Telus Battles the CRTC

[Edmonton, ALBERTA] The telecommunications industry’s volatile relationship with the Canadian
Radio-television and Telecommunications Commission (CRTC) was further underlined late yesterday
when Telus, Western Canada’s telecommunications heavyweight, announced that it was appealing the
CRTC’s Decision 2000-745, which lists changes to the contribution regime.

Announced on November 30, 2000 and effective January 1, 2001, the decision modifies the way in which
subsidies are collected in order to support local residential telephone service in rural Canada which is just
as competitively priced as those in metropolitan areas, but inevitably more expensive for
telecommunications providers to offer. The new method of subsidization requires all telecommunications
service providers to contribute a percentage of their revenues to a national subsidy fund. Previously,
subsidies were collected exclusively from long-distance service providers on a per-minute basis.

In its appeal, Telus is questioning the CRTC’s attention (or, according to the firm, the lack thereof) to the
embedded capital costs telecommunications companies incur when they provide services to
out-of-the-way places. Furthermore, the Commission’s decision has the potential to affect other utilities
industries, a Telus executive pointed out.

“In making this determination, the CRTC has disregarded a fundamental regulatory and common law
principle that has defined the relationship between regulators and regulated utilities for nearly a century,”
said Willie Grieve, vice president of government and regulatory affairs at Telus. “The statutory imperative
to set just and reasonable rates is central to the Telecommunications Act as well as public utility legislation
governing natural gas and electric utilities … This is a compelling case for the Court to grant leave to
appeal. It has public policy implications that go beyond the telecommunications industry.”

Grieve went on to state that Telus is looking to the Court to examine whether or not, under this decision,
the CRTC is relinquishing its legal responsibility.

“In the final analysis, the main issue Telus would like the Federal Court of Appeal to address is whether the
CRTC, by suddenly changing the conditions of the long-standing ‘regulatory bargain’ and now ignoring the
ability of a regulatory utility to cover its embedded costs, is in fact abdicating its statutory responsibility
under the Telecommunications Act,” he said.

Telus is not the only company to question the CRTC’s latest move. On December 13, Bell Canada filed an
application directly with the CRTC, requesting that the Commission make adjustments to Decision
2000-745. Bell’s request specifically cites the portion of the decision that requires telecommunications
companies to contribute 4.5 percent of revenues for 2001. The CRTC will then re-calculate the subsidy
requirement for 2002. According to Bell, the impact that this initial percentage on some members of the
industry will be too extreme.

“The most practical solution is for the CRTC to reduce the tax rate for 2001 to

a level that will have fewer
negative impacts, yet keep intact all of the key elements of the framework that the decision puts into
place,” Robert Farmer, Bell Canada’s vice president of regulatory matters, said in a statement.
“Specifically, we are proposing that the total funds collected from a broad range of service providers and
distributed next year be reduced from 4.5 percent of revenues to the expected 2002 level of 2.7 percent.”
Bell also proposed that a rate of 1.5 percent, instead of 4.5 percent, apply to the wireless community.

Not surprisingly, long distance service providers applauded the CRTC’s decision. “Call-Net believes the
framework adopted by the CRTC effectively resolves the key policy concern about how to ensure
universality in a manner that allows the CRTC to focus on encouraging vigorous competition in all
telecommunications markets,” Bill Linton, president and CEO of Call-Net Enterprises Inc. and Sprint
Canada, said at the time. “In resolving contribution reform, we expect that all consumers, including local
residential customers, will benefit from a more competitive telecommunications industry that will come as
the CRTC turns its focus now to other regulatory problems.”

John McLennan, vice chairman and CEO at AT&T Canada, expressed similar satisfaction. 3We are
pleased that the CRTC is promoting a more balanced and equitable approach to collecting the subsidy
supporting affordable local service for Canadians,2 he said. 3A decision like this one is a welcome sign
that the CRTC understands and is addressing the regulatory pressures facing the new entrants who are
investing to provide competition and customer choice in Canada.2 While Bell estimated a payout of
approximately $120 million in 2001, Telus has not hinted at how much the company would have to pay
under the new decision. In related news, Telus yesterday announced that is was simplifying its corporate
structure in the New Year. Telus Communications (B.C.) Inc., Telus Communications Inc. and Telus
Mobility Cellular Inc. will be amalgamated under one umbrella, Telus Communications Inc.

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