Canadian phone customers will get partial rebates worth hundreds of millions of dollars after the Supreme Court of Canada dismissed high-profile appeals Friday, one from Bell and Telus and the other from consumer groups.

History of the case

Older, regulated telephone companies — Bell Aliant (in Ontario and Quebec), Bell Canada, MTS Allstream and Telus — traditionally had a mandatory cap on the monthly price for a residential line (SaskTel's rate cap took effect in 2002). But in 2002, the Canadian Radio-television and Telecommunications Commission allowed those telephone companies to charge home phone customers in urban areas — where the cost of providing phone service is modest — a rate above the cap so new competitors, such as Primus, Rogers and Vidéotron could come in and underprice them. The move was intended to encourage competition and lower rates in the long run.

The extra money was to be collected in special "deferral" accounts. In total $1.6 billion was collected between 2002 to 2006, but the CRTC allowed the phone companies to take some of the money in order to lower the wholesale rates they charged their competitors for use of their phone networks.

In 2006, the CRTC ruled that the remaining money, about $650 million at the time, must be used to fund:

  • Projects to expand rural and broadband coverage.
  • Specialized telecommunications services for the disabled.

In 2008, the CRTC agreed on $350 million worth of such projects, and said the remaining $300 million should be rebated to their urban home phone customers.

The money to expand services for people with disabilities represented about five per cent of the fund. However, the consumer groups tried to appeal the ruling on the other 95 per cent, saying all should be rebated to customers. Bell Canada also appealed, saying none of the money should be refunded to customers.

The Federal Court of Appeal dismissed the appeals. However, the Supreme Court agreed later that year to hear the case. At that point, Telus joined Bell's appeal.

The unanimous court ruling affects the fate of money collected by federally regulated phone companies such as Telus and Bell after they charged urban residential customers more over a four-year period than Canadian regulations normally would have allowed.

Friday's dismissal by the Supreme Court of Canada supports the earlier ruling by Canada's telecommunications regulator that some of the extra money should be used to improve broadband and some should be returned to customers as rebates.

The Consumers Association of Canada and the National Anti-Poverty Organization wanted all the extra money collected between 2002 and 2006 to be returned to consumers, estimating the rebate could be up to $50 per customer. It will now be less than half that.

Ted Woodhead, vice-president of telecom policy and regulatory affairs at Telus Corp., said before the ruling that the average urban Telus customer would receive a rebate of only $10 if the consumer groups won. The rebate will now be much smaller, but Woodhead said Friday that the final amount will not be known until the broadband expansion money has been spent. He added that the cost estimates for the projects were made in 2006, and the actual costs would have increased since then.

Bell, Telus fought all rebates

Bell and Telus had argued that they should not have to rebate any of the extra money to customers.

Bell had argued the rebates amounted to retrospective rate setting to change rates approved in the past by the Canadian Radio-Television and Telecommunications Commission. Telus said the CRTC decision constituted a confiscation of its property.

However, the Supreme Court disagreed, saying the CRTC made clear from the beginning that the extra money would have to be set aside. It added that the regulator had the authority to say how that money should be used.

"It did so... in a reasonable way, both in ordering subscriber credits and in approving the use of the funds for broadband expansion," the ruling concluded.

The consumer groups had argued that the CRTC's decision had been unfair, as it forced urban residential telephone customers to subsidize rural broadband.

However, the Supreme Court said the Telecommunications Act does not require the CRTC to "atomize individual services" and can decide the extent to which it will allow that kind of subsidization. For example, it noted, long distance telephone users have long subsidized local telephone users.

Critics see problem

The Ottawa-based Public Interest Advocacy Centre, which had supported the consumer groups, maintained Friday that this is not the right way to fund broadband.

"The decision today leaves the unelected commission with broad social and economic powers to raise money and pursue telecommunications projects they deem desirable," said Michael Janigan, the group's executive director and general counsel. "Whether this is the result that most Canadians think is desirable is quite another question."

Bell Canada said the Supreme Court ruling means it can now move forward with its CRTC-approved plans to deploy broadband in communities without it using its deferral account funds, which are currently worth $488 million. Many of the projects are in the areas served by its Bell Aliant subsidiary.

"Bell will also work with the CRTC to determine how the remaining balance of the deferral account can be most effectively returned to customers with minimal disruption to the company," the company said in a statement Friday. Most of that money will be returned to urban Bell Canada customers.

Woodhead said Telus's account contained $170 million in 2006, but now has less, as some money has already been spent on projects such as expanding services for people with disabilities.

"We're glad that we have the opportunity to spend a good portion of the funds on expanding broadband to various areas of Alberta, British Columbia and eastern Quebec," he said. He added that the company believes that is a better use of the money than the full rebates that consumer groups wanted. He estimated the broadband projects could begin construction in the spring of 2010.

MTS Allstream and SaskTel were also affected by the CRTC's 2006 ruling. However, Sasktel said it is not affected by the Supreme Court Ruling, as all of its deferral account money, less than $5 million, will be used to improve communications for the disabled. MTS Allstream said it is studying the decision.

CRTC spokesman Denis Carmel said the commission is "delighted that the Supreme Court upheld our decision."