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Ottawa, 27 June 1988
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Telecom Decision CRTC 88-6
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TELESAT MOBILE INC. - APPLICATION FOR EXEMPTION FROM REQUIREMENT TO FILE CERTAIN TARIFFS
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I INTRODUCTION
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On 11 March 1988, the Commission received an application from Telesat Mobile Inc. (TMI) requesting a Commission ruling that the company would not be required to file tariffs in order to charge tolls for the provision to the public of mobile satellite (MSAT) communication services. TMI stated that its planned MSAT program would include the provision of three generic services: (a) mobile radio service, (b) mobile data service, and (c) mobile interconnected service. The launch of TMI's first satellite is scheduled to occur in 1992.
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On 30 March 1988, the Commission issued CRTC Telecom Public Notice 1988-13 (Public Notice 1988-13), calling for comments on TMI's application. In the public notice, the Commission stated that it considers TMI a "company" within the meaning of section 320(1) of the Railway Act and that TMI is therefore subject to the Commission's jurisdiction.
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In response to Public Notice 1988-13, the Commission received comments from the Canadian Business Telecommunications Alliance (CBTA) and The Canadian Radio Common Carriers Association (CRCCA). The Commission also received a letter, dated 21 April 1988, from the Telecommunications Workers' Union (TWU). TWU requested, for reasons discussed below, that the Commission not proceed with TMI's application.
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II TMI'S APPLICATION
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A. The Application
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In its application, TMI stated that Telesat Canada (Telesat) is, at present, its sole shareholder. However, TMI also stated that it expects to attract private investors. TMI contemplates that Telesat's interest will be reduced to 50.1% in the next few months and may ultimately be reduced to a level as low as 40%. TMI stated that it plans to have arm's length contractual arrangements with Telesat for engineering services to procure and launch its satellite and to provide satellite station-keeping operations while the satellite is in orbit. All business operations and back-up arrangements with American MSAT operators would be the responsibility of TMI. The company would deal directly with end users, with private system operators (essentially, large end users) and with independent service providers, principally value-added competitors.
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In support of its application, TMI noted that it anticipates extensive terrestrial and satellite competition. It pointed out that there are, at present, no barriers to entry in the provision of mobile telecommunications and that there are many mobile service providers in existence. As a result, stated TMI, a mobile satellite system would provide a discretionary service that is already offered by others using different technology.
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Specifically, TMI pointed out that it would be competing domestically with many established radio common carriers, some of which operate on an intra-provincial level, others on an inter-provincial level. TMI noted that none of these carriers are regulated by the Commission under the Railway Act. The company stated that it would also face competition from entities such as Cantel, CellNet Canada and Skytel Communications, as well as from private mobile systems established and operated by large corporate and institutional users. These competitors, stated TMI, are either unregulated or have been granted regulatory forbearance.
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TMI indicated that it would also be subject to foreign competition from entities such as Geostar Corporation, Omninet Corporation and Inmarsat. TMI pointed out that the Commission has no jurisdiction over these carriers. In addition, TMI noted that the availability of mobile satellite services based in the United States would make it difficult to control the availability of such services in Canada.
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TMI noted that, in order to proceed with its MSAT venture, it would be obliged to raise some $300 million to $350 million from external investors. According to TMI, potential investors will be concerned about the type of regulation to which the company would be subject. TMI stated that it is seeking a Commission ruling upon which it can rely in its dealings with potential investors.
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B. Interventions
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In its comments, CRCCA noted that TMI's MSAT services would compete directly with many of the terrestrial services currently provided by its members. CRCCA stated that the application did not define in any detail the relationship between TMI and its parent company, Telesat. CRCCA expressed concern that the revenues and facilities of Telesat's monopoly services might be used to support unfairly a non-regulated service that competed with the services provided by CRCCA members. It asked that the Commission not approve the application unless there were assurances that this would not occur. In addition, CRCCA suggested that contractual arrangements between Telesat and TMI be made public.
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CBTA supported TMI's provision of competitive mobile services, as well as the use of a structurally separate subsidiary as a vehicle for the provision of those services. CBTA pointed out that, in Cellular Radio - Adequacy of Structural Safeguards, Telecom Decision CRTC 87-13, 23 September 1987 (Decision 87-13), the Commission had, in relation to the cellular affiliates of Bell Canada (Bell) and British Columbia Telephone Company (B.C. Tel), dealt with the valuation and reporting of intercorporate transactions, historical transactions, financing, interlocking directors and officers, joint marketing and advertising, involvement by the subsidiary in services provided by the carrier, referrals, and the payment of a deemed return. CBTA submitted that, prior to approving TMI's application, the Commission should examine each of these areas and impose requirements similar to those imposed in Decision 87-13.
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C. TMI's Reply
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In reply to CRCCA, TMI agreed that it would continue to file, subject to any claims of confidentiality that might normally be made, any contractual arrangements between itself and Telesat whose filing was required by the Railway Act. TMI pointed out that approval of its application would not alter Telesat's obligation to comply with all existing legislative and regulatory requirements and procedures. TMI stated that these requirements and procedures provided mechanisms whereby the Commission could satisfy itself that there were no undesirable cross-subsidies, either within Telesat itself or from Telesat to others. Accordingly, approval of TMI's application would not impair the Commission's ability to detect and correct improper cross-subsidies.
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In response to the CBTA, TMI disputed the applicability of the safeguards prescribed by the Commission in Decision 87-13. TMI stated that the cellular affiliates of Bell and B.C. Tel were ultimately wholly owned by the regulated companies in question. By contrast, TMI would never, during its operating life, be wholly owned by either Telesat or by any of Telesat's wholly owned subsidiaries. TMI pointed out that Telesat might not even retain majority control of TMI.
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In addition, TMI noted that the companies competing in the cellular telephone industry depend upon the regulated company for access to the public switched telephone network. TMI, by contrast, would be competing against entities that do not require access to Telesat's domestic fixed service satellite system or to TMI's proposed mobile satellite system.
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TMI pointed out that it would not be acquiring an active or soon-to-be-active business from Telesat. TMI, itself, would be responsible for the acquisition of all assets as described in the application. TMI noted further that the cellular industry was "in full flight" when Decision 87-13 was issued, while TMI's application related to services that would not be provided for at least four years on TMI's own facilities.
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For these reasons, TMI took the position that the cellular industry and the issues involved in Decision 87-13 are sufficiently unrelated to TMI's mobile satellite application that they are not relevant to a disposition of the application.
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III TWU'S APPLICATION
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A. The Application
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On 10 March 1988, the Federal Court of Appeal granted a motion by TWU for leave to appeal the Commission's decision in CNCP Telecommunications - Application for Exemption from Certain Regulatory Requirements, Telecom Decision CRTC 87-12, 22 September 1987 (Decision 87-12). The subject of TWU's appeal is the Commission's jurisdiction under s.320(3) of the Railway Act to exempt a carrier from the requirement to file tariffs.
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On 21 April 1988, TWU requested formally that the Commission hold TMI's application in abeyance pending a judicial determination concerning the Commission's jurisdiction. TWU incorporated by reference arguments it had made in another Commission proceeding; specifically, that the public interest would not be served by proceeding until the Federal Court of Appeal had ruled on the question of the Commission's jurisdiction. TWU submitted that neither the Commission nor potentially interested parties should be obliged to spend time and resources when the legal foundation of the application had been called into question.
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The CRCCA, in its comments, also suggested that it might be more appropriate for the Commission to delay ruling on TMI's application until the Federal Court of Appeal had decided the jurisdictional issue.
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B. TMI's Answer
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TMI filed its answer to the TWU application by letter dated 9 May 1988. In that answer, TMI noted that the Commission has consistently ruled that it has an obligation to proceed with applications submitted to it. TMI cited CNCP Telecommunications: Interconnection with Bell Canada, Telecom Decision CRTC 79-11, 17 May 1979 (Decision 79-11), and Interexchange Competition and Related Issues, Telecom Decision CRTC 85-19, 29 August 1985 (Decision 85-19), as instances where the Commission has referred to this obligation. TMI pointed out that, in Decision 79-11, the Commission had stated that, despite the fact that a return to the status quo would not be a simple matter, it would not hesitate to take the appropriate action if it were demonstrated in the future that any arrangements resulting from its decision were contrary to the public interest. TMI submitted that it would have been far more difficult to reverse the effects of the above-noted decisions than it would be simply to require the re-commencement of tariff filing.
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Secondly, TMI submitted that a delay would prejudice its efforts to finance and commence operation of its MSAT system. TMI stated that, rather than deal with investors in the absence of a Commission decision, it would prefer to obtain a favourable CRTC ruling and then assess and explain the risk of a judicial reversal to potential TMI investors.
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TMI submitted further that the relief sought by TWU resembled injunctive relief. It was TMI's position that, if TWU considered this form of relief appropriate, it should apply to the Federal Court for injunctive relief and give the undertaking in damages that accompanies such a request. Alternatively, TMI submitted that, pursuant to section 50(1)(b) of the Federal Court Act, TWU could apply to the Federal Court of Appeal for a stay of all proceedings before the Commission concerning forbearance from regulation.
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C. TWU's Reply
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In reply to TMI's submissions, TWU stated that its request that TMI's application be held in abeyance was due consistent with its position with respect to the implementation of Decision 87-12 by CNCP Telecommunications (CNCP). TWU stated that the Commission has no obligation to proceed immediately with TMI's application. TWU argued that the cases cited by TMI in support of the existence of such an obligation dealt with proposed delays to await the findings of a Royal Commission, the passage of legislation, or the formulation of government policy. The cases cited did not address the situation of a pending court challenge to the Commission's authority. In the cases cited, stated TWU, there had been no possibility that the Commission could be found to lack authority, and its decision thus invalidated.
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TWU stated that the criteria employed by the Commission in assessing requests for exemptions under section 320(3) of the Railway Act are well known and have been thoroughly articulated in Decision 87-12 and in earlier rulings. TWU disputed the proposition that a Commission ruling that the application is not contrary to the public interest would assist TMI in attracting investors. TWU argued that such a ruling would serve only to assist TMI in formulating proposals to change the law, should TWU's court challenge prove successful. The Commission, stated TWU, should not allow itself to become "a surrogate Law Reform Commission".
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TWU also submitted that its most appropriate course of action was to ask the Commission to hold its proceedings in abeyance, rather than avail itself of the other judicial proceedings that may be available.
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IV CONCLUSION
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The Commission agrees with TWU that the cases cited by TMI do not directly address the present circumstances. Both Decision 79-11 and Decision 85-19 concerned the question of whether or not the CRTC should delay consideration of applications in anticipation of the formulation of comprehensive telecommunications policies. Neither case dealt with the question of a court challenge to the Commission's jurisdiction.
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The Commission notes that, on 24 May 1988, the Federal Court of Appeal heard a motion filed by TWU asking for an order staying further implementation by CNCP of Decision 87-12, pending the Court's final disposition of the TWU appeal. The Federal Court of Appeal granted the relief sought against CNCP.
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Nonetheless, the Commission considers that it is clear law that it has the authority to proceed to dispose of TMI's application, notwithstanding the fact that the breadth of its jurisdiction under section 320(3) of the Railway Act is currently before the courts in relation to another Commission decision. Moreover, for the reasons discussed below, the Commission is of the view that it is in the public interest to proceed.
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In deciding to proceed to dispose of TMI's application, the Commission has given particular consideration to the following circumstances. In essence, the application is a request for a Commission ruling to facilitate the task of financing and commencing operation of its MSAT system. The Commission considers it significant that, with the launching of TMI's first satellite scheduled for 1992, its mobile services will not be operational for some years. The effect of a Commission approval, then, would not be to permit the charging of unapproved tolls, either immediately or in the near future. Rather, such a decision would constitute a simple determination on questions of fact, unaffected by the legal regime which may pertain at the time of implementation.
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In Cellular Radio Service, CRTC Telecom Public Notice 1984-55, 25 October 1984 (Public Notice 1984-55), the Commission stated:
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...the Commission considers that as a matter of regulatory policy it is neither necessary nor desirable, at this time, that Cantel or an arm's length telephone company affiliate be required to file tariffs for the provision of cellular service to the public. This conclusion is based on the Commission's opinion that the benefits which users may derive from this innovative service are likely to be greater if the terms of its provision are governed, as much as possible, by market forces rather than by regulation. In the case of telephone company affiliates, this conclusion is also conditional on there being adequate safeguards to ensure that their cellular activities are at arm's length from, and are not cross-subsidized by revenues from, regulated telephone company activities. Accordingly, the Commission has determined that, pursuant to section 320(3) of the Railway Act, both Cantel and any arm's length telephone company affiliate may charge tolls to the public for cellular radio service for which tariffs have not been filed.
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The Commission notes TMI's arguments concerning the competitive environment in which its MSAT services would operate. As is the case with cellular service, the Commission is of the view that, as much as possible, the offering of these services should be governed by market forces rather than by regulation. However, the existence of effective competition has not, in itself, been sufficient to satisfy the Commission that it can, in the public interest, dispense with the requirement that tariffs be filed. As noted in Public Notice 1984-55, the Commission must also satisfy itself that adequate safeguards exist with respect to the possibility of cross-subsidization. The Commission has often articulated its concern in this respect. For example, in Participation of Bell Canada and British Columbia Telephone Company in the Multiline and Data Terminal Equipment Market, Telecom Decision CRTC
86-5, 20 March 1986, the Commission determined that the market for multiline and data terminal equipment services was sufficiently competitive that, coupled with regulatory safeguards to prevent cross-subsidization from monopoly services, market forces could be relied upon to ensure that Bell's and B.C. Tel's rates for multiline and data terminal equipment were just and reasonable.
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The Commission is not persuaded by TMI's arguments that its application is sufficiently unrelated to the provision of cellular service that the issues considered in the proceeding leading to Decision 87-13 are not relevant to it. TMI itself points out that cellular service providers compete in the very market which TMI hopes to enter. Furthermore, TMI is, and is expected to remain, an affiliate of Telesat, just as the companies which are the subject of Decision 87-13 are affiliates of Bell and B.C. Tel. The Commission regards these factors as sufficient cause for a consideration of the safeguards necessary to prevent the cross-subsidization of TMI's competitive services with revenues from Telesat's monopoly services.
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The Commission therefore directs TMI to file semi-annual reports on its relations and dealings with any affiliated company. These reports are to provide information regarding all transactions between TMI and its affiliates, including, inter alia, those which deal with financing, start-up costs and the provision of personnel or other services. Where fair market value has not been used, the method of valuation shall be provided together with supporting explanations. In addition, the Commission would expect to receive copies of all contracts between TMI and its affiliates. The first of these reports, covering the period from July to December 1988, is to be filed by 1 March 1989. Subsequent reports are to be filed each year within 60 days of the end of June and the end of December.
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Fernand Bélisle
Secretary General
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