kinds of businesses. The duty to serve had come to be justified on the grounds of public
necessity, or public policy, which in turn justified the corollary duty to serve for a reasonable price
that was no longer imposed upon those engaged in private businesses (Burdick, 1911, p. 528). Thus,
certain occupations, because they did things that were public in nature (as yet undefined), were under a
special set of obligations that included the duty to serve all impartially and adequately (Stone, p. 30,
emphasis added).11 Stone (1991) further explains why the concept of the public service company was
not, at the time, further defined:
When the public service company conception was devised in the late seventeenth
century, there was little need to define the idea sharply. Few businesses were covered,
and most important, the number of new businesses that might conceivably be included
namely, those in communications and transportation did not expand significantly
until the major technological breakthroughs of the nineteenth century. Moreover, the
sharp intellectual division between what the appropriate roles are for state and free
market that began during the time of Adam Smith had not yet taken root.
Consequently, there was no great need for the courts or other policymakers to sharpen
the conception of the public service company. The short list of industries covered,
reasoning by analogy and the common laws mechanism of rule by precedent, provided
sufficient guidance. (p. 30)

1.3. Nineteenth Century Development of Public Service Companies Under Franchises


Due to the rise of new technologies (including transportation and communication) during the industrial
revolution, the nineteenth century was a period when the concept of the public service company
needed to be refined and clarified (Stone, 1991, p. 31). Before the arrival of regulatory agencies,
policies for public utilities were made by judges employing an evolving common law and legislators
promulgating rules in new situations (Stone, 1991, p. 26).12

10

See also Burdick (1911, p. 515) (Public or common callings were the original public service companies);
Stone (1991, p. 29) (The public service company concept can be traced back to the fourteenth-century idea of a
common calling.).
11
The phrase as yet undefined refers to language quoted from the case Lane v. Cotton, (1701), 12 Mod. 472,
88 E.R. 1458 (K.B.).
12
Judicial development of the concept of public utilities in the U.S. during the nineteenth century is discussed at
length in Levy (1957).

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During the nineteenth century the growth of the law of public service companies was due to
government grant of franchises, broadly defined. Social and economic development during this time
gave rise to conditions which have been held increasingly to necessitate and to justify the grant to
private individuals and enterprises of the exercise of powers or privileges not otherwise inhering in
such individuals and enterprises (Burdick, 1911, p. 616). [A] franchise is a right, privilege or power
of public concern (Burdick, 1911, p. 616, quoting California v. Pacific Railroad, 127 U.S. 1, at 40
(1888)). Franchises are of two types, the power to do and the right to be (e.g. grant of corporate
charter) (Burdick, 1911, p. 616). It is the power to do that is of interest here. Governmental powers
most frequently sought for furtherance of private enterprises are the general power of eminent domain,
the power to use public streets and highways, the privilege of exclusive performance of some
undertaking, or use of state funds or credit (Burdick, 1911, p. 617).
Under the police power to regulate, the inherent power of a sovereign that the U.S. and Canada
have in common,13 state policies were designed to promote the development and expansion of industry
while assuring that business activities operated to promote the common good (Stone, 1991, p.18). On
the one hand, states would promote enterprises thought regulatory, licensing, subsidy, or other policy
instruments. On the other, the activities of these enterprises could be curbed or compelled to operate
for the public good through the police power (Stone, 1991, p. 18). [W]hen the required regulation
was very extensive, the industry or activity was called a public service or public utility (Stone, 1991,
p. 18). The railroad was the quintessential public service in the nineteenth century (Stone, 1991, p.
20).
It is the acceptance of a franchise that carries with it the duty to serve.14 Even if not expressly
stated, the duty to serve is presumed to have been intended by the legislature in creating a public
franchise (Burdick, 1911, p. 630). The courts supplied the duty to serve all members of the public as
an implied term of the charters (Payton, 1981, p. 138, emphasis added). [I]n the English and
American common law the duty to serve [was] justified variously because the company exercises
delegated governmental power, offers an essential public service, controls an artery of commerce, or

13

This is discussed in Section 2.2.


See, e.g., Burdick (1911, p. 627) (The authority to the effect that the grant of the power [eminent domain and
use of streets and highways] carries with it this correlative obligation [duty to serve] is overwhelming).

14

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has a monopoly (Payton, 1981 p. 138). Chastain also recognizes that under the common law there is
an implied duty to serve by virtue of acceptance of a franchise, which may or may not be exclusive.

It bears emphasizing here that virtual monopoly is not required for the imposition of the duty to
serve. Some commentators, including Bruce Wyman,15 argue that the original reason for classing
certain callings as public callings is because they were virtual monopolies. Burdick16, Adler17 (1914,
p. 149) and Stone (1991)18 disagree with this conclusion because it is simply factually wrong. Adler
states Monopoly cannot be accepted as an explanation of the distinction between public and
private callings, either at present or in the distant past. The reason for this failure is neglect of the
facts. From the earliest times one who was engaged in a given occupation as a business was
described as being in a common employment, otherwise the employment was private (1914, p. 149,
emphasis added). Similarly, as for common carriers in particular, Payton states [I]t is apparent from
the historical and legal record that a common carrier has never been allowed to refuse customers
arbitrarily because other conveyances are readily available (1981, p. 150 n. 44).
Stone (1991) also offers an explanation for modern commentators tendency to impute a
monopoly requirement. He first emphasizes the primary importance of the social characteristics of an
industry in determining whether a firm is a public service company.

The starting point, then, in distinguishing public service companies from others is that
the most important consideration is the kind of service involved and not the number of
firms or potential firms in an industry. [A]lthough the economic characteristics of an
industry play important roles in shaping policy (or no policy) toward it, the social

15

Both Adler (1914) and Burdick (1911) specifically identify Bruce Wyman as one of the commentators that
makes this erroneous claim. Interestingly, Wyman is one the scholars upon whom Ryan relies in his legal
opinion (para. 18).
16
Burdick (1911, p. 515) (A careful study of the subject has led me to a somewhat different conclusion).
Wyman also asserts that virtual monopoly makes a business a public calling, which in turn entitles a grant of
powers of eminent domain and use of streets and highways. Burdick states that being a public calling is not a
condition precedent to receive grant of a franchise, rather the cases show that as a result of the grant of powers
above mentioned the grantee is bound to exercise these powers to the public (1911, p. 620, emphasis in
original).
17
Reference is in the next sentence. See also Adler (1914) at pp. 151-152.
18
Stone (1991, p. 29, footnote omitted) (Neither monopoly nor the kind of occupation determined whether one
was classified as common).

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characteristics of an industry are primary in determining whether or not a firm is a


public service company. (pp. 26-27, emphasis added)
But, he observes that contemporary policymakers and commentators tend to employ only economic
criteria.
The point is an extremely important one because many contemporary policymakers and
commentators employ only economic criteria in making their policy recommendations.
Under their view, if an industry can be shown not to be a natural monopoly an
industry in which production is done most efficiently by a single firm it should no
longer be subject to economic regulation. But under public service liberalism the
framework for policymaking involves far more than economic criteria.
Monopoly plays an important role in the policy toward public service companies,
but it is not the defining characteristic. Most important telephone systems were
considered public service companies even when they were engaged in vigorous
competition. (p. 27, emphasis added)
By ignoring the social criteria, the focus solely on economic criteria not only erroneously elevates its
importance but also obscures the primary public policy purpose for imposing public service
obligations.

1.4. Statutory Codification of Obligations for Public Service Companies


Legislatures may codify legal obligations whether preexisting common law obligations or new
obligations in statutes for businesses that are already public service companies. For example,
Canadas federal government passed the Railway Act of 1888 that placed railroads, as well as the
operation of their telephone and telegraph lines, under the authority of a regulatory agency, the
Railway Committee. In 1906, the application of the Act (which had since also been amended in 1903)
was extended to telephone companies under the jurisdiction of the same federal regulatory agency, by
then renamed the Board of Railway Commissioners. Similarly, in the U.S. the Interstate Commerce
Act of 1887 (ICA) codified common law obligations of railroad common carriers and provided a new
legal framework based on regulatory oversight of a federal expert agency, the Interstate Commerce

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Commission (ICC) for enforcement of such obligations.19 The ICA was later amended in 1910 to
extend jurisdiction of the ICC to telegraphy and telephony.20

1.5. Statutory Origins of Duty to Serve for Businesses Bearing No Duty Under Common law
Scope of States police power
Under the states police power, such duties [as those peculiar duties imposed under the common law]
may be imposed upon businesses by statute when such businesses would not be subject to those duties
under any of the principles previously discussed [under the common law] (Burdick, 1911, p. 742).
Whether, under the U.S. Constitution, governments police power had sufficient breadth to so regulate
those businesses that are not public service companies under the common law was the subject of
litigation in the nineteenth early twentieth centuries. An important line of U.S. Supreme Court cases
addressing this issue starts with Munn v. Illinois (1876). As previously mentioned in the Introduction
and discussed more fully in Section 2, Chastain directs the reader to Munn v. Illinois for an
examination of the historical roots of the English common law obligations of public callings. Given
that the origins and subsequent evolution of the common law obligation to serve has been discussed,
the foundation has now been laid for examining Chastain and Munn v. Illinois in their proper context.

19

The Cullom Report, named after Senator Cullom, is the report of the U.S. Senate Select Committee on
Interstate Commerce, which provides a comprehensive record of the Committees investigation and
recommendation for federal legislation. The Cullom Report cogently explains the reasons for such codification
under federal law: (1) inadequacy of the common law remedies, even under state statutes that established
regulatory agencies; (2) the states lacked jurisdiction over interstate commerce; and (3) the insufficiency of
competition to protect customers from oppressive practices and unreasonable discrimination. Report of the
Senate Select Committee on Interstate Commerce, 49th Congress, 1st Session (1886). See also Stone (1991, p.
32) (The influential 1886 Cullom Report, which led to enactment of the Interstate Commerce Act, provides a
contemporary view of the centrality of the railroad and why it is a model of a public service industry).
20
Now the telegraph line and the telephone line are becoming rapidly as much a part of the instruments of
commerce and as much a necessity in commercial life as the railroads. 45 Congressional Record 5534 (1910)
(Congressional statement).

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2. MISINTERPRETATION AND MISAPPLICATION OF CHASTAIN AND MUNN V.


ILLINOIS
Ryans legal opinion in this proceeding relies on Chastain for his conclusion that the common law
obligation to serve requires a practical monopoly. In turn, Chastain states that England and its
common law jurisdictions share the historical roots of this common law principle, and that the U.S. and
Canada have followed the same path in its application. In this regard, Chastain refers to Munn v.
Illinois for an examination of these shared historical roots. Thus, reliance on Chastain in this
proceeding requires that both Chastain and Munn v. Illinois be correctly understood.
The following discussion shows the proper interpretation of Chastain and Munn v. Illinois, and
how Ryans analysis misinterprets and misapplies the law in these cases. The analysis continues as
follows. First, it discusses the U.S. Supreme Courts decision in Nebbia v. New York (1934), which
clarifies how to correctly interpret Munn v. Illinois. Second, it discusses how to correctly interpret the
analysis in Chastain and its reference to Munn v. Illinois. Third, it explains how Ryans analysis
incorrectly interprets Chastain.

2.1. Nebbia v. New York and Munn v. Illinois


It is necessary to clarify at the outset that properly interpreted, Munn v. Illinois and Nebbia v. New
York should have limited application to the present proceeding. This is because the core issue raised in
both cases is a constitutional one under the U.S. Constitution. More specifically, both cases address
the constitutionally permissible scope of the states police power to regulate the prices of businesses
that are not public services under the common law. Yet, as discussed in Section 3, telecommunications
services are public services under the common law, so this particular form of constitutional challenge
is inapposite.
However, Ryans interpretation of Chastain and Munn v. Illinois suffers from an inappropriate
intertwining of policy issues underlying public service and constitutional legal principles in a manner
foreseen and explained by Stone.

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The public service idea has also become enmeshed in important constitutional
questions that are apart from its theoretical basis. Behind the passions of the
constitutional questions lay important policy issues, analytically separate from the
former but, unfortunately, intertwined in practice. In brief, the question of whether a
particular business is clothed with a public interest and therefore should be heavily
regulated because that would be sound public policy is very different from whether the
price regulation of a particular business is permissible under the Fourteenth Amendment
of the Constitution or whether it constitutes an unconstitutional taking of property
without due process of law. Virtually every student of constitutional law is familiar
with the leading cases culminating in Nebbia v. New York, finally rejecting the
distinction on constitutional grounds when the Court held five to four that New York
could constitutionally fix minimum and maximum retail milk prices. But few are aware
of the numerous English and state common law decisions that developed and applied
the public service company concept on public policy grounds. We are concerned with
the public policy aspect of the distinction between public service companies and other
firms, not the now settled constitutional issues that in many ways obscured the
fundamental distinction that we are exploring. (Stone, 1991, pp. 27-28, footnote
omitted)
In Nebbia v. New York, the Court considered the constitutionality of a New York statute that
empowered a Milk Control Board to fix minimum and maximum retail prices to be charged by stores
for milk sold to consumers for consumption off premises. The appellant (against whom the statute had
been enforced) argued that the statute would be per se unreasonable and unconstitutional unless
applied to businesses affected with a public interest; [and] that a business so affected is one in which
property is devoted to an enterprise of a sort which the public itself might appropriately undertake, or
one whose owner relies on a public grant or franchise for the right to conduct the business, or in which
he is bound to serve all who apply; in short, such as commonly called a public utility; or a business in
its nature a monopoly (291 U.S. at 531). In this regard, the appellant acknowledged various ways in
which a business could be a public utility under the common law. The Court stated that the dairy
industry was not a public utility in the accepted sense of the phrase, that this was not a case involving
monopoly or monopolistic practice, and that those engaged in business were not dependent upon
public grants or privileges (291 U.S. at 531).
The Court observed the appellants claim that Munn v. Illinois limited permissible legislation
[prescribing charges] to businesses affected with a public interest, and no business is so affected

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except it have one or more of the characteristics he enumerates (291 U.S. at 532). The Court then
explained how to correctly interpret Munn v. Illinois:

But this is a misconception. Munn and Scott held no franchise from the state. They
owned the property upon which their elevator was situated and conducted their business
as private citizens. No doubt they felt at liberty to deal with whom they pleased and on
such terms as they might deem just to themselves. Their enterprise could not fairly be
called a monopoly, although it was referred to in the decision as a virtual monopoly.
This meant only that their elevator was strategically situated and that a large portion of
the public found it highly inconvenient to deal with others. This court concluded the
circumstances justified the legislation as an exercise of the governmental right to
control the business in the public interest; that is, as an exercise of the police power. It
is true that the court cited a statement from Lord Hales De Portibus Maris, to the effect
that when private property is affected with a public interest, it ceases to be juris privati
only; but the court proceeded at once to define what it understood by the expression,
saying: Property does become clothed with a public interest when used in a manner to
make it of public consequence, and affect the community at large (p. 126). Thus
understood, affected with a public interest is the equivalent of subject to the exercise
of the police power; and it is plain that nothing more was intended by the expression.
(291 U.S. 532-533)
The Court then further explained that under Munn v. Illinois, the statement that one has dedicated his
property to public use does not require the intention to conduct ones business to a public use, but is
merely another way of saying that if one embarks in a business which public interest demands shall
be regulated, he must know regulation will ensue (291 U.S. at 534). Moreover, the Court stated that
[t]he touchstone of public interest in any business, in its practices and charges, clearly is not the
enjoyment of any franchise from the state, Munn v. Illinois, supra. Nor is it the enjoyment of a
monopoly Brass v. North Dakota, 158 U.S. 391 [1894] (291 U.S. at 534-535). Finally, in perhaps
the now most well known passage, the Court held:

It is clear that there is no closed class or category of businesses affected with a public
interest, and the function of courts in the application of the Fifth and Fourteenth
Amendments [of the U.S. Constitution] is to determine in each case whether
circumstances vindicate the challenged regulation as a reasonable exertion of
governmental authority or condemn it as arbitrary or discriminatory. The phrase
affected with a public interest can, in the nature of things, means no more than that an
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industry, for adequate reason, is subject to control for the public good. (291 U.S. 536,
citation omitted)
Thus, the scope of the governments police power to regulate a business: (1) is not limited to
characteristics enumerated in Munn v. Illinois; (2) does not require that the business be intended to be
conducted for public use; (3) does not require the grant of a franchise; and (4) does not require a
monopoly. In particular, the proper interpretation of Munn v. Illinois is that neither the reference to a
virtual monopoly nor the one to Lord Hales De Portibus Maris can be construed to require a
monopoly.
Since the constitutionality of the states exercise of its police power must be determined on a
case-by-case basis, the Court then explained the basis for determining constitutionality in a given case.
[A] state is free to adopt whatever economic policy may reasonably be deemed to
promote public welfare, and to enforce that policy by legislation adapted to its purpose.
The courts are without authority either to declare such policy, or, when it is declared by
the legislature, to override it. If the laws passed are seen to have a reasonable relation
to a proper legislative purpose, and are neither arbitrary nor discriminatory, the
requirements of due process [under the U.S. Constitution] are satisfied, and judicial
determination to that effect renders a court functus officio. (291 U.S. 537)
This standard is known in the U.S. as the rational relationship test.
Thus, having clarified the scope of the governments police power to regulate any business in
Nebbia v. New York, for constitutional purposes the need to prove that a business did or did not fall
into one of the historical classes of businesses affected with a public interest fell into disuse. However,
the common law was left undisturbed as to when a business is a public service company (whether a
common carrier or public utility) and thereby bound by the implied duty to serve as a matter of law.

2.2. Chastain and Munn v. Illinois


In Chastain, the plaintiffs sought declarations to the effect that the defendant supplier of gas and
electric power has no valid authority to require the posting of security deposits, the return of money
deposited, and an injunction. The defendant argued that the plaintiffs had no status to sue. The
plaintiffs countered that the defendant was a public utility bearing obligations as a matter of law and
not contract. The defendant conceded that, if it were a public utility, then its defense must fail.
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Therefore, the main issue in the case was whether the defendant, incorporated under the British
Columbia Hydro and Power Authority Act, S.B.C.1964, c. 7, was a public utility. The court found that
the defendant was a public utility even though it was not subject to the provisions of the Public
Utilities Act. The court proceeded to discuss why this particular defendant was a public utility;
however, Ryans (2010) analysis misstates the courts analysis in representing it as defining the basis
for any business to be a public utility.
The plaintiffs argued that the defendant was a public utility bound to provide its service to all
who seek it as a matter of law and not of contract, charging only a reasonable price for such services
and treating all consumers equally (para. 19) that is, that the defendant was a public utility under
the common law. The defendant argued that it was not a public utility, being exempt from the
provisions of the Public Utilities Act and the general law governing utilities.
The court stated that it cannot give effect to the argument that [the defendant] is not a public
utility (para. 22). The basis for this assertion is because [t]he mere fact that the defendant is not
subject to the provisions of the Public Utilities Act, R.S.B.C. Ch. 323, does not alter its essential
character. It partakes so much of the nature of a public utility that it must be amenable to the law
governing public utilities (para. 22).

The court further explained For the great majority of the

people of British Columbia and for all of the plaintiffs joined or represented in this action, the
defendant has a monopoly on the supply of gas and electricity. It is clear from the statute that it was
intended to have such a monopoly and it is also clear that in relationship to the public it is a public
utility (para. 22, emphasis added). The court found that this intent was further demonstrated by the
fact that the defendants own statute provides that it shall be deemed to have been granted a certificate
of public convenience and necessity under the Public Utilities Act. The fact that the defendants
statute deems such a certificate to have been given strengthens [the courts] view that it was intended
to create a public utility for the public service (para. 22).
The courts focus on the legislatures intent is reference to the common law duty to serve as a
public utility that is implied by grant and acceptance of a government franchise. The defendant had
been incorporated by statute and given the privilege to provide gas and electricity service, a service
that the government could have provided itself. Moreover, although the franchise was not expressly
exclusive, the court found that the legislature intended for the defendant to operate as the only
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Although the duty to serve implied by a government franchise does not require that the

franchise be one of monopoly, it does include situations where the franchise is indeed exclusive. This
latter basis for finding an implied duty to serve is expressed in the courts statement: The obligation
of a public utility or other body having a practical monopoly on the supply of a particular commodity
or service of fundamental importance to the public has long been clear (para. 23). This statement,
however, does not purport to represent all the circumstances under which any business is a public
utility and thus bears the duty to serve.
The court then recognized that public utilities supplying services such as power, telephone and
transportation services are of relatively recent origin, however the special obligations that they bear to
supply service have deeper historical roots. It is in this context that the court refers to the special
obligations to supply service [that] have been imposed from the very earliest days of the common law
upon bodies in like case, such as carriers, innkeepers, wharfingers and ferry operators. This has been
true in England and in the common law jurisdictions throughout the world (para. 23). In so doing, the
court further recognized that the law in the United States and Canada followed the same path: In
Munn v. Illinois, 94 U.S. 113 in the Supreme Court of the United States, the historical roots of this
principle were examined and they have been applied in the United States. In Canada the law has
followed the same path (para. 23). However, the court did not offer to further explain these historical
roots, apparently considering its reference to the examination in Munn v. Illinois to be sufficient.
The following reviews the relevant portion of Munn v. Illinois. It reveals not only the U.S.
Supreme Courts purpose for examining the historical roots to which Chastain referred, but also the
Canadian courts purpose for referring to this examination in Chastain. A proper understanding of
Chastains purpose for referring to Munn v. Illinois is important in order to correctly interpret
Chastain. As will be shown, Ryans legal opinion misinterprets and misapplies Chastain.
As previously discussed, in Nebbia v. New York which was decided in 1934 and long before
Chastain the U.S. Supreme Court clarified how to correctly interpret Munn v. Illinois. It should be
recalled that, in Munn v. Illinois, the Court was not considering the issue at bar in Chastain
whether a business was a public utility under the common law and thereby bound by the implied duty
to serve as a matter of law; rather, the issue was the constitutionality of price regulation under a states

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police power imposed on a business that is not a public service company. Moreover, the Court left
undisturbed the common law of public service companies and their duty to serve as a matter of law.
In considering the constitutional issue, the Courts discussion of historical roots in Munn v.
Illinois was for the purpose of explaining the inherent power of the sovereign to regulate under its
police power and stressing the breadth of such power. It is for this purpose that the Court stated:
Under these [police] powers the government regulates the conduct of its citizens one
towards another, and the manner in which each shall use his own property, when such
regulation becomes necessary for the public good. In their exercise it has been
customary in England from time immemorial, and in this country from its first
colonization, to regulate ferries, common carriers, hackmen, bakers, millers,
wharfingers, innkeepers, &c., and in so doing to fix a maximum or charge to be made
for services rendered, accommodations furnished, and articles sold. To this day,
statutes are to be found in many of the States upon some or all these subjects; and we
think it has never yet been successfully contended that such legislation came within any
of the constitutional prohibitions against interference with private property. (94 U.S. at
125)
The Court then discussed the principles upon which this power of regulation rests in order to determine
what is within and without its operative effect. It is at this juncture that the Court referred to Lord
Chief Justice Hales treatise De Portibus Maris, stating: Looking, then, to the common law, from
whence came the right [i.e. the power to regulate] which the Constitution protects, we find that when
private property is affected with a public interest, it ceases to be juris privati only. (94 U.S. at 125126). As clarified by the Court in Nebbia v. New York, here the Court meant nothing more than that
affected with a public interest is the equivalent of subject to the exercise of the police power (291
U.S. at 533). The Court then further recounted examples of the exercise of the inherent police power
under English common law, some with references to the common law in Lord Hales treatise De Jure
Maris, and others under more recent U.S. state legislation. It is in this context that the Court provided
examples, such as the imposition of duties on ferries, wharves and wharfingers, warehouses,
innkeepers and common carriers.
Explaining its purpose for doing so, the Court stated: We have quoted thus largely the words
of these eminent expounders of the common law, because, as we think, we find in them the principle
which supports the legislation we are now examining (94 U.S. at 129); and, we need go no further.
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Enough has already been said to show that, when private property is devoted to a public use, it is

subject to public regulation. It remains only to ascertain whether the warehouses of these plaintiffs in
error, and the business which is carried on there, come within the operation of this principle (94 U.S.
at 130).
Thus, the Courts purpose in recounting all this history was to substantiate its finding that the
states have the inherent power to regulate private businesses under their police power which was
retained under the U.S. Constitution, and that this power is of great breadth as demonstrated by English
common law cases predating the Constitutions ratification.

It is only in determining the

constitutionality of the police power in the case before it that the Court proceeded to examine the
nature of the warehouse business regulated under the Illinois Constitution. In this regard, Nebbia v.
New York clarified that the Courts reference to virtual monopoly meant only that their elevator
was strategically situated and that a large portion of the public found it highly inconvenient to deal
with others (291 U.S. 532), and thus, even though no franchise was granted, these circumstances
justified the Illinois exercise of its police power. Moreover, Nebbia v. New York also clarified that
circumstances justifying exercise of the states police power is not limited to the characteristics
enumerated in Munn v. Illinois.
Having reviewed the purpose and meaning of the historical examination in Munn v. Illinois, the
correct interpretation of Chastain becomes clear. In Canada, government has the inherent power of a
sovereign to regulate under its police power. The breadth of that power is great, stemming from deep
historical roots shared in common with the U.S. and as discussed in Munn v. Illinois. As for the
legislatures exercise of its police power under the specific circumstances in Chastain, it is clear that
the legislature granted the defendant a franchise to provide gas and electricity service that was intended
to be of a public utility nature. The public utility nature of the business arises from the type of service
offered (having been authorized to provide an essential service to the community), the grant of a
franchise (such authorization is to be deemed the grant of a certificate of public convenience and
necessity under the Public Utilities Act), and in this case the grant of an exclusive franchise (the
legislature intended the defendant to be the only provider).
The government has the power to impose and enforce special obligations on certain businesses,
such as public utilities. Such power is clear from the examination of its historical roots in Munn v.
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Illinois. Furthermore, as history demonstrates, for public utilities such obligations may arise on an
implied basis under common law or be expressly imposed by statute.
It was argued that the authorities referred to above depended on particular statutes and
by-laws governing the supply of the commodity concerned. There being no statutory
requirement here for the delivery of power, these cases, it is said, do not support the
plaintiffs position. This argument I consider to be without merit. While it is true that
in the Canadian decisions cited above there were statutory provisions imposing an
obligation to supply commodity to the public, nevertheless the judgments make it clear
that the statutes are merely declarative of common law principles and in cases even
outside the statute the duty to supply remains upon the utility. (Chastain, para. 26)
The court then quoted from Minister of Justice for the Dominion of Canada v. City of Levis [1919]
A.C. 505, in which dealers of water had an implied obligation to supply water to government
buildings. Therefore, consistent with governments inherent police power, the defendant is a public
utility and under the common law is bound by an implied obligation to serve. Consequently, the
plaintiffs have status to sue for enforcement of the defendants special obligations, and defendants
defense must fail.
It is also important to correctly acknowledge what the court in Chastain did not decide. The

decision in Chastain was based on the specific circumstances of the case before it. It did not purport to
describe all the factual circumstances under which any business would be considered a public utility
under the common law.

2.3. Ryans analysis of common law and Chastain


Throughout his legal opinion, Ryan states in various ways that the common law obligation to serve
requires a practical monopoly. The first statement in this regard is in section II of his conclusions,
which provides in the first indented paragraph under para. 8:
The common law imposes an obligation on all Canadian carriers to provide telegraph
and telephone services to the public at a reasonable price and without unreasonable
discrimination. This obligation to serve arises wherever a carrier has a practical
monopoly (defined below) on the provision of the service.

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The second sentence is potentially misleading, but is in any event incorrect if it is meant to imply that

for the obligation to serve to arise the carrier must have a practical monopoly. Telecommunications
carriers are both common carriers and public utilities. As discussed in Section 1, under the common
law the obligation to serve arises for a common carrier independent of market structure, and may arise
for a public utility with or without the existence of a monopoly.
Ryan in fact does not define practical monopoly, but uses the term in the context of discussing
Chastain (Ryan, paras. 11, 14). He also refers to the roots deep in the common law (Ryan, para. 12)
that was mentioned in Chastain. He then discusses some of the sources examined by the U.S. Supreme
Court in Munn v. Illinois, such as Chief Justice Hales treatise De Portibus Maris, but makes no
reference or acknowledgement of Munn v. Illinois itself (Ryan, paras. 12, 14 and accompanying
footnotes). Based on Chastain and these other sources, Ryan claims:

McIntyre J. [Justice in Chastain] does not define the term practical monopoly. The
English courts have used the term virtual monopoly in the same context. Despite
some variances in terminology, the concept is clear: at common law, the obligation to
serve arises uniquely in cases where there is a single supplier and does not apply in a
competitive environment. (para. 14, footnote omitted, emphasis added)
By adding the word uniquely, Ryan has now made explicit what the statement in his conclusion
(para. 8 above) could misleadingly imply. Ryan now asserts that the obligation to serve arises
uniquely, or only, in cases where there is a single supplier and does not apply in a competitive
environment. Chastain makes no such claim, and neither does Munn v. Illinois from which Ryan
derives the other sources. A correct reading of Munn v. Illinois and the Courts examination of the
historical roots of governments police power under the common law, as discussed at length above, do
not support Ryans interpretation.

It is not clear whether reference to Munn v. Illinois was

intentionally omitted, although those reviewing Ryans opinion would more likely discover this
improper interpretation if Munn v. Illinois had been directly referenced.

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3. DUTY TO SERVE IS CONSISTENT WITH COMPETITION AND FORBEARANCE


Ryans assertion that the obligation to serve arises uniquely in cases of monopoly needs to be
recognized not only as a misinterpretation of the law, but also as factually inaccurate for the
telecommunications sector itself. Ryan further claims that as to the list of services to which an
obligation to serve may attach [which includes telephone service] they have all historically been
provided on a monopoly basis (para. 14, emphasis added).

This assertion is simply untrue as

telephone systems were considered public service companies even when they were engaged in
vigorous competition (Stone, 1991, p. 27).

The historical application of the duty to serve on

telephone companies, which apparently has tended to be forgotten, reveals that application of the duty
is not only consistent with but also appropriate for the industry under forbearance.

3.1. Duty to Serve has Already Applied to Telecommunications Carriers During Competition
Stones book discusses the public service concept generally, and then why telephone was a public
service even before its enormous economic impact was recognized (1991, p. 23). He stresses that
telegraphy and telephony were generally considered together during the nineteenth and early twentieth
centuries by legal treatises (Stone, 1991, p. 38). Therefore, one needs to look at telegraphy in order to
understand why telephony was a public service so early in its history. In the U.S., telegraph companies
were seen as public service businesses as early as 1845 by the states (Stone, 1991, p. 42), and [b]y the
1880s there was universal agreement that telephone firms were public service companies. And this
view continued without challenge after 1894, when competitors of the Bell System sprang up after the
expiration of the basic Bell patents (Stone, 1991, p. 44). In addition to court decisions, states
enacted statutes regulating telephone companies as public services or making telegraph laws applicable
to telephones (Stone, 1991, p. 44).21 Thus, [a]lthough the telephone did not, of course, achieve the
commercial importance of the railroad for many years after its invention, its probable centrality in
business life was grasped almost immediately.[F]uture as well as immediate strategic centrality was

21

Courts almost uniformly upheld the constitutionality state statutes when challenged on the ground that the
telephone industry was not affected with a public interest. The U.S. Supreme Court recognized that a telephone
company is a public utility in Budd v. New York, 143 U.S. 517 (1892) (Stone, 1991, p. 45).

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important in determining public utility status. For this reason, the telephone was considered a public
utility almost from its inception (Stone, 1991, p. 33).
It is also important to recognize that there are several legal bases upon which telegraph and

telephone companies have been considered to be public service companies. First, some cases have
justifiedimposingthedutytoserveontelegraphandtelephonecompaniesbyclassingthemas
special kinds of common carriers (Burdick, 1911, p. 622).22 Second, some cases have justified
imposing the duty to serve on telegraph and telephone companies also because of the grant of the
power of eminent domain or of the power to use streets and highways, that is, the grant of a franchise
(Burdick, 1911, p. 622-623).23 Third, some cases have justified imposing the duty to serve on
telephone companies because they had franchises of monopolistic privileges.24 Fourth, in some cases,
the duty to serve all impartially has been expressly imposed by statutes, sometimes under state or
provincial law and sometimes under federal law.25

3.2. Duty to Serve is Consistent With Forbearance


With regard to the appropriateness of a duty to serve in the telecommunications industry under
forbearance, Ryan claims:

22

A telephonic system is simply a system for the transmission of intelligence and news. It is, perhaps, in a
limited sense, and yet in a strict sense, a common carrier. It must be equal in its dealings with all. Missouri v.
Bell Telephone Co., 23 Fed. 539 (1885). Telegraph and telephone companies are common carriers of speech for
hire. Commercial Union Telegraph Co. v. New England Telephone & Telegraph Co., 61 Vt. 241, 17 Atl. R.
1071 (1888).
23
No one can doubt the inherent justice of the rules thus laid down. Common carriers, whether engaged in
interstate commerce or in that wholly within the State, are performing a public service. They are endowed by
the State with some of its sovereign powers, such as the right of eminent domain, and so endowed by reason of
the public service they render. As a consequence of this, all individuals have equal rights both in respect of
service and charges. Western Union Telegraph Co. v. Call Publishing Co., 181 U.S. 92, 99-100 (1901).
24
In the second decade of the twentieth century, aversion to telephone competition grew. State regulatory
commissions discouraged competition, approved consolidations, and certificates of convenience and necessity
denied to applicants when existing companies could adequately serve the demand in their areas (Stone, 1991, p.
219).
25
See Section 1.4, supra; Bell Canada Act; federal legislation in the U.S. includes the Interstate Commerce Act
of 1887 and later the Communications Act of 1934; Burdick (1911, p. 624) (citing numerous states cases in the
U.S.).

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Since forbearance by the Commission is premised on the presence of competition, the


making of a forbearance order is an acknowledgment that there is no longer the
practical monopoly over the provision of the relevant service that is the essential
underpinning of the common law obligation to serve. While the Commission has often
expressly determined in forbearance orders that it would continue to exercise its section
27(2) powers, the use of section 27(2) as a vehicle for imposing a general obligation to
serve on a carrier would be inconsistent with the rationale for forbearance. If such an
obligation were nevertheless to be imposed, I cannot see a rationale for imposing it on
some carriers (e.g. ILECs) but not others (e.g. CLECs). By definition, in forborne
markets, no carrier is dominant. (third full paragraph, p. 3)
As has been established as a general matter in Section 2 and for telecommunications in particular in
Section 3.1, under the common law the obligation to serve does not require that a common carrier or
public utility provide service as a practical monopoly. Moreover, from its inception under the
common law, the common carriers obligation to serve has been independent of market structure.
Therefore, for the Commission to impose a general obligation to serve within the context of
forbearance is consistent with the common law obligation.26 In fact, to not apply the obligation to
serve is a radical policy choice relative to the public policy prevailing prior to the recent deregulatory
era.27
The common law obligation is to serve all who apply for service upon reasonable request at a
reasonable price and without unreasonable discrimination, and to serve the public adequately.28 As has
been done historically, this obligation to serve should apply to all providers serving the public, that is,
to CLECs as well as to ILECs. Thus, generally I agree with that portion of Ryans opinion that the

26

Other scholars have reached the same conclusion. For example, The question addressed in this paper is
whether competition will have or ought to have any impact on a common carriers or public utilitys duty to
serve under the traditional concepts of public utility regulation. I conclude that the fundamental obligation of
the utility to serve impartially all who apply for service under reasonable rates and regulations should not be
affected (Payton, 1981 p. 121). If an agency takes advantage of the opportunities for regulatory flexibility in
the face of competition, and allows the utility to price its services sensibly, there should be no need for the utility
to be relieved of the duty to serve all who apply for service (Payton, p. 147). However, Payton does state that
the carrier of last resort obligation needs to be addressed, consistent with the points I raise in the next paragraph
and in Section 4.2.
27
For a discussion of the radical nature of the decision of the FCC to find that broadband Internet access service
is not a common carriage service, see Cherry (2006, 2008). The FCC has a pending proceeding examining the
reclassification of broadband as a telecommunications service. In the Matter of Framework for Broadband
Internet Service, Notice of Inquiry, GN Docket. No. 10-127 (released June 17, 2010).
28
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obligation to serve should apply symmetrically. However, some aspects of the obligation to serve that

further evolved and was applied during the monopoly era, such as the carrier of last resort and implicit
subsidies embedded in the price structure, needs to be appropriately modified for sustainability in a
competitive environment.29 For example, there is a rationale for imposing a carrier of last resort
obligation on, and providing explicit funding to, some carriers but not others within the context of
universal service policy.

4. SCOPE OF THE DUTY TO SERVE


The scope of the duty to serve has evolved over time, where scope refers to the range of
circumstances under which a public service company must serve: to serve up to existing capacity; to
extend facilities; to expand its business; or to restrict discontinuance of service or abandonment of
facilities. During the medieval period, a public calling had to serve within its existing capacity but was
generally not liable for refusal to serve if existing facilities were exhausted (Burdick, 1911, pp. 521,
528-529). However, as the common law of public service developed during the nineteenth century, the
scope of this basic duty expanded to address varying ways in which the duty was being evaded as well
as in the context of monopoly franchises. These include the duty to extend facilities and an exit barrier
to discontinuance of service or abandonment of facilities.

These further developments have

implications for the provision of broadband services.

4.1. Duty to Extend Facilities


Public service companies must extend their facilities so as to meet reasonable demand (Stone, 1991,
p. 49, emphasis added).

[T]he easiest way to evade responsibility to serve all is to arrange service in such a way
that many would-be customers are excluded. This leads to the crucial obligation: to
serve the public adequately. The word adequate is, of course, a relative one dependent
on the technological and economic capabilities of the firm and industry under
consideration. [I]n an 1895 case a telegraph company was required to expand its
business. But it is the duty of the telegraph company to have sufficient facilities to

29

For a discussion of how to appropriately modify universal service policy in the transition from a monopoly to
a competitive market structure, see Cherry and Wildman (1999).

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transact all the business offered to it for all points at which it has offices. (Stone, 1991,
p. 49, emphasis in original, quoting Leavell v. Western Union Tel. Co., 116 N.C. 211,
21 S.E. 391 at 392 (1895)
Thus, a public service company can be required to expand its business in the form of extending its
facilities in order to preclude selective refusal to serve customers. Extension of facilities in such
situations is considered a requirement to provide adequate facilities.30
However, the obligation to extend facilities is not without limit. As an implied duty, the
obligation to extend facilities arises from the holding out to serve the public by a common carrier or
from the terms of the franchise granted by government to the public utility. It is in this respect that the
requirement to extend facilities is necessarily a determination to be made under the circumstances
prevailing in specific cases, and thus the concept of the existing service territory has arisen.
For example, in Metcalfe Telephones Limited v. McKenna, the Supreme Court of Canada
reversed an order of the Board of Transport Commissioners that had ordered Bell Canada to provide
telephone service to McKenna. Referring to the statutory provisions under the Bell Canada Act, the
Court found that the purpose of section 41:

is to require Bell to serve all persons within which a general service is given by
Bell, who comply with the other requirements of the section. It is not intended to
impose a requirement upon the Bell company to extend its services into new areas or to
enter a territory already served by another telephone company. (S.C.R. at 204)
The Court continues to adopt the statement of the Assistant Chief Commissioner quoted below.

By its nature a public utility usually operates in an area or territory in which it alone
provides the service. This is the area or territory in which its general service is given.
The boundaries may be clearly defined but usually are not.
A customer, consumer or subscriber in such an area (with very few exceptions) cannot
elect by which utility he will be served. He has available to him only the services

30

A public utility regulated by statute or franchise is likely to have a positive obligation to furnish a reasonable
quantity and quality of service (Payton, 1981, p. 122).

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provided by the utility giving general service in the area. Hence the reasons for much
legislation to protect him.
Instances have occurred in the past where rivalries have arisen between utilities to
serve certain areas with resulting intrusion by one utility into the territory served by
another.
At the time of the passage of the amendment of 1902 [of the Bell Canada Act] (with
which we are concerned), the pattern of utilities providing a general service in a
particularly territory was well established. At that time there were in the Provinces of
Quebec and Ontario many private and municipal telephone systems.
In my opinion, the wording of the 1902 amendment recognized the necessity of one
telephone system only providing a general service in any one city, town or village, or in
any one territory or service area. (S.C R. at 204-205)
Therefore, given that Metcalfe already had facilities running along the road on which McKenna
resides, the terms of the Bell Canada Act, and an agreement between Bell and Metcalfe (approved by
the Transport Board) not to compete with each other, the Court held that the Boards order is to be set
aside.
Thus, the Court determined the scope of the public utilitys duty to extend facilities, based on
assessment of the circumstances prevailing at the time, to be limited to that utilitys service area.
Importantly, those circumstances included existing statutory provisions and a governmentally
approved agreement of non-competition between Bell and Metcalfe, reflecting the then prevailing
policy choices governing the telephone industry in Canada.

By adopting the Assistant Chief

Commissioners Statement, the Court acknowledged that the boundaries of the public utilitys service
area or territory are usually not clearly defined, thus highlighting the need for factual inquiry.

4.2. Duty to Provide Broadband Service


Turning to the issue in the present proceeding as to whether a carrier may be required to provide
broadband service, Ryan concludes: It follows that the law does not require a carrier, or authorize the
Commission to require a carrier: (a) to provide broadband service to locations within an existing
service territory if the required facilities are not in place (first full paragraph on p. 3, emphasis in
original).

This unequivocal statement is inconsistent with both the common law and Metcalfe
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Telephones Limited v. McKenna. The issue, rather, requires evaluation of circumstances under the

now prevailing public policy choices, which may also vary among carriers particularly given the
statutory requirements of the Bell Canada Act. Canadas current policy is reflected in the policy goals
embodied in section 7 of the Telecommunications Act and the Governor in Councils Policy Direction
to rely on market forces to the maximum extent feasible as the means of achieving the
telecommunications policy objectives (at para. 1(a)(i)).
Such evaluation will be a challenging endeavor for the Commission, as the policy choices have
changed from those based on exclusive franchises in Metcalfe Telephones Limited v. McKenna. In this
regard, it bears emphasizing that under the common law both common carriers and public utilities have
the duty to serve which includes the duty to extend facilities within its service territory in order to
meet reasonable demand. Since telecommunications carriers in Canada are both common carriers and
public utilities, inquiry as to the existing service territory of a carrier needs to take into account
telecommunications carriers dual classification. Moreover, it is my understanding that broadband
service is considered a telecommunications service in Canada. If so, then a telecommunications carrier
that already provides broadband service to some customers within its service territory, can be required
to provide broadband service to others within the service territory in order to meet reasonable demand.
A further factual inquiry, of course, will then be what is reasonable demand. As to this
inquiry, the prevailing universal service policy may be determinative. Without any explicit funding
support, reasonable demand requires that customers be willing to pay compensatory rates.
The core of the duty to serve itself should be properly understood. It is not a
requirement that the utility serve for inadequate compensation; it is an obligation to
serve everyone who makes a reasonable request for service and who tenders reasonable
compensation under rules of general applicability, including, of course, any rate
differentials authorized by the regulatory agency. In other words, the duty to serve,
properly conceived, is a prohibition against arbitrary, ad hoc, and selective refusals to
deal (Payton, 1981, p. 146, emphasis added).
Thus, to prevent arbitrary, ad hoc, and selective refusals to deal, the Commission can order a
telecommunications carrier to extend facilities to provide broadband in its service territory to
customers willing to pay compensatory rates.
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Furthermore, the scope of customers to be served within a service territory could be expanded
through explicit universal service funding support. With regard to the potential for funding support for
broadband service, Ryan concludes:

The Commission has the power under section 46.5 of the Act to create a fund to support
continuing access to basic telecommunications services and to require all service
providers to contribute to that fund; but, in my opinion, this provision does not
authorize the Commission to create a fund to support the building of broadband service
into territories unserved by broadband. This section is intended to ensure that existing
services remain affordable, not to support the introduction of new services. (fourth full
paragraph on p. 3, emphasis in original)
His categorical conclusion that section 46.5 does not authorize the Commission to create a fund to
support the building into territories unserved by broadband is both misleading and a misstatement of
the law. It is insufficiently articulated to reflect the nuances of the scope of telecommunications
carriers duty to serve, and does not recognize the contextual analysis necessary to determine what are
service territories. Ryans conclusion is also internally inconsistent. For example, in par. 3 (in his
Introduction), Ryan states that broadband service is an existing service as he has defined the term for
purposes of his opinion. Thus, if broadband is an existing service and thereby not a new service, then
his objection to applying 46.5 to broadband does not apply.

Finally, basic telecommunication

services is not defined in the Telecommunications Act, but is to be determined by the Commission.
Therefore, the Commission could revise the definition of basic telecommunications services to include
broadband service.

4.2. Duty Not to Discontinue Service or Abandon Facilities Without Prior Approval
An exit barrier also emerged so that [a] public utility regulated by statute or franchise is typically
required to obtain the permission of a regulatory agency before it may withdraw its facilities from
service (Payton, 1981, p. 122), and [n]early all utilities that have major investments in fixed facilities
also have an obligation not to abandon their operations or discontinue unprofitable portions of their
service without the prior consent of the appropriate regulatory agency (Payton, 1981, p. 144). The

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requirement to continue supplying customers as a matter of common law (not contract) has been
recognized in Canada.31

The carrier of last resort obligation is a concept that has often been used to describe this exit
barrier placed on public utilities and usually in the context of exclusive franchises. For
telecommunications services, the carrier of last resort obligation has been an important component of
universal service policy to ensure that less desirable or unprofitable customers would continue to be
served. The application of a carrier of last resort obligation in a competitive environment requires
coordination with modification of universal service policy.32 It is for this reason, as stated in Section
3.2, that application of a carrier of last resort obligation under a policy of forbearance requires careful
evaluation beyond a simple assertion of symmetric application among ILECs and CLECs for
appropriate implementation.

31

See St. Lawrence Rendering Co. Ltd. v. The City of Cornwall, [1951] O.R. 669 (Plaintiff granted an injunction
to require a waterworks system, operating as a public utility system, to reconnect service).
32See Cherry and Wildman (1999).

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Sources Cited

ResponsetoInterrogatory
TelecomNoticeofConsultation201043
PIAC(TELUS)20May103TNC201043(Attachment)

Edward A. Adler, Business Jurisprudence, (1914), 28 Harv. L. Rev. 135.

Charles K. Burdick, The Origin of the Peculiar Duties of Public Service Companies, Parts I-III
(1911), 11 Colum. L. Rev. 514-531, 616-638, 743-764.

Barbara A. Cherry, The Crisis in Telecommunications Carrier Liability: Historical Regulatory Flaws
and Recommended Reform (Norwell, MA: Kluwer Academic Publishers, 1999).

Barbara A. Cherry, Misusing Network Neutrality to Eliminate Common Carriage Threatens Free
Speech and the Postal System (2006), 33 N. Ky. L. Rev. 483.

Barbara A. Cherry, Back to the Future: How Transportation Deregulatory Policies Foreshadow
Evolution of Communications Policies, 24 THE INFORMATION SOCIETY 273 (2008).

Cherry, B.A., & Wildman, S.S., Unilateral and Bilateral Rules:

A Framework for Increasing

Competition While Meeting Universal Service Goals in Telecommunications in Cherry, B.A.,


Hammond, A., & Wildman, S.S., eds., Making Universal Service Policy: Enhancing the Process
Through Multidisciplinary Evaluation (Mahwah, NJ: Lawrence Erlbaum & Associates, 1999) 39.

Leonard W. Levy, Law of the Commonwealth and Chief Justice Shaw (New York, NY: Oxford
University Press, 1957).

Sallyanne Payton, The Duty of a Public Utility to Serve in the Presence of New Competition in
Werner Sichel & Thomas G. Gies, eds., Applications of Economic Principles in Public Utility
Industries (Michigan: University of Michigan, 1981) 121.

Alan Stone, Public Service Liberalism: Telecommunications and Transitions in Public Policy
(Princeton, NJ: Princeton University Press, 1991).
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ResponsetoInterrogatory
TelecomNoticeofConsultation201043
PIAC(TELUS)20May103TNC201043(Attachment)

Cases Cited
Brass v. North Dakota, 158 U.S. 391 (1894).
Budd v. New York, 143 U.S. 517 (1892).
California v. Pacific Railroad, 127 U.S. 1 (1888).
Chastain v. British Columbia Hydro and Power Authority, (1973), 32 D.L.R. (3d) 443, [1973] 2
W.W.R. 481.
Commercial Union Telegraph Co. v. New England Telephone & Telegraph Co., 61 Vt. 241, 17 Atl. R.
1071 (1888).
Federal Communications Commission: In the Matter of Framework for Broadband Internet Service,
Notice of Inquiry, GN Docket. No. 10-127 (released June 17, 2010).
Metcalfe Telephones Limited v. McKenna et al, [1964] S.C.R. 202, reversing (1963), 85 C.R.T.C. 157
(B.T.C.).
Minister of Justice for the Dominion of Canada v. City of Levis, [1919] A.C. 505.
Missouri v. Bell Telephone Co., 23 Fed. 539 (1885).
Munn v. Illinois, 94 U.S. 113 (1876).
Lane v. Cotton, (1701), 12 Mod. 472, 88 E.R. 1458 (K.B.)
Leavell v. Western Union, 116 N.C. 211, 21 S.E. 391 (1895).
Nebbia v. New York, 291 U.S. 502 (1934).
St. Lawrence Rendering Co. Ltd. v. The City of Cornwall, [1951] O.R. 669.
Western Union Telegraph Co. v. Call Publishing Co., 181 U.S. 92 (1901).

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