Bell’s $206-million bill

MARC CLARK October 27 1986

Bell’s $206-million bill

MARC CLARK October 27 1986

Bell’s $206-million bill

For six weeks this summer the austere, windowless room in the Hull, Que., office building was the setting for a debate over hundreds of millions of dollars. The event was an inquiry at the headquarters of the Canadian Radio-television and Telecommunications Commission (CRTC) into the huge profits earned by Bell Canada, the country’s largest telephone company. At issue were concerns that the CRTC had set Bell’s profit margins too high when it last reviewed them in 1984. But few industry observers were prepared for the decision that the federal regulator handed down last week. The commission ordered Bell to pay back $206 million to its seven million subscribers in Quebec, Ontario and the Northwest Territories. And it told Bell to slash its long-distance rates by 20 per cent starting in January—an action that will cost the utility a further $234 million in lost revenue next year. Declared one astonished lawyer involved in the case: “I honestly didn’t think the commission would have the guts to do it.”

Last week’s decision was the culmination of a long-running dispute be-

tween Bell Canada and the CRTC, the federal agency that regulates seven telephone companies, including Bell, for a total of 70 per cent of the country’s market. The CRTC has the power to raise or lower the rate at which Bell, which has a monopoly in the areas it serves, produces a profit. In December, 1984, Bell requested immediate approval of an across-the-board two-per-cent rate hike to begin in January, 1985. CRTC chairman André Bureau approved the request, but he said last week that he had also warned Bell that it should not exceed a profit level of 13.7 per cent for the year—down from the 14.75 that the CRTC had set in 1981. He added that the commission would monitor the company’s finances.

Reaction to the CRTC’s decision was swift. In Edmonton, Sally Hall, president of the Consumers Association of Canada (CAC), said that the ruling vindicated the CAC’s repeated calls for an investigation of Bell’s profits. Declared Hall: “It makes you believe there is justice in high places.” But on the Toronto Stock Exchange the share price of Bell Canada Enterprises, which owns the giant telephone utility, was barely affected. And in Montreal, Bell Canada chairman and chief executive officer Raymond Cyr told Maclean's that the company would

challenge the CRTC ruling. Said Cyr: “It is incomprehensible to us how they can argue that legal profit levels, which they established, are no longer valid after the fact.” He said that Bell Canada will launch an appeal with the CRTC and petition to go before the Federal Court to challenge the commission’s rebate figures. Bell’s lawyers argue that the rebate for 1985 should be only $43 million, but the CRTC ordered the telephone company to pay back $63 million.

Bureau said that in the summer of 1985 CRTC officials became convinced

that Bell did not need the extra two per cent, and on Aug. 14 the commission ordered Bell to eliminate the rate increase. The commission also announced then that it would hold hearings this year to investigate Bell’s profit levels. Bell earned a profit of $652.1 million on revenue of $5.8 billion in 1985, which represents a 14.2per-cent rate of return.

At this summer’s inquiry, Bell proposed a profit level of between 13.8 per cent and 14.3 per cent for 1986 and 1987. Company officials cited lower interest rates and improved economic

conditions as reasons for the reduction from the 1981 level. But the CRTC last week decided to limit Bell to profit levels of 13.25 per cent in 1986 and between 12.25 and 13.25 per cent in 1987. It also calculated that Bell had collected excess revenues of $63 million in 1985 and was set to earn $143 million in excess revenues this year. Bureau defended the commission’s decision to lower Bell’s profit level retroactively. “They knew that the whole thing was going to be reviewed,” he said in an interview, “and they knew very well that their profit level was too high.”

If the commission’s order to repay the profits is not successfully challenged by Bell, the $206-million rebate represents for each customer roughly the cost of two months’ basic service—an average of $18 to $23 for private lines and $84 for business telephones. The commission’s ruling marked the second time in its 18-year history that it has demanded such a payback. In 1979 it ordered British Columbia Telephone Co. to give back to customers $7 million of its $25-million profit for that year in order to meet anti-inflation guidelines adopted by the federal government.

The 119-page CRTC decision also affected some of Bell’s customers who have hearing problems. It ordered the company to provide a 24-hour message relay service for the hearing impaired, a service that has been available to the deaf in British Columbia since 1984. By hooking typewriter-like devices to their telephones, the deaf can send written messages across telephone lines—but only to others who have similar devices to decode the messages in written form. About 9,000 Bell customers already have those devices hooked to their lines. But with the new service, Bell operators can relay the messages verbally to hearing customers not equipped with the machines.

For his part, Bell Canada’s Cyr said that as a result of the CRTC’s decision, the company may cut $300 million from its $1.8-billion capital investment program planned for 1987. Bell wants the CRTC to review the new lower 1986 profit level, and at the same time the company plans to ask the Federal Court of Appeal for an injunction against having to pay the rebate pending the result of its legal challenge. For Bell’s customers, the two months’ free service and lower long-distance rates are not yet a certainty.