MINISTERIAL DISCRETION – IS THERE ADEQUATE CONSTRAINT?

A VIEW OF THE REGULATED CANADIAN BAR ASSOCIATION. VANCOUVER, B.C.

SEPTEMBER 1, 1981

According to Webster, the word ‘discretion’ has two meanings. The first is the one that will get most attention today – “power of free decision or latitude of choice within certain bounds.” a second meaning, however, is “cautious reserve in speech.”

My first experience as one of the directly regulated showed elements of both meanings of the word. In 1972 I was president of a large computer services company in Ottawa. At that time everyone was talking about the wired city. It seemed logical to me to try to put together a computer services company with a cable television company, so that the new wonders of teleshopping, in-the-home education, etc. Could be brought to people where they lived and where they worked.

To this end I arranged with Gordon Henderson the president of Ottawa Cablevision Limited for my company systems dimensions limited to acquire OCL, subject of course to CRTC approval. After a public hearing and some months of delay I finally received what must be a classic telegram from Pierre Juneau, the then chairman of the CRTC. It simply said, “denied – the merger of a computer company and a cable television company is considered premature.”

It certainly was! Nearly a decade later both the computer and the communications industries are still just talking about all the things that could happen while other countries are moving ahead to make such in-the-home services a reality. However, whether the decision was good or bad is less important than the way this incident illustrates the awe inspiring power of ministers or the bureaucrats who report to them.

There was no appeal possible. One could not even request and obtain a more detailed explanation as to why the application had been turned down. The power was absolute. The decision was final. Gordon and I had no choice but to unwind the merger.

Not only had the ‘power of free decision’ been used, but there was every indication of a ‘cautious reserve’ in the bureaucrats approach to the business world. There was simply no inclination to take a risk. Perhaps more than any other single factor it is this conflict between the businessman whose main job is to take risks by pushing into new areas versus the bureaucrat who sees no personal gain in changing the status quo.

This is not to imply that the decision was taken thoughtlessly for the then chairman was both perceptive and articulate, it was just that the CRTC’s mandate was not to look at cable communi­cations as an electronic pipeline into the home for all kinds of services, but rather to narrowly interpret the broadcast act as being there to protect the over-the-air broadcaster. Anything that distracted the viewer from watching Canadian programming was somehow felt to be bad, and the uses of other technological capabilities of cable were overruled as a result.

In what follows I will be using examples from my experience in the communications industry. However, as about one-fifth of industry in Canada is subject to direct regulation and most industry is subject to indirect regulation, I am sure that many of the observations will apply to a broad spectrum of circumstances.

Some of the problems for the regulated could be categorised as follows:

1. THE POWER TO DELAY

One of the greatest frustrations arises when legislation gives apparent power to a minister or a regulatory body in a particular area and then that minister or body refuses to deal with the situation, or simply delays decisions. This is often known as the ‘power of the in-basket’

A good example of this is pay television in Canada where at least five sets of hearings have been held over many years with still no resulting decision. The present minister finally let it be known that he wanted a decision and this pointed up an even stranger anomaly – where the power really lies.

It is very difficult for the elected officials to push the entrenched bureaucracy who feel they can simply outlast any minister. In this particular case, another hearing has been called on pay television with good terms of reference, however, a decision will not likely be forthcoming for some time yet and the final decision will likely still be biased towards the original desire to protect the Canadian broadcaster.

Another example was a recent rate increase application we filed for the clty of Victoria. This was filed the required 56 days before the announced hearing date. We were told however that it would not be an appearing item as they were now interpreting the regulation to be that 56 days must elapse after the material is tabled before the rate committee. Such a regulation is not published to my knowledge anywhere. The fact that hearing dates are not establish! Well in advance makes it almost impossible to second guess when material must be submitted. A decision on these matters is totally arbitrary and yet can have great financial effect on the companies operating under such regulation.

2. Escalation of jurisdiction

Having mentioned rate regulation it is interesting to note that the broadcasting act does not directly reference giving rate regulatory powers over cable television companies. However, the CRTC has interpreted that the rate is a condition of license and they do have the right to grant that. No-one has ever seriously questioned this administrative regulation.

In the area of non-broadcast services the regulatory power of the CRTC is even more suspect. Why has such discretionary escalation of jurisdiction gone unchallenged?

3. Legislation by intimidation

To be blunt the reason is that many regulatory bodies are policeman, judge and jury. Even if one were to win a case challenging the jurisdiction of the body, one might be the long run loser because an organisation still has to appear before that body for a variety of other needs. This leads to:

4. Existence by compliance

The regulated tends to figure out what the regulator really wants, e.g. increased Canadian film production, promotion of bilingualism, community involvement, etc., and then effectively trades off some of these items for some needed relief in some other area. It should be noted that this is done at the administrative level and not at the political level where one would expect such decisions to be made.

5. Inflexibility of regulation

Acts of parliament do not get updated very often. In the case of the broadcast act it still treats the communications industry as though there was a limited spectrum for broadcasting, of course, with the advent of cable, there is as much spectrum as anyone could possibly need. Yet the industry is still regulated tightly on everything from content to the location of signals.

6. Justification for decisions

Decisions are often disarmingly incomplete, on a recent rate application the amount requested was arbitrarily cut back simply with the comment that a 50c increase was economically justifiable. On what grounds was the additional requested 25c denied?

7. Scope of jurisdiction

The scope of the CRTC’s jurisdiction is awe inspiring. This small group of people who are not elected by anyone have vast powers over what programmes Canadians can see and even when they will see them. Effectively, this group can quite arbitrarily determine what is in Canadians’ best interests, and they can make their decisions stick.

Fortunately, discretion is also the prerogative of the public who will view or not view what they want despite the CRTC,

8. Cost of regulation

This is a huge topic but it is worth remembering that the cost of the regulatory process is ultimately borne by the consumer. The extent of the regulation is largely determined by the bureaucracy there seems to be very little questioning of this whole process by the elected officials.

The resulting rate regulation relative to current inflation rates means that the rate of plant reinvestment is on the decline in the communications industry. This will not work to the public’s advantage in the long run.

Discretion may be the better part of valour. It is not likely the better part of value.

THE APPEAL OF APPEAL

The above are just a view of the frustrating examples one could give of arbitrary ministerial or administrative decisions. The most often heard answer is that some appeal mechanism should be allowed. But where?

The only appeal possible from CRTC decisions is to cabinet. Only once or twice has such an appeal been made and in the famous Telesat case the CRTC’s decision was in fact overturned. However, such a procedures is rarely feasible for any but the largest of companies, and even then only in very major cases.

The real answer lies in reassessing what should be regulated in an economy. In the United States in the communications field there is a recognition that a significant degree of competition now exists. Many of the services that could be provided by cable can also be provided by telephone companies, transmitted by direct broadcast from satellite, or substitutes can be found through videotapes, videodiscs or other devices, to say nothing of over-the-air broadcasting.

By contrast in Canada I am told that the CRTC faces a backlog of over 4,000 decisions. I simply cannot believe there are 4,000 important matters that need deciding in the communications industry in this country. It is more likely that there are 10 or 12 major issues where informed input by the government could in fact be helpful. The real problem lies with the attempt by a regulatory body such as the CRTC to do detailed management of nearly 400 companies. The CRTC asks questions on exactly how much staff is used in each area, what management services are provided between parents and subsidiaries, and other matters that frankly it has neither the time nor the competence to assess. As a result, the regulatory process is bogging down, it is this fact alone that leads to many arbitrary decisions such as a growing trend to cutback rate increase applications automatically. This is not based on any particular analysis but simply a ‘quick and dirty’ approach that gives the appearance that the CRTC is serving the public interest.

Until this basic problem is resolved, an appeal process would only complicate the matter, i.e. one cannot appeal 4,000 decisions to the courts or anywhere else.

If there is to be an appeal against the process it must be made at the political level. It is the approach to regulation that must be corrected.