Delivering a sound rejection

In rendering its determination in Teksavvy’s appeal of the CRTC’s 2021 reversal of its original 2019 wholesale internet rates, the Federal Court of Appeal delivered a sound rejection, with costs. The decision is quite readable and I encourage you to take a look.

For newcomers to this lengthy saga, there were major problems with the 2019 decision as I wrote at the time. The CRTC’s 2021 corrections to its flawed 2019 rate setting rekindled a wave of investment.

The final rates triggered a brutal Teksavvy response, including personal attacks on the CRTC Chair and a judicial appeal of the CRTC decision. I had a blog post in 2022 that looked at “Misquotes and mischaracterizations” that were part of the appeal.

The Court writes it has limited powers for its review of a CRTC determination.

Rate-setting and how to go about rate-setting are matters of discretion and policy founded on industry appreciation and specialized technical study—matters resting at the very core of the CRTC’s exclusive jurisdiction under the Telecommunications Act. They are something very much in the wheelhouse of the CRTC and are alien to us. For the most part, as an appeal court, we mainly handle matters of law and related matters such as procedural fairness. For the most part, we do not decide the merits of matters, especially those that draw on industry appreciation and specialized technical study.

The Court noted that ‘“Skilful pleaders” who are “armed with sophisticated wordsmithing tools and cunning minds” can express grounds in such a way as to make them sound like legal questions “when they are nothing of the sort”’.

In this appeal, Teksavvy gamely offers a number of grounds for setting aside the CRTC’s rates decision and phrases them as legal issues to get past the limitation in subsection 64(1). However, in my view, Teksavvy’s real concern is disagreement with the policy adopted by the CRTC and the discretion it exercised in setting the rates, matters that we are powerless to address.

On the issue of the CRTC Chair bias, the Court had much to say. Teksavvy complained that the CRTC Chair had publicly stated a preference for facilities-based competition. Further, Teksavvy filed evidence of the CRTC Chair having drinks at an Ottawa bar with the head of regulatory affairs for Bell during the review of the 2019 rates decision.

As to the facilities-based preference, as I have written before, the Court declared “this complaint has no merit”:

The Chair was doing nothing more than setting out the longstanding and frequently expressed policy position of the CRTC in general terms. As the Chair of a high-profile regulatory body, it was appropriate for him to communicate the policies of the regulator, as had been adopted in CRTC decisions and notices. Such communication can be constructive and in the public interest

In respect of the drinks, the Court says “that on different facts and circumstances could indeed be problematic.” However, the Court said “For a number of reasons, this allegation of bias fails.”

Teksavvy knew about the drinks at the bar but did nothing about it until after the decision went against it.

Knowing about the Chair’s meeting with the senior officer of Bell Canada while the rates applications were pending, Teksavvy did not raise the issue with the CRTC. Instead, it kept the issue to itself until the CRTC released its decision, a decision that went against it.

It is trite law that a party that knows of a procedural flaw, defect or irregularity with an administrative process must raise it with the administrative decision-maker as soon as reasonably possible. Failure to do so constitutes waiver of the flaw, defect or irregularity. It cannot be raised in a judicial review or a statutory appeal of the administrative decision.

The judicial decision says:

it is unseemly for a party to notice that a mistake or oversight has been made and then hide in the weeds, ready to pounce should the case go against it. Such a party has no real interest in correcting the mistake or oversight but rather wishes, for tactical reasons, to take out some insurance against an adverse result. Our administrative law never rewards purely tactical behaviour that benefits a party to the detriment of the larger public interest or the proper administration of justice.

Thus, as Teksavvy did not raise the issue of this meeting while the CRTC was still considering its rates decision, it cannot raise the issue in this appeal.

That isn’t to say that the Court ignored the bar room meeting. The Court acknowledged that CRTC policy suggests that a senior Commission staff person likely should have been present. CRTC policy recognizes the benefits of the regulator meeting with those companies it regulates, but it also offers some ways the risks can be mitigated.

Three years later, all of the appeals of the 2021 wholesale internet access rates have been exhausted, with the Federal Court of Appeal delivering a sound rejection to Teksavvy.

We reached closure on this chapter, just in time to trigger a new wave as the CRTC prepares to release its final determination on disaggregated wholesale high-speed access services including fibre to the home.

First isn’t necessarily the best

There are a number of examples of when being first isn’t necessarily the best. Google was hardly the first search engine, as any of us from the early days can attest. Apple didn’t create the first smartphone or the first music player. And ever since the failure to gain significant international acceptance of the CT2+ standard in the early 1990’s, Canada has used a “fast follower” policy inside Innovation, Science and Economic Development Canada.

However, for regulating Artificial Intelligence (AI), Canada seems to be taking pride in being “one of the first countries in the world to propose a law to regulate AI.”

In February, I wrote about my concerns in respect of technology specific legislation for AI.

Last week, ITIF hosted a one-hour LinkedIn webinar about Canada’s AI and Data Act (AIDA). During the session, concerns were expressed about whether Canada’s legislation was premature. The moderator asked if Canada wants to get the legislation “right”, or get it “right now”. Participants questioned the urgency to press forward with the legislation.

An article in Axios discusses Meta’s decision to withhold its developments in multi-modal AI from Europe because of regulatory concerns. Last month, Apple made a similar announcement, restricting the release of Apple Intelligence, generative AI to be integrated into iPhones, iPads, and Macs.

Will Canada risk similar restrictions on access to innovative services and technologies? Will AIDA lead to negative impacts on Canada’s important AI ecosystem?

When it comes to restrictive legislation, being first isn’t necessarily the best, especially when Canadians might lose out on access to innovative technologies.

An especially relevant dissent

Last week’s CRTC award of more than a quarter billion dollars for an arctic fibre optic route included an especially relevant dissent. Long time readers know that I love reading dissenting views in CRTC decisions.

Telecom Decision CRTC 2024-149 provided a remarkably precise $271,937,242 for the Government of Nunavut’s transport fibre project in Nunavut. The CRTC decision is worth examining for a number of reasons.

To start with, have any of us ever seen a government estimate a project to 9 significant digits of accuracy?

Second, the Broadband Fund is funded by the telecom industry, through a tax administered by the CRTC. So, in a reversal of most broadband projects where a government body subsidizes a private sector initiative to invest in broadband infrastructure, here we have the private sector subsidizing a territorial government. The funding amount is substantial. It represents nearly 2 full years of collection for the Broadband Fund ($150 million per year).

In Decision 2018-377, the CRTC said “the Commission determines that to be eligible for funding, applicants must demonstrate that… they, or at least one member of the applicant partnership, joint venture, or consortium, have experience deploying and operating broadband infrastructure in Canada for a minimum of three years, or they have entered into a contractual arrangement with an entity… that has experience deploying and operating broadband infrastructure in Canada for a minimum of three years.”

That experience requirement is also set out in the Application Guide for the funding call.

In awarding the money to the Government of Nunavut, the CRTC waved its hands over the eligibility of the “applicant” to receive funding from the Broadband Fund.

  1. With respect to applicant type, applicants must demonstrate that they meet the requirements set out in the Application Guide regarding their acceptable legal structure, experience, and financial solvency. Paragraph 6.1.1(c) of the Application Guide sets out that as a territorial government, the GN is exempt from the financial solvency criteria. The Commission considers that the GN has demonstrated that it meets the other requirements. (emphasis added)

Hold on here.

More than a quarter billion dollars is going to a government with just a 14-word sentence confirming it meets the other 4 points of the criteria set out in the Application Guide? Trust us.

Let’s look at some of those criteria.

An applicant must demonstrate that it, or at least one member organization of the applicant partnership, joint venture, or consortium, has experience deploying and operating broadband infrastructure in Canada for a minimum of three years, or that it has entered into a contractual arrangement with an entity as described in 6.1.1(a) above that has a minimum of three years’ experience in deploying and operating broadband infrastructure in Canada.

Note that experience in deploying and operating broadband infrastructure should be related to the project type. For example, the CRTC will assess applicants for mobile projects based on their experience with deploying and operating mobile broadband infrastructure in Canada.

If the Government of Nunavut has the requisite “Broadband infrastructure experience”, shouldn’t the CRTC have taken an extra few words to state that relevant experience?

What about the requirement for applicants to set out the “Defined roles and responsibilities”? The Application Guide says “For example, applicants must identify which entity will retain ownership of the network assets, which entity will be responsible for building the network, and which entity will be responsible for the network’s operation.”

Perhaps there were more details about these criteria in the application. It isn’t obvious to me that the Government of Nunavut has 3 years of experience operating broadband infrastructure. The CRTC decision doesn’t disclose “which entity will retain ownership of the network assets, which entity will be responsible for building the network, and which entity will be responsible for the network’s operation.”

I think that when this level of funding – two years of Broadband Fund contributions – gets handed out, the CRTC should have more than a simple pro-forma statement that asks the public to trust that over a quarter billion dollars is going to an experienced builder and operator of broadband networks.

So, I was pleased to see an especially relevant dissent by Claire Anderson, Commissioner, British Columbia and Yukon, attached to the Decision. Although she does not represent Nunavut, as the first Indigenous woman appointed to the CRTC, with a decade of experience working with Indigenous communities on a wide range of matters to advance reconciliation, her opinion might carry a little extra weight on this decision. After all, in its Summary, the CRTC said this funding contributes “to the Commission’s commitment to advancing reconciliation with Indigenous peoples in Canada”.

In the Dissent, Commissioner Anderson says that there was a duty to consult in advance with NTI, Nunavut Tunngavik Incorporated, “the Designated Inuit Organization responsible for ensuring that the rights and responsibilities set out in the Nunavut Agreement are respected.” The CRTC Decision made the funding conditional on the Government of Nunavut providing evidence of NTI’s support. Did the Commission put the cart before the horse (as Raj Shoan summarized in a series of tweets)? “The CRTC approved the govt’s request for $300 million subject to future evidence that the community in question supported it.”

What was the rush?

It looks like the Commission skipped some steps in ensuring the Applicant is in conformance with the rules, and certainly in consulting with NTI.

Why did the CRTC feel a need to push the cash out the door? Was it tied to the CRTC rejecting an application by Bell Canada to pause contributions to the Broadband Fund? Bell had observed that “the Commission has collected significantly more than the amounts it has awarded through the Broadband Fund and will not be able to distribute the total amounts already collected”.

Four years ago, I asked if the CRTC’s Broadband Fund was fundamentally flawed.

Last week’s decision should raise plenty of questions. It does nothing to assuage my concerns.

Keeping priorities in order

I am keeping my priorities in order, and not planning to post any new content this week.

As many readers know, I have kids and grandkids who live 10 time zones apart from each other and none who live in our time zone. This summer, the family is coming home and this week we will have nearly everyone at the same time.

In poker terms, it serves as a reminder that a full house always beats a pair.

Mark me absent this week. Sorry. But, please be sure to look through the archives. There is some pretty good material in there!

Mapping the digital divide

Last month, the Dais at Toronto Metropolitan University released an update to its flawed 2021 report, “Mapping Toronto’s Digital Divide” [pdf, 3.8MB]. You may recall that the 2021 report was used to support a misguided proposal for the City of Toronto to build its own fibre network in what is already one of the world’s most connected cities.

The new report, “Toronto’s Digital Divide” [pdf, 12.4MB], notes that 98% of Toronto residents have internet service in their home. The new report no longer blames inadequate infrastructure; price is cited as the top reason households remain unconnected. This “underscores the need for Canada to address the cost barrier of internet services for lower-income people.”

Fortunately, the telecom sector has done just that, with lower cost connections available through programs like Rogers Connected for Success, TELUS Internet for Good, and the industry led federal program, Connecting Families. The report acknowledges that “4% of Toronto residents have a home internet plan that costs them $20 a month or less”.

I have written previously that we learned that it isn’t enough to offer low-priced computers and $10 per month broadband.

Georgetown University economist Scott Wallsten described [pdf, 1.8MB] studies conducted by the FCC associated with its Broadband Lifeline service. Those studies tested consumer responses to a range of issues, including preferences for speed, the effects of different levels and types of discounts.

The FCC found “only about ten percent of the expected number of households signed up, even with the price of one plan set at $1.99 per month.” The research also uncovered a significant aversion to digital literacy training classes. “In one project, many participants were willing to forego an additional $10 per month savings or a free computer in order to avoid taking those classes.” It would be interesting to see this research updated by a Canadian study, perhaps working under the umbrella of the Connecting Families project.

The Dais report looked at speeds and total monthly bills for internet and mobile services observing a variability by income. Unfortunately, the study did not appear to normalize these for the variability of household size by income quintile. To that end, I found it was worth looking at Statistics Canada’s Survey of Household Spending for some analysis. When I last looked at the data 9 years ago, the average size of a household in the lowest income quintile was 1.49 members. The highest income quintile averaged 3.34 members. Obviously, with more people living in the household, there would be more cell phones, and more internet connected devices, with increased communications services demands, all contributing to higher bills. It would be important for the next iteration of this research to normalize spending analysis for household size.

Attaining universal adoption of digital technologies is the objective. I concur with the Dais concluding statement. “As Toronto looks forward to the next stages of its digital transformation, taking a broad lens of digital inclusion will provide better and more equitable outcomes for residents. Only when all residents have both access to the internet and the ability to use it effectively will we have overcome the full digital divide.”

It isn’t enough to have affordable broadband at everyone’s doorstep; we need to understand and address those factors that inhibit adoption. More research is needed to develop skills, and to develop strategies for overcoming digital phobias among underserved populations.

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