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The Federal Court of Appeal has dismissed a case by Canada’s large phone and cable companies that sought to quash a ruling by the telecom regulator that lowered the rates they could charge smaller internet providers for access to their networks.

In a decision on Thursday, the court said the phone and cable providers presented issues of “dubious merit” and ultimately failed to demonstrate that the Canadian Radio-television and Telecommunications Commission erred or exceeded its powers when it reduced wholesale broadband rates.

The companies had earlier asked the CRTC to revisit its decision, which the regulator is now in midst of doing.

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In order to encourage competition in the internet market, Canada’s large telecoms are required to sell network access to independent internet service providers (ISPs) such as Teksavvy Solutions Inc. and Distributel Communications Ltd. at regulated rates. Those third-party operators then sell internet service to their own customers.

In August, 2019, the CRTC reduced the rates the larger telecoms are able to charge third-party operators. The phone and cable companies pursued every avenue available to them in an effort to have the decision overturned, including appealing to the federal court, which granted them a temporary stay on the new, lower rates until a ruling could be made.

The companies also petitioned the federal cabinet, which last month declined to overturn the CRTC ruling but sided with the large telecoms by commenting that the reduced rates could stifle investment in telecom networks. The cabinet has said it will be monitoring the CRTC’s final decision.

BCE Inc. and the five cable operators – Rogers Communications Inc., Shaw Communications Inc., Quebecor Inc.'s Videotron Ltd., Cogeco Communications Inc. and Eastlink Inc.'s owner Bragg Communications Inc. – were also ordered to pay legal costs to Teksavvy and the Competitive Network Operators of Canada. CNOC is an industry group representing independent ISPs.

“This award reflects the number and complexity of the issues, a good number of dubious merit, which the appellants chose to put in play,” Justice Eleanor Dawson wrote. “The award also reflects the fact that the appellants succeeded on none of these issues.”

The concerns that the large telecoms raised during the two days of virtual hearings in June were mostly about the methods that the CRTC used to set the new wholesale rates, Justice Dawson wrote. “The commission may adopt and apply any method it considers appropriate for determining rates. The proper avenue of recourse lies with the commission itself,” the decision reads.

BCE, Rogers, Shaw and Cogeco are currently reviewing the decision, spokespeople for the companies said in statements.

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Andy Kaplan-Myrth, Teksavvy’s vice-president of regulatory and carrier affairs, called it a “pretty clear victory” for the company and other third-party operators.

“The court basically rejects every argument and every position that the [phone and cable companies] tried to take, and really recognizes where they raise issues without merit,” Mr. Kaplan-Myrth said.

When the CRTC set the new rates in August, 2019, it made them retroactive to 2016, forcing the companies to refund some of the fees the ISPs had paid over the period. The phone and cable companies, which have not yet repaid any of the fees, estimated at the time of the decision that the retroactive payments would total $325-million, according to court documents. That sum has grown as more time has passed without the new rates being put into place.

Matt Stein, CNOC chairman and CEO of Distributel, said the conclusion of the appeal means that the stay on the new rates is no longer in place and that the retroactive payments to ISPs should be made.

“It’s time to get on with it and implement these rates,” Mr. Stein said.

However, TD Securities analyst Vince Valentini said that’s unlikely to happen while the CRTC is in the midst of reviewing its decision.

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Royal Bank of Canada analyst Drew McReynolds said the larger telecoms could try to appeal the case to the Supreme Court, but their chances of succeeding are low.

“Thus the focus now shifts to the CRTC’s review of the August, 2019 decision,” Mr. McReynolds said in a note to clients, adding that the expects the regulator will ultimately arrive at a compromise solution.

“We would expect the ultimate outcome of this CRTC review to result in internet wholesale rates that are below previous rates but above those in the August 2019 decision,” Mr. McReynolds said.

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