February 3, 2012

Mr. John Traversy Secretary General Canadian Radio-television and Telecommunications Commission Ottawa, ON, K1A 0N2

Dear Mr. Traversy:

RE: Application Pursuant to Part 1 of the CRTC Rules of Practice and Procedure and the Telecommunications Act by L’Association des Compagnies de Téléphone du Québec Inc (ACTQ) and by the Telecommunications Association (OTA) for a Stay of Certain Portions of Obligation to serve and other matters, Telecom Regulatory Policy CRTC 2011-291.

A. Request for a stay

1. Pursuant to Part 1 of the CRTC Rules of Practice and Procedure (“the Rules”) and sections 50 and 55 of the Telecommunications Act (“the Act”), L’Association des Compagnies de Téléphone du Québec Inc, on behalf of its nine member companies (“ACTQ”) and the Ontario Telecommunications Association, on behalf of 21 of its member companies (“OTA”) (collectively referred to herein as either “ACTQ/OTA” or “the Applicants”)1 hereby apply for a stay of certain portions of Obligation to serve and other matters, Telecom Regulatory Policy CRTC 2011-291, dated 3 May 2011, and Telecom Regulatory Policy CRTC 2011-291-1, dated 12 May 2011 (collectively referred to herein as “TRP 2011-291”).

2. Specifically, by this application, ACTQ/OTA seek to stay the implementation of the Commission’s determinations and directives contained in paragraph 122 of TRP 2011- 291, only as they relate to the small incumbent local exchange carriers (“SILECs”), as well as certain associated portions, namely paragraphs 166-186 and Appendix B. As discussed in section E below, two other related Commission proceedings are also sought to be stayed by this Application, as they are directly linked and integral to the Commission’s determinations in TRP 2011-291 that are the subject matter of this Application.

1 A list of the ACTQ and OTA member companies represented by this Application is provided in the Appendix hereto. - 2 -

B. Background - TRP 2011-291

3. In TRP 2011-291, at paragraph 43, the Commission concluded that the obligation to serve and the basic service objective, as they currently apply to voice services, must be retained for all incumbent local exchange carriers (“ILECs”), including SILECs, operating in regulated exchanges, regardless of whether or not the exchanges are located in high cost serving areas (“HCSAs”).

4. The companies represented by ACTQ/OTA were all participants in the proceeding that culminated in TRP 2011-291, they are all SILECs, and they all provide residential primary exchange voice telephone service (“PES”) to their customers residing within their serving territories, all of which are exclusively HCSAs. Accordingly, as a result of TRP 2011-291, all of the ACTQ/OTA companies have retained their long-standing obligation to serve2 and are subject to the basic service objective.3

5. At paragraph 158 of TRP 2011-291, the Commission concluded that local competition, including wireless number portability (“WNP”), as well as local number portability (“LNP”) (collectively referred to herein as “local competition”), should continue to be introduced into the territories of all SILECs based on existing regulatory frameworks; however, the Commission also acknowledged, at paragraph 157, the adverse financial impact that local competition might have on SILECs. As a result, the Commission then embarked upon an analysis in Section B of Part IV of TRP 2011-2914 as to whether SILECs required “...special considerations with respect to the subsidy regime and cost recovery” (as modifications to the existing frameworks) “...in order to attenuate that financial impact”.

6. In addition, at paragraph 122 of TRP 2011-291, the Commission made certain further modifications to the subsidy regime of both the ILECs and the SILECs which take effect not later than August 1, 2011, as follows:

122. In view of the above, the Commission determines that, effective 1 June 2011, in the regulated HCSAs of all large and small ILECs where subsidies have not yet been eliminated and monthly rates are below $30, these rates can be increased, as discussed below, to the lesser of $30 or the amount required to eliminate subsidy. The maximum allowable rate increases will be imputed for the calculation of the rate component, regardless of whether the ILEC actually increases its rates. For 2011, the imputed increases are to take effect no later than 1 August 2011, with subsidy calculations adjusted accordingly. For future years, all increases to the rate component for the purposes of subsidy calculation will be imputed as of 1 June. The increases to the rate components will be phased

2 At paragraph 30 of TRP 2011-291, the Commission describes the obligation to serve imposed on all ILECs, including SILECs, as a requirement to “provide all tariffed services, including PES, throughout their territories”. 3 At paragraph 7 of TRP 2011-291, the Commission describes the basic service objective as consisting of the following: “…individual line local Touch-Tone service; access to low-speed Internet at local rates; access to the long-distance network and to operator/directory assistance services; enhanced calling features, including access to emergency services, voice message relay service, and privacy protection features; and a copy of the current local telephone directory.” 4 At paragraphs 159-186 of TRP 2011-291. - 3 -

in over a period of three years (the transition period), in equal annual increments.

7. Paragraphs 163 and 164 of TRP 2011-291 contain a number of key findings of fact by the Commission that are relevant to this application, as follows:

• “...potential competitors (of the SILECs) are well-established, generally large telecommunications service providers with networks already in place in the small ILECs’ territories.”

• “...competitors, especially cable companies, would mostly target customers who are generally located in the core of a small ILEC’s territory, where the competitor’s existing network is typically present.”

• “...small ILECs would face competition for these customers while still being required to serve customers located in the rural sections, where costs are higher.”

• “...recovery of the costs of implementing WNP and/or local competition, including one-time start-up costs and ongoing costs, combined with reduced revenues due to the loss of customers, might affect the small ILECs’ ability to meet their service obligations, particularly to customers outside the core.”

• “...it would not be feasible for the small ILECs to recover these costs and/or lost revenues entirely through rate increases.”

8. As a result of these findings, the Commission reached the following important conclusions at paragraph 165:

“The Commission therefore concludes that the small ILECs should be subject to special considerations with respect to the implementation of WNP and/or local competition in their territories. These considerations, which are outlined below, are intended to mitigate the financial impact of implementing WNP and/or local competition on the small ILECs. As a result, the small ILECs should be able to continue to provide all customers in their territories with reasonable access to reliable wireline services.” (Emphasis added)

9. In the balance of Section B of Part IV of TRP 2011-291, having found that the circumstances relating to the introduction of local competition in their territories warrant special considerations “...intended to mitigate the financial impact” on the SILECs, the Commission outlined certain modifications to the existing subsidy and cost recovery regimes pursuant to which the SILECs “...should be able to continue to provide all customers in their territories with reasonable access to reliable wireline services.” These special considerations applicable only to the SILECs must be read in conjunction with other modifications to the overall subsidy regime adopted by the Commission in TRP 2011-291, such as at paragraph 122. - 4 -

10. With regard to special considerations relating to local competition start-up costs, the Commission reached the following conclusions:

• Special considerations regarding the recovery of these start-up costs apply only to the smallest of the SILECs “...given the small number of NAS they serve” (paragraph 166); and

• A threshold of 3,000 NAS (computed by including the total residential and business NAS of all the SILEC’s affiliates and/or its parent company, where applicable) is the “...appropriate point at which to determine whether a small ILEC should be subject to special considerations regarding the recovery of (local competition) start-up costs...” (paragraph 167).

11. In terms of special considerations relating to ongoing costs of local competition, the Commission concluded as follows:

• The SILEC subsidy regime must include special considerations to assist the SILEC in recovering ongoing costs associated with local competition and to mitigate the potential impact on customers’ rates (paragraph 173); and

• SILECs that incur ongoing costs associated with local competition “...will be permitted to lower the PES rate component used in calculating their subsidy by an amount equal to the lesser of the following: the approved ongoing costs on a per- NAS, per-month basis, or $2 per NAS per month.” (paragraph 174).

12. Finally, with respect to special considerations applicable to the subsidy regime, the Commission determined the following:

• Effective January 1, 2012, the subsidy payment process for the SILECs would change from a fixed annual amount paid on a monthly basis to a per-NAS mechanism, similar to the process used for large ILECs, calculated and paid on a monthly basis (paragraph 179); and

• A three-year transition period following the implementation of local competition would be appropriate under which SILECs will receive full subsidy calculated on a per-NAS basis for all the NAS they serve in their exchanges, and 50 percent of the subsidy, again calculated on a per-NAS basis, for each NAS lost to competitors. After the three-year transition period, SILECs would receive subsidy in competitive regulated exchanges only for the number of residential NAS they serve (paragraph 177).

13. The ACTQ/OTA member companies conducted a rigorous review of the foregoing special considerations introduced in TRP 2011-291. They also undertook a detailed financial analysis of the impact of the Commission’s subsidy and cost recovery determinations in TRP 2011-291, including the financial impacts of the special considerations on their respective member companies. - 5 -

14. On the basis of this review and financial analysis, it became evident that, if allowed to take effect, the Commission’s special considerations for SILECs would categorically fail to mitigate or attenuate the financial impact upon the ACTQ/OTA member companies of the introduction of local competition within their territories. Rather, if implemented, the special considerations would have a crippling financial impact on the companies facing local competition. Indeed, as a direct result of this CRTC- mandated regime, the Applicants became deeply concerned about their ability to continue to provide all customers in their territories with reasonable access to reliable wireline services.

15. The Commission’s changes to the SILEC cost recovery and subsidy regimes in paragraphs 166 to 186 of TRP 2011-291 have the potential to directly and significantly undermine the financial viability of SILECs facing local competition and eliminate their capacity to meet the service obligations to their most dependent customers for whom local competition will afford no benefits whatsoever. Far from solving the problems for SILECs stemming from local competition implementation, the Applicants believe that the so-called “special considerations” will instead compound the SILECs’ financial difficulties and constrain their ability to compete in their core markets and meet their obligations to serve all customers in uncontested areas of their exchanges. In essence, there will be a “doughnut effect” where the centre of the doughnut represents the higher density lower cost portions of the service territory that are almost certain to be targeted by competitors, leaving subscribers residing within the lower density higher cost outer regions of the doughnut entirely reliant on the SILECs’ obligation to serve.

16. Accordingly, in an application dated 5 July 2011, the Applicants requested that the Commission review and vary certain determinations in TRP 2011-291.

17. On 28 November 2011, the Commission issued ACTQ/OTA/CityWest – Application to review and vary Telecom Regulatory Policy 2011-291 regarding determinations affecting small incumbent local exchange carriers, Telecom Decision CRTC 2011-733, in which it denied the Applicants’ request, on the grounds that it had not made any of the errors of fact or law identified by the Applicants in their application.

18. ACTQ/OTA remain convinced that implementation of the elements of the CRTC’s cost recovery and subsidy framework referred to in paragraph 2 above will directly and significantly undermine the financial viability of their member companies facing local competition and constrain their ability to compete in their core markets and meet their obligations to serve all customers in uncontested areas of their exchanges. Not only is the adverse impact on ACTQ/OTA of the CRTC’s cost recovery and subsidy framework in TRP 2011-291 likely to weaken the social and economic fabric of certain regions of Canada, it will also put into question the ability of Canadians in some rural areas to access reliable and affordable telecommunications services of high quality, contrary to the Canadian telecommunications policy objectives set out in section 7 of the Act. Furthermore, in some circumstances, implementation of these elements of the CRTC’s decision could lead to ineffective regulation and a reduction in competition, contrary to the policy objectives of the Act. - 6 -

19. For these reasons, the ACTQ/OTA has filed a petition with the Governor in Council, pursuant to Section 12 of the Act, requesting a variation of those parts of TRP 2011-291 that are the subject matter of this stay application, as identified in paragraph 2 above.

20. Accordingly, ACTQ/OTA respectfully request that the Commission stay the portions of TRP 2011-291 identified in paragraph 2 above, pending the Governor in Council’s review and determination of the Applicant’s petition. In addition, as discussed in Section E of this Application, we request that the Commission suspend the proceeding initiated in Telecom Notice of Consultation CRTC 2011-348 until the Governor in Council has made a final determination and, further, that the Commission stay its own decisions with respect to the implementation of local competition in some SILEC territories, also pending final determination by the Governor in Council.5

C. The Commission’s test for a stay

21. Section 55 of the Act vests the Commission with the powers of a superior court in the exercise of its authority and the performance of its duties. These powers include the jurisdiction to grant a stay of its own telecom determinations. The Commission has on many instances in the past stayed the implementation of its telecom decisions, in whole or in part, where this was required for a meaningful and effective review pursuant to section 62 of the Act.6 The Commission should take the same approach with respect to a review pursuant to section 12 of the Act, where the criteria for a stay have been met; otherwise it risks rendering moot the very issues that the Governor in Council has a separate and distinct legal mandate to review, either of its own motion or on petition in writing.

22. In determining whether to grant a stay of a telecom decision, the Commission has historically7 adopted the three-part test established by the Supreme Court of Canada in (Attorney General) v. Metropolitan Stores (MTS) Ltd.,8 as modified by RJR- MacDonald Inc. v. Canada (Attorney General)9 (the RJR-MacDonald test). The RJR- MacDonald test requires that the Commission grant the ACTQ/OTA’s requested stay if it is satisfied that each of the test’s three criteria have been met by the applicant, namely, that:

(a) there is a serious issue to be determined;

(b) the applicant will suffer irreparable harm if the stay is not granted; and

(c) the balance of convenience, taking into account the public interest, favours granting a stay.

5 On 24 January 2012, the CRTC issued 13 decisions disposing of SILEC implementation plans that were filed in response to formal expressions of interest from new entrants. See Telecom Decisions CRTC 2012-35 to -47. 6 See, for example, Application by MTS Communications Inc. for a stay of Allstream v. MTS-Sherbrooke Central Office, Telecom Decision CRTC 2003-62, Telecom Decision CRTC 2003-71, dated 17 October 2003 and Application by the Canadian Marketing Association to stay Decision 2004-35, Telecom Decision CRTC 2004-63, dated 28 September 2004. 7 See CRTC Practice Note, dated February 28, 1997. 8 Manitoba (Attorney General) v. Metropolitan Stores (MTS) Ltd. [1987] 1 S.C.R. 110. 9 RJR-MacDonald Inc. v. Canada (Attorney General) [1994] 1 S.C.R. 311. - 7 -

23. With regard to the first criterion of whether there is a serious issue to be tried, the Court in RJR-MacDonald stated:

“There are no specific requirements which must be met in order to satisfy this test. The threshold is a low one. The judge on the application must make a preliminary assessment of the merit of the case. Once satisfied that the application is neither vexatious nor frivolous, the motions judge should proceed to consider the second and third tests, even if of the opinion that the plaintiff is unlikely to succeed at trial. A prolonged examination of the merits is generally neither necessary nor desirable.”10

24. With respect to the second criterion of the test, that the applicant would sustain irreparable harm in the absence of a stay, the Supreme Court in RJR-MacDonald held that a stay should be granted where a refusal to do so would result in irreparable harm that could not later be remedied or compensated. The proper focus of the analysis is on the nature of the harm and not its magnitude.11 An example of irreparable harm noted by the Court in RJR-MacDonald was “where one party will suffer permanent market loss”.12 The Court further noted that “(i)t is appropriate to assume that the financial damage which will be suffered by an applicant following a refusal of relief, even though capable of quantification, constitutes irreparable harm”.13

25. The final criterion of the RJR-MacDonald test requires balancing the harms that would be suffered by either party if the stay was or was not granted. In striking this balance, attention is also to be given to the public interest. As defined by the Supreme Court in RJR-MacDonald, the public interest includes “both the concerns of society generally and the particular interests of identifiable groups.”

Application of the law regarding stays to the facts of this case

(a) There is a serious issue to be tried

26. As noted at paragraph 23 of this Application, the Supreme Court of Canada has decided that, in determining whether there is a serious issue to be tried, the threshold to be met is a low one. Moreover, there are no specific requirements which must be met in order to satisfy this criterion. Instead, the decision-maker on the application must make a preliminary assessment of the merits of the case in order to be satisfied that the application is neither vexatious nor frivolous.

27. There are several serious questions that arise regarding the implications of the Commission’s determinations in TRP 2011-291 and specifically whether their implementation will lead to results that run directly counter to the Canadian telecommunications policy objectives set out in section 7 of the Act. The serious issues that ACTQ/OTA intend to address in their forthcoming application to the Governor in Council are briefly described in the next following subparagraphs:

10 RJR-MacDonald Inc. v. Canada (Attorney General) (“RJR-MacDonald”) [1994] 1 S.C.R. 311, at paragraphs 49 and 50. 11 RJR-MacDonald, at paragraph 59. 12 RJR-MacDonald, at paragraph 59. 13 RJR-MacDonald, at paragraph 61. - 8 -

• With regard to the impact of the Commission’s decision on the accessibility of reliable and affordable telecommunications services of high quality to Canadians in both urban and rural areas in all regions of Canada, the Applicants submit that implementation of the subsidy and cost recovery regime established in TRP 2011-291 will have a crippling financial impact on the ACTQ/OTA companies that face local competition and will thereby undermine their ability to continue to provide all customers in their territories with reasonable access to reliable wireline services. The Commission has failed to take into account significant differences in the operating conditions faced by the Applicants in their territories, as compared to large ILECs. These include both the fixed nature of their operating costs as well as the challenges to raising rates in the face of competitive entry by well-established, generally large telecommunications service providers who are well-financed and already have networks in place. Moreover, the Applicants are of the view that the Commission has failed to take proper account of the fact that SILECs, unlike ILECs, serve exclusively HCSAs.

In these circumstances, there is a significant likelihood that the ACTQ/OTA member companies that face local competition will be unable to properly fulfill their obligation to serve all customers in their service area, specifically those in the less densely populated portions of the region, where costs are extremely high and where the prospects of competitive entry other than extremely expensive satellite solutions are remote.

• With regard to the impact of the Commission’s decision on increased reliance on market forces and on the use of efficient and effective regulation, the Applicants submit that there is a real possibility that implementation of the subsidy and cost recovery regime established in TRP 2011-291 will, in some instances, result in such significant financial harm to the SILECs that there will necessarily be consolidation of the SILEC and new entrant serving a particular region. Far from creating greater reliance on market forces in these regions, implementation of the elements of the subsidy and cost recovery regime identified in paragraph 2 above will ultimately result in the disappearance of a long standing service provider with deep connections into a community and its replacement with a large, well-financed national or regional carrier that has neither the obligation nor the commercial incentive to serve all customers in the service area. Not only does this outcome reflect ineffective regulation, it precludes greater reliance on market forces and could weaken the social and economic fabric that SILECs have successfully woven in support of many rural regions of the country over the last century.

28. While the CRTC has concluded, in Telecom Decision CRTC 2011-733, that it did not make the errors of fact or law that could undermine the attainment of the Canadian telecommunications policy objectives set out in section 7 of the Act, in the manner described above, the Applicants submit that they have identified several serious issues for review by the Governor in Council, pursuant to its supervisory jurisdiction that was recently confirmed in the Federal Court of Appeal’s decision in Wireless - 9 -

Management Corporation and Attorney General of Canada v. Inc. and Communications Company et al.14 As noted earlier, in deciding on whether the first requirement for issuing a stay is satisfied, the CRTC must simply be satisfied that the matter is neither frivolous nor vexatious. The Applicants submit that there is no doubt that they have met this threshold and that there are serious issues for the Governor in Council to consider pursuant to its own mandate.

(b) The Applicants would suffer irreparable harm if the stay is not granted

29. As noted above, the Supreme Court of Canada has held that in determining whether to grant a stay of execution, it is the nature of the harm and not its magnitude that is the proper focus of the determination. One example of irreparable harm that the Supreme Court expressly referenced in RJR-MacDonald was “where one party will suffer permanent market loss”. The Court further noted that “[i]t is appropriate to assume that the financial damage which will be suffered by an applicant following a refusal of relief, even though capable of quantification, constitutes irreparable harm”.

30. In TRP 2011-291, the Commission recognized that the introduction of local competition in the exchanges of all of the SILECs would result in customer loss and market share erosion. For example, at paragraphs 163 and 164 of the decision, the Commission predicated in part the adoption of its special considerations on the likelihood that “reduced revenues due to the loss of customers might affect the small ILECs’ ability to meet their service obligations.” The concern about customer and market loss was itself based on the Commission’s finding that the potential competitors of the SILECS are “well-established, generally large telecommunications service providers with networks already in place in the small ILECs’ territories”. The ACTQ/OTA recognizes that there will inevitably be loss of market share once local competition is introduced; however, key to the competitive dynamic is the ability of SILECs to respond in a commercially viable manner or risk suffering irreparable harm.

31. In the aftermath of TRP 2011-191, the ACTQ member companies have already received notices of intention to compete in their territories from one of the largest cable companies in the Province of , Cable Inc., using the Local Network Interconnection (LNI) services of TELUS Communications Company. For their part, five OTA member companies have also received notices from , an integrated cable and telecom company that boasts operations across Canada, and further notices are expected in the near future.

32. The magnitude of market share loss, as noted, is not the court’s primary focus of attention in determining whether or not to grant a stay. Nonetheless, where the Commission expressly anticipates significant market share loss to the Applicants as a result of local competition being permitted within their territories, as it did in TRP 2011-291, and where successful, longstanding companies have reasonable expectations that the regulatory regime will fail to mitigate financial harm and indeed may exacerbate the situation, thereby undermining their ability to serve all parts of their rural service territory, the

14 2011 FCA 19. - 10 -

Applicants submit that they have met the “irreparable harm” branch of the test. Specifically, based upon its review of the Commission’s special considerations and its own financial analysis, the ACTQ/OTA companies now project extensive market share loss and concomitant adverse financial impact beyond what might reasonably have been expected had the Commission adopted no special considerations at all.

33. The inescapable conclusion drawn by the Applicants is that the terms and conditions of TRP 2011-291, and particularly the modified subsidy and cost recovery regime embodied in the Commission’s special considerations, will undermine the financial stability of the companies, inhibit their ability both to compete within their highly-contested exchange cores and to meet their service obligations to customers residing beyond their exchange cores, and result in greater market share loss than would have otherwise been the case had the Commission maintained the status quo and not adopted any special considerations for the SILECs.

34. While the Applicants accept that they will inevitably lose some market share to new entrants, the adverse financial impact of the subsidy and cost recovery regime established by the Commission in TRP 2011-291 will destroy their ability to respond adequately to this market share loss, while respecting their obligation to serve, and to stand ready to serve, all customers in their service area at the same time. Unlike the large ILECs, SILECs are much more financially dependent upon the subsidy and cost recovery regime in an environment of local competition, due to the fact that all of their territories are HCSAs. In contrast, the number of HCSAs residential NAS of the large Canadian ILECs with the highest number of HCSA residential subscribers totals less than half of that company’s residential subscriber base. If implementation of this regime is not stayed, it will unquestionably result in irreparable harm to the ACTQ/OTA companies.

(c) The balance of convenience favours granting the stay

35. The final criterion of the RJR-MacDonald test requires balancing the harms that would be suffered by the respective parties if the stay was or was not granted. In striking this balance, attention is also to be given to the public interest. As defined by the Supreme Court, the public interest includes “both the concerns of society generally and the particular interests of identifiable groups”.

36. Should the Commission decline to issue a stay in this case, the ACTQ/OTA companies would be far more adversely impacted than would any potential local service competitors that seek to enter into their serving territories, should the Commission issue a stay. A simple reading of TRP 2011-291 reveals that all of the Commissioners were greatly troubled by the potential financial harm to the SILECs that could result from local competition at the hands of the large, well-established and economically strong cable companies that already boasted extensive networks in the cores of the SILEC exchanges. That the Commission determined in paragraphs 163 to 165 of the decision that special considerations were required to mitigate the adverse financial impacts anticipated for the SILECs in the face of local competition implementation by stronger, better-financed potential competitors is proof positive that the balance of convenience in this case favours the grant of a stay. - 11 -

37. At this time, the cable companies that have sought to enter and contest the market of the Applicants do not have access to the SILECs’ local customer base to provide them with local wireline telephone services. These same potential competitors, however, already have extensive cable, internet and local wireline telephone operations throughout the provinces of Quebec and Ontario upon which to finance their competitive entry in future into the ACTQ/OTA member company exchanges. The grant of the stay requested in this case will do nothing to undermine the well-being of their current operations and their associated healthy revenue streams and profit margins. Conversely, the denial of the stay and the implementation of local competition on the terms and conditions contained in TRP 2011-291 would result in a drastic deterioration in the financial and operational situation of the Applicants, including direct compromise to their ability to compete and retain market share in their contested exchange cores while attempting to fulfill their service obligations to customers residing in the higher cost areas of their territories beyond their exchange cores.

38. Moreover, as ACTQ/OTA will demonstrate more fully in its application to the Governor in Council, implementation of the provisions of TRP 2011-291 identified in paragraph 2 will serve to weaken the social and economic fabric of certain regions of Canada, put into question the ability of Canadians in some rural areas to access reliable and affordable telecommunications services of high quality, result in ineffective regulation and possibly lead ultimately to a reduction in competition, contrary to the Canadian telecommunications policy objectives set out in section 7 of the Act. The potential for this adverse impact on the public interest should also be taken into account.

39. Given the serious possibility that implementation of the CRTC’s decision will result in significant financial harm to the SILECs and in the undermining of the Canadian telecommunications policy objectives, it is clear that the balance of convenience in this case favours the grant of a stay to ACTQ/OTA pending the Governor in Council’s consideration of the Applicant’s forthcoming application pursuant to section 12 of the Act.

E. Timing

40. In view of the fundamental adverse impact upon the ACTQ/OTA companies that would result from the Commission’s adoption of the special considerations in TRP 2011-291, and given the associated pervasive financial and operational uncertainty now affecting them, the Applicants request that the Commission examine and determine this application for a stay on an urgent and expedited basis.

41. The Applicants note that in Review of regulatory framework for the small incumbent local exchange carriers and related matters, Telecom Notice of Consultation CRTC 2011-348, Ottawa, dated 26 May 2011, as amended by Telecom Notice of Consultation CRTC 2011-348-2, dated 28 November 2011 (“collectively TNC 2011-348”), the Commission is intending to proceed early in 2012 with a proceeding to review the regulatory framework for the SILECs, as well as other related matters. In TNC 2011- 348, the Commission has advised that it will examine, among other issues, the SILECs’ subsidy requirements for 2011. - 12 -

42. Fundamental elements of the SILECs’ subsidy and cost recovery regime were modified by the Commission in TRP 2011-291. These elements constitute the regulatory underpinnings for the Commission’s planned examination of the SILECs’ subsidy requirements for 2011 announced in TNC 2011-348. As outlined above, the Applicants are of the view that the Governor in Council should vary several aspects of this regime which will be critical to the analysis that the CRTC will carry out pursuant to TNC 2011- 348.

43. In the opinion of ACTQ/OTA, in order for the Commission to meaningfully and fairly review the SILEC subsidy requirements for 2011 contemplated in TNC 2011-348, and in order to ensure that all of these important issues are correctly and comprehensively determined, it would be preferable for the Commission to suspend the TNC 2011-348 proceeding until such time as the Governor in Council has decided on the key TRP 2011- 291 regulatory elements called into question by ACTQ/OTA’s petition for cabinet review. Once the Governor in Council has determined the matter, it would then be appropriate for the Commission to resume the TNC 2011-348 proceeding and examine the 2011 subsidy requirements of the SILECs armed with certainty surrounding all of the fundamental underpinnings of the SILEC subsidy regime.15

44. At the same time, it appears to the Applicants that the Governor in Council’s disposition of the Applicants’ petition pursuant to section 12 could also have a significant impact on the Commission’s determinations with respect to the implementation of local competition in some SILEC territories. Specifically, one of the key questions determined in those proceedings was the appropriate cost recovery regime, an issue that lies as well at the heart of the matters raised in the petition filed with the Governor in Council. The Applicants note that, in a letter to the ACTQ/OTA dated 5 July 2011, the CRTC appeared to recognise the need for an appropriate sequencing of its re-consideration of the subsidy and cost recovery regimes established in TNC 2011-348 relative to its determinations respecting the implementation of local competition within certain SILEC territories. The Applicants submit that the circumstances are similar with respect to the Governor in Council’s re-consideration pursuant to section 12 and, therefore, respectfully request that the Commission stay its decisions regarding the implementation of local competition in some SILEC territories in Quebec and Ontario until such time as the cabinet has completed its review.

F. Procedural issues

45. This application for a stay was originally submitted on December 23, 2011. On January 13, 2012, the CRTC returned the application to the Applicants on the grounds that it would be inappropriate to render a decision in the absence of a petition to the Governor in Council.

46. On January 4, 2012, EastLink filed initial comments with respect to the 23 December application. Cogeco also filed comments on January 6, 2012. These comments raised both substantive and procedural matters. Since these parties will be entitled under Part 1

15 This request for a suspension of the proceedings overrides the request that was ruled upon in Review of regulatory framework for the small incumbent local exchange carriers and related matter, Telecom Notice of Consultation CRTC 2011-348-3, dated 21 December 2011. - 13 -

of the Rules to address the substantive matters raised in the current application, the Applicants will await the Reply stage before responding to such matters. However, the preliminary, procedural matters will be addressed immediately.

47. EastLink raises essentially two objections to the appropriateness of considering this matter under Part 1 of the Rules. First, EastLink suggests that the Applicants are abusing the CRTC’s process in bringing this Application and second, that the Application is moot since the Governor in Council will, in any event, not consider the petition and hence there is no reason for a stay. Cogeco’s submissions are consistent with these two objections.

There is no abuse of process

48. In support of its argument that the Application amounts to an abuse of process, EastLink submits that the purpose of the application is to delay the introduction of competition in the provision of certain services in rural areas. This is simply not the case. The Applicants fully accept the introduction of competition, and did not oppose the filing of implementation plans to allow for its introduction; however, the framework for this competition should be one that is in furtherance of the telecommunications policy objectives set out in section 7 of Act, and the Applicants are pursuing their legal rights under section 12 of the Act to challenge whether the CRTC’s decision will, in fact, have this effect.

49. In doing so, the Applicants will be raising issues that fall within the Governor in Council’s supervisory role. The Federal Court of Appeal has recently confirmed that this jurisdiction is broader than that of the CRTC and empowers the Governor in Council to substitute its views as to the public interest for that of the Commission.16

50. In these circumstances, neither EastLink nor Cogeco is in any position to second guess the outcome, based on the proceedings before the CRTC that culminated in Telecom Decision 2011-733 ACTQ/OTA/CityWest – Application to review and vary Telecom Regulatory Policy 2011-291 regarding determinations affecting small incumbent local exchange carriers (“Decision 2011-733”). While both argue that the CRTC has determined the matters raised in the Application, this is simply not dispositive with respect to the Governor in Council’s review, since the issues raised in the cabinet petition are broader than those that were before the Commission and since different considerations may be brought to bear in accordance with a different mandate.

51. In addition, contrary to EastLink’s submission, the CRTC has not previously dismissed an application for a stay. In its letter of 29 July 2011, the Commission determined that the ACTQ/OTA’s request for a stay, pending the outcome of its application to review and vary Telecom Regulatory Policy CRTC 2011-291 – Obligation to serve and other matters (“TRP 2011-291”), was premature and, accordingly, the CRTC did not dispose of the matter. The current Application for a stay relates to a new matter, where the Governor in Council is being asked to exercise its discretion under section 12 of the Act, and the most appropriate vehicle for seeking a stay of the Commission’s decision,

16 Globalive Wireless Management Corp and Attorney General of Canada v. Public Mobile Inc and Telus Communications Company et al., 2011 FCA 19, paragraph 45. - 14 -

pending the outcome of that request, is this Part 1 application. Exercising a statutory appeal right is certainly not an abuse of process and seeking a related stay must certainly be seen in the same light.

52. EastLink also argues that the purpose of the Application is to delay the introduction of competition for certain services in rural areas and that Part 1 should not support that purpose. The purpose of this Application is to allow the Applicants to pursue a statutory right of appeal with respect to matters that go directly to the fundamental economic well being of many member companies and that raise issues concerning the proper implementation of the telecom policy objectives of the Act. Nothing could be less frivolous.

The application to the Governor in Council is not moot

53. EastLink and Cogeco both submit that the Governor in Council will not consider any petition since it will not have been brought within 90 days of the date of TRP 2011-291. Implicit in this argument is the view that a party wishing to appeal a CRTC decision under the Act must necessarily launch all challenges simultaneously and in parallel, particularly where there is any chance that the appeal raises issues that could touch differently on aspects of the jurisdiction of the CRTC, the courts and the Governor in Council.

54. Such an approach would represent an enormous financial burden for small companies such as the members of ACTQ/OTA and might also cause some of the reviewing institutions to engage their own resources unnecessarily if the matter were successfully resolved elsewhere.

55. Given the technical and regulatory issues that emerged from TRP 2011-291, ATCQ/OTA felt that the most prudent and responsible approach was first to ask the CRTC to review and vary its own decision rather than engage simultaneously the time and resources of the Governor in Council. Any subsequent disposition of the application to review and vary could then provide a fresh decision upon which to base a petition, should the outcome of that review and vary decision result in the continuation of a framework that would undermine the telecom policy objectives in section 7. This is indeed what transpired: clearly with respect to the Commission’s Decision 2011-733, which was dated 28 November 2011, ATCQ/OTA is well within the statutory appeal period.

56. Moreover, the Governor in Council is always able to proceed on its own motion and EastLink and Cogeco are simply not in a position to determine what the Governor in Council will do, faced with evidence that policy objectives lying at the heart of its oversight role will be undermined. There is certainly no basis whatsoever to conclude presumptively that the Governor in Council will not act. - 15 -

Conclusion

57. ACTQ/OTA are in support of the introduction of local telephone competition, provided that the framework represents an appropriate implementation of the telecom policy objectives set out in section 7 of the Act. In this case, the Applicants are of the view that TRP 2011-291 raises very real concerns that Canadians in some parts of the country may no longer have access to reliable and affordable telecommunications services of high quality and that, in the long run, there may not be greater reliance on market forces. While pursuing this challenge could affect the timing of the introduction of local competition, the Applicants submit that the potential impact that the Governor in General’s disposition of a petition pursuant to section 12 could have on the Commission’s determinations with respect to the implementation of local competition in some SILEC territories makes it prudent for the CRTC to stay all decisions with respect to this implementation, so that resources are not wasted unnecessarily.

58. The Applicants respectfully submit that each of the three criteria established by the Supreme Court of Canada in RJR-MacDonald and adopted in prior decisions by the Commission has been satisfied and that, accordingly, the Commission should exercise the powers conferred upon it in Section 55 of the Act to stay the implementation of those portions of TRP 2011-291 identified in paragraph 2 herein, as well as the two Commission proceedings discussed in Section E of this Application, pending the Governor in Council’s review pursuant to section 12 of the Act.

Yours truly,

Serge Désy President and CEO Association des Compagnies de Téléphone du Québec

Jonathan Holmes Executive Director Ontario Telecommunications Association

Cc. TNC 2010-43 Interested Parties TNC 2011-348 Interested Parties - 16 -

APPENDIX

ACTQ Member Company SILECs

CoopTel La Compagnie de Téléphone de Courcelles inc. La Compagnie de Téléphone de Lambton inc. La Compagnie de Téléphone de St- Victor La Compagnie de Téléphone Upton inc. Le Téléphone de St- Ephrem inc. Sogetel inc. Téléphone Guèvremont inc. Téléphone Milot inc

OTA Member Company SILECs

Brooke Telecom Co-operative Limited Bruce Telecom CityWest Telephone and Cable Corp. Cochrane Telecom Services Dryden Municipal Telephone System Execulink Telecom Inc. Gosfield North Communications Co-operative Limited Hay Communications Co-operative Limited Huron Telecommunications Co-operative Limited The Lansdowne Rural Telephone Company Limited Mornington Communications Co-operative Limited Nexicom Telecommunications Inc. Nexicom Telephones Inc. North Frontenac Telephone Corporation Limited North Renfrew Telephone Company Limited Ontera Quadro Communications Co-operative Inc. Roxborough Telephone Company Limited Tuckersmith Communications Co-operative Limited Westport Telephone Company Limited Wightman Telecom Limited