On January 25 2001 Canada's communications regulator issued a decision which effectively limits the compensation that a municipality can demand in return for access to its streets for the installation of communications lines and equipment. In Decision 2001-23 Ledcor/Vancouver - Construction, operation and maintenance of transmission lines in Vancouver, the Canadian Radio-television and Telecommunications Commission resolved an access dispute between Ledcor and the city of Vancouver by setting out the terms and conditions that will govern Ledcor's access to municipal property for the purpose of installing fibre networks. In addition to resolving the dispute, the decision is intended to guide and inform other municipal access negotiations.
Municipalities across Canada have challenged the commission's decision and leave to appeal to the Court of Appeal has been granted.
The commission is the federal agency responsible for regulating Canada's broadcasting and telecommunications systems. Under the Telecommunications Act both municipalities and telecommunications carriers may apply to the commission to resolve disputes regarding municipal access.
Ledcor was engaged in the development, financing and construction of a fibre-optic transmission system that runs along a railway right-of-way in the city of Vancouver. In July 1998 Ledcor began negotiations with Vancouver to obtain access to 18 street crossings along the line. Negotiations were unsuccessful and no agreement was reached. On March 19 1999, as a result of the failed negotiations, Ledcor filed an application with the commission under Sections 43 and 61(2) of the Telecommunications Act requesting that the commission issue interim and final orders granting Ledcor permission to enter the 18 street crossings. On October 27 1999 the commission issued an interim order granting access upon payment of a $1 interim rate. On December 3 1999 the commission issued Public Notice 99-25, which initiated a process to consider the terms and conditions of access by Canadian carriers and distribution undertakings to municipal property in Vancouver for the purpose of constructing, maintaining and operating transmission lines. This process was concluded on January 25 2000 with the commission's ruling, which granted Ledcor access and prescribed the terms and conditions of access.
In its decision the commission confirmed that it has jurisdiction to set the terms and conditions of access by Canadian carriers and distribution undertakings to municipal property for the purpose of constructing, maintaining and operating transmission lines. The commission examined both the nature and the scope of this jurisdiction.
In Canada, legislative jurisdiction is divided between the federal and provincial governments. While Parliament has jurisdiction to make laws with respect to telecommunications, the Constitution Act 1867 grants jurisdiction to the provinces over property and civil rights.
The commission derives its authority from Sections 42 to 44 of the Telecommunications Act. These provisions allow carriers to enter on and break up any highway or other public place for the purpose of constructing, maintaining or operating transmission lines, subject to (i) the consent of the municipality and (ii) the condition that the carrier must not interfere unduly with the public use and enjoyment of the highway or other public place. Where a dispute arises between the carrier and the municipality as to this access, the act allows either party to apply to the commission for a determination of the appropriate conditions of access.
The commission confirmed that these provisions relate in substance to telecommunications and, therefore, are within the exclusive constitutional jurisdiction of the federal government. It held that any effects of the provisions on the provincial sphere of property and civil rights are purely incidental, and that the use of property for transmission lines cannot be separated from the federal jurisdiction over telecommunications. Further, the commission ruled that it is inappropriate in a municipal access agreement for a municipality to attempt to oust federal jurisdiction by stipulating that the agreement be subject only to the laws of the province in which the municipality is situated.
The commission determined that when a carrier or municipality brings an access dispute to the commission for resolution, Sections 42 to 44 of the act provide the commission with full discretion to determine the conditions of access. The commission found that its discretion extends to stipulating conditions as to compensation for the access, whether the compensation be for costs or otherwise. In its analysis of particular conditions of access, the commission noted specifically that it is within its jurisdiction to impose conditions relating to:
- the provision of duct capacity;
- terms relating to the relocation of transmission lines; and
- conditions limiting the liability of the municipality or carrier.
The commission directed Ledcor to pay Vancouver a total of $7,613 for access to the 18 street crossings. This amount was limited to the costs incurred by Vancouver. The commission decided against permitting any 'market-based' rates such as land charges or percentages of revenue fees.
In its decision the commission allowed Vancouver to charge Ledcor for direct costs incurred by it as a result of Ledcor's use and occupation of public property. In addition to the direct costs, the commission determined that it would be acceptable for Vancouver to apply a 29.6% loading (or mark-up) to account for indirect and variable common costs. The commission disallowed an additional 25% loading for fixed common costs.
The commission considered each kind of direct cost claimed by Vancouver and determined that it was appropriate for Vancouver to charge for plan approval and inspection costs. Also, the commission found it to be acceptable for Vancouver to differentiate between simple and complex projects, charging greater plan approval and inspection costs for more complex projects. The commission loaded an additional 15% to the plan approval and inspection costs to recognize other cost elements that are difficult to calculate (eg, costs for lost parking meter revenues, transit operating delays and lost productivity costs not directly linked to a specific carrier). The construction disruption costs considered by the commission included traffic signing costs, lost parking meter revenues, pavement restoration, transit operating delays and public delays. The commission found it to be acceptable to include all but the charges for public delays (which were found not to be a cost to the municipality).
The commission chose to recognize the costs for lost parking meter revenues and transit-operating delays by way of a 15% additional mark-up added onto the plan approval and inspection costs. The commission also noted that pavement restoration charges will only apply where the carrier does not perform the work itself to the reasonable satisfaction of the city. The commission considered costs related to pavement degradation separately, and accepted that utility cuts in the pavement contribute to the degradation of pavement. Thus, the commission allowed some related costs, but disallowed the costs of ongoing repairs.
The commission indicated that direct costs due to lost productivity for city operations are appropriately recoverable by Vancouver where they are significant and identifiable with the presence of Ledcor's facilities. The commission declared that routine lost productivity costs would be recognized through the 15% loading on plan approval and inspection costs. In contrast, costs associated with the negotiation of agreements or with utility management were found to be common costs of operations and not appropriately recoverable.
The commission specified that both land-based charges and percentages of revenue fees are improper. The commission held that such 'market-based' rates for the use of municipal property are inappropriate as there is no free-market of totally willing buyers and sellers for municipal consent to occupy and use municipal rights of way. Additionally, such charges were not necessary to prevent the subsidization of carriers by municipal taxpayers, as long as carriers absorb the costs imposed by the construction, maintenance and operation of their transmission lines.
Compensation in kind
In its negotiations with Ledcor Vancouver had initially demanded that Ledcor give it the exclusive use of four fibre strands on its fibre-optic system in Vancouver. In its decision the commission noted that Vancouver appeared to have dropped this demand in the course of the proceedings. Subsequently, although the commission did not state directly whether such conditions would be tolerated in the future, the commission's discussion of other 'market-based' rates, as addressed above, suggests that the commission would similarly exclude fibre requirements.
In addition to the terms and conditions relating to compensation, the commission evaluated a number of non-compensatory conditions proposed by Vancouver. These included conditions relating to:
- the potential relocation of transmission lines;
- termination provisions;
- terms limiting liability;
- general security agreements; and
- conditions relating to third parties.
The commission chose not to impose any conditions relating to relocation matters for now. It found that although it has jurisdiction to impose such conditions, it would be best for the parties to negotiate the allocation of the costs of relocation if and when the need arose. The commission stated that relevant factors in the allocation of such costs include:
- who requests the relocation;
- the reason for the relocation; and
- whether the relocation is made shortly after construction or a considerable length of time afterwards.
The commission looked at the termination provisions proposed by Vancouver and found that such conditions are inappropriate where the consequence of the expiry of the agreement is to limit the rights of either party in a manner that is inconsistent with the act. The commission reiterated that the right of carriers to enter on and break up a highway or public place is qualified by the obligation not to unduly interfere with public use and enjoyment and the requirement of municipal consent. At the same time, the commission stated that municipalities cannot interfere with a carrier's network when agreements have expired or been terminated or cancelled. The commission indicated that its assistance should be sought where an agreement expires and no new agreement between the parties can be reached.
With respect to limitations on liability, the commission refrained from prescribing specific terms and conditions, although it asserted its jurisdiction to do so. The commission did rule that the one-sided liability and indemnification provisions proposed by Vancouver were not necessary to ensure that carriers fulfil their duty not to unduly interfere with the public use and enjoyment of the highway or other public place. Instead, the commission suggested that Ledcor and Vancouver come to a more balanced agreement, in the absence of which the ordinary provincial principles of liability for negligence would apply. The commission noted that it would be reasonable for each party to require assurances from the other that it is adequately insured.
The agreement proposed by Vancouver would also have required Ledcor to execute a general security agreement in Vancouver's favour. The commission found this to be unnecessary and unduly onerous. However, the commission did find it reasonable for a municipality to request some assurance that construction would be completed satisfactorily, whether by way of a letter of credit (as was included in Vancouver's proposed agreement) or though the deposit of a reasonable sum.
The commission also commented on a number of conditions proposed by Vancouver that would have involved third parties. The commission curbed proposals by Vancouver that would have greatly limited Ledcor's ability to assign the agreement and that would have extended any agreement on access to the 18 street crossings to Ledcor lines and facilities located in existing conduits of third parties within Vancouver.
Finally, although it was not imposed as a condition of access, the commission noted that it would be beneficial to Ledcor and Vancouver to engage in joint planning and coordination arrangements.
The heart of the dispute between Ledcor and the City of Vancouver concerned a number of terms and conditions for access proposed by Vancouver that Ledcor considered unduly onerous. In its decision the commission detailed the terms and conditions that will govern Ledcor's access to the streets of Vancouver. The commission indicated that it anticipates that the principles set out in the decision will be applied by other carriers and municipalities in municipal access negotiations. However, the commission did not go so far as to provide a model agreement or template to form the basis of future agreements, and was careful to state that the particular terms and conditions set out in the decision are intended to apply to the particular circumstances of the access dispute between Ledcor and Vancouver.
Municipalities from across Canada were quick to challenge the commission's decision on jurisdictional grounds. Five separate applicants sought leave to appeal the decision to the Federal Court of Appeal under Subsection 64(1) of the Telecommunications Act. On May 14 2001, after hearing oral arguments on the issue, the Court of Appeal granted leave to appeal to that court.
In seeking leave to appeal the applicant municipalities argued that the commission erred in law and exceeded its jurisdiction in its conclusion that the entering on or breaking up of any highway or other public place for the purpose of constructing, maintaining or operating transmission lines by a carrier is subject to exclusive federal jurisdiction. In particular, the municipalities maintained that municipal management of such activities does not have the effect of regulating core telecommunications activities and does not impede a carrier's ability to operate as a telecommunications carrier. Consequently, the municipalities argued, such activities do not relate exclusively to the federal jurisdiction over telecommunications, but instead concern the provincial jurisdiction over property situated in a province.
The municipalities argued further that the commission erred in law and exceeded its jurisdiction in holding that a carrier is not required to pay compensation for the interest it receives in municipal lands when the commission makes an order determining the terms and conditions of access. In this way the applicants maintained that the commission failed to recognize the property rights possessed by Vancouver in its roads. Finally, the municipalities argued that the commission erred in law and exceeded its jurisdiction by denying municipalities full compensation for the occupancy and use of municipal lands while refusing to admit evidence relating to the financial impact or impairment that such compensation would have on carriers.
The Court of Appeal did not provide reasons for its decision to grant leave to appeal the commission's decision. However, to succeed in obtaining leave to appeal, the municipalities had to demonstrate that there was a 'fairly arguable' case that the commission had erred in law or exceeded its jurisdiction in making its decision. It was not necessary for the applicants to establish that the appeal would succeed on its merits. On June 29 2001 the municipalities filed five separate notices of appeal with the Court of Appeal. Subject to any time extensions that may be granted, a hearing of the matter before the Court of Appeal is anticipated in mid-2002.
For further information on this topic please contact Lorne H Abugov, Kirsten R Embree or Jennifer Crowe at Osler, Hoskin & Harcourt LLP by telephone (+1 613 235 7234) or by fax (+1 613 235 2867) or by e-mail ([email protected], [email protected] or [email protected]).
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