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Telephone companies share with other public utilities a common law duty to provide theirservices on demand, at a reasonable price, and without unreasonablediscrimination. This duty to serve places public utilities on a differentfooting than other commercial enterprises, which are for the most part free tocontract with whom they choose on terms that are freely negotiated. In the caseof telecommunications carriers, the common law duty to serve exists alongsidestatutory service obligations imposed on carriers by the Telecommunications Act[1] and regulatory policies promoting universal access to basictelecommunications services articulated by the Canadian Radio-television andTelecommunications Commission (CRTC or Commission).

In Canada, basic telecommunications services are now available on a near-universal basis,[2] through a range of technologies (wireline, wireless, broadband, satellite, and cable) and from a large number of suppliers.[3] In light of the ubiquity of service and the profusion of suppliers, some now argue that the duty to serve—which evolved in an age when telecommunications was limited to basic telephone and telegraph services that were generally available only from a single supplier—is now an anachronism and should be abolished, or at least confined to situations where competition does not provide alternative sources of supply. Others, concerned that the elimination of the duty to serve might jeopardize the continuation of service to geographically remote areas, have argued that the duty should be preserved. A third group has advocated that the CRTC should expand the scope of the duty by requiring telecommunications carriers to extend their broadband networks to unserved areas to facilitate wider public access to high-speed Internet services.

The CRTC recently conducted a comprehensive review of the issues surrounding the duty to serve and the obligations telecommunications carriers bear, or should bear, to address these issues of anachronistic obligations, remote areas, and access to high-speed Internet.[4] The debate that took place among parties to that review made it apparent that there is no consensus about the scope of the common law duty to serve, or how common law requirements interrelate with the service obligations imposed by the Telecommunications Act and CRTC-mandated policies promoting universal service. Does the duty apply outside of the monopoly paradigm in which it arose and therefore continue to impose an obligation to provide service where there are multiple competing suppliers? If so, does the duty apply equally to all suppliers, or only to the traditional incumbent? Does the duty, which originally attached to basic telephone services, also embrace advanced services such as Internet access? Does it require a carrier to build facilities in locations it does not serve? The CRTC’s decision did little to clarify these issues. Answers to these questions are important to an understanding of carriers’ service obligations and the evolution of policy in this domain.

The purpose of this article is to consider the parameters of the duty to serve. This will involve an appraisal of the common law, statutory requirements, and the policies and decisions of the CRTC. I begin by discussing the origins of the common law duty to serve in Canadian law in Part I. This is followed by a consideration of issues related to the scope of the duty in Part II. I then review the impact of regulation in Part III, before concluding with a summary of the points that emerge from the preceding analysis.

I. The Origins of the Common Law Duty

Canadian common law has imposed a duty to serve on suppliers of water, gas, and other public-utility services from the earliest days, and, despite the paucity of case law relating to telephone services, the same duty undoubtedly extends to telephone companies.[5] The term “public utility” is not easily defined, but the enterprises that traditionally bear this label have certain features in common: they hold themselves out to the public as suppliers of a service or commodity that is essential and that is typically provided on a monopoly or quasi-monopoly basis.[6] Another distinguishing feature is the right public utilities normally enjoy to construct their facilities along, under, or above public streets.[7]

There have been notable scholarly attempts to find the source of the public utility’s duty to serve in the ancient laws of England governing “common callings”, such as common carriers and innkeepers,[8] which bear similar common law service obligations. The concept of the public utility is, however, a North American invention, and the term itself dates back no more than a century.[9] In the United States and Canada, the emergence of the public utility is very closely associated with the rise of regulation. The function of controlling utilities was first exercised by the common law courts, which intervened to prevent abuses of monopoly power such as denial of access to essential public services and excessive pricing. But in the case of telecommunications services, this responsibility was transferred in the early nineteen hundreds to specialized regulatory agencies invested with broad public interest mandates, such as the Interstate Commerce Commission in the United States and the Board of Railway Commissioners of Canada.[10] The issues addressed in North America through regulation were addressed differently in the United Kingdom. For example, in the United Kingdom many of the services in question were taken into public ownership. This was the case for telecommunications, which became a post office monopoly in 1911.[11] As a consequence, while a coherent body of public-utility law had begun to emerge in the United States and Canada[12] by the end of the nineteenth century, England did not go through the same evolution, and there is no distinctive body of English law applicable to public utilities. The duty of public utilities to serve that has become entrenched in American and Canadian law is unknown in English law.[13]

The divergent approaches of the English common law and the Canadian common law to publicutilities and their duty to serve is well illustrated by a pair of cases decidedon opposite sides of the Atlantic 150 years ago.Hoddesdon Gas and Coke Co (Limited) v. Haselwood [14] was decided by the Court of Queen’s Bench inEngland in 1859. Haselwood was a proprietor of a school that was supplied withgas by Hoddesdon. Haselwood fell into arrears in the payment of its account, andafter giving notice, Hoddesdon cut off supply to the school. Haselwood sued fordamages sustained by reason of the disconnection. A jury returned a verdict infavour of the school. The gas company appealed. On appeal, counsel for the gascompany took the position that the matter was governed entirely by contract and,not having received payment for its services, there was not “any duty orobligation of any kind” upon the company to continue the supply. Counsel for theschool admitted that there was no express contract to supply but argued thatHoddesdon had a monopoly in the neighbourhood of the school and that “[t]herelative position of the parties and the surrounding circumstances” indicatedthere was an implied contract to continue the supply of gas, at least for areasonable time. Lord Cockburn questioned whether the position of the gascompany was in any way different from that “of any other tradesman—a butcher ora baker, for instance—who is at liberty at any moment to discontinue supply to acustomer.”[15] Lord Cockburn said:

I am fully alive to the arguments of inconvenience which have beensuggested by [counsel for the school]: but the same sort of argument wouldequally be applicable to an infinite variety of articles besides gas, whichthe comfort and convenience of life render necessary to the consumer. It isaltogether a question of degree. We cannot imply a contract from theaccidental circumstance of this company having a monopoly of the supply ofgas to this neighbourhood. I see nothing whatever to bind either the oneparty to take or the other to furnish the supply any longer than theirconvenience, or their caprice, if you will, may induce them to take or tosupply.[16]

The court found for the gas company and entered a judgment of nonsuitagainst the school.

Hoddesdon has been referred to in later gas cases, including a decision of the House of Lords.[17] Each of these later cases turns on whether the supplier’s statutory duty to supply gas applied, as a matter of construction, in the circumstances. None of the decisions casts any doubt on the proposition that the gas company had no duty to serve apart from contract or statute.

The result in Hoddesdon and the reasoning that ledto it are to be contrasted with the almost contemporaneous decision of the UpperCanada Court of Queen’s Bench in Commercial Bankof Canada v. London Gas Co.[18] Inthat case, the bank had employed the gas company to illuminate its building onthe occasion of the visit of the Prince of Wales to London. When the bankreceived the gas company’s charges, it objected to the amount and refused topay. The gas company consequently cut off the bank’s gas supply. The bankbrought an application for mandamus to have the supply of gas restored. ChiefJustice Robinson said that, whether its charges were justified or not, the gascompany was not free to withhold the supply of gas until the account wassettled:

They [i.e., the gas company] stand in that respect on the same ground asa railway company would that should refuse to carry goods for a particularparty, or to carry a particular passenger. In both cases the party whom thecompany refuses to serve may have a clear right to sue for damages; but thatwould be, not for refusing to do any thing that the statute directlyprescribes, for the statute may be silent on the subject, but for wrongfullyrefusing to discharge a duty incumbent upon them upon common lawprinciples.[19]

The court did not refer to the Hoddesdon case or any other authority, and it is not clearwhether the Canadian court was aware of the judgment.

The proposition that public utilities owe the public a common law duty to provide service was endorsed by the Supreme Court of Canada in 1893 in Canada (A.G.) v. Toronto (City of).[20] The central issue in that case was the validity of a municipal bylaw that fixed a higher rate for the supply of water to nontaxpayers than to taxpayers. The city, which did not have the power to impose a tax on federal government lands under the provisions of the British North America Act, 1867, was clearly attempting to compensate for the lack of tax revenue from federal government property by imposing higher charges on nontaxpayers who used its water. The federal government took the position that the water charge amounted to an impermissible tax. Chief Justice Strong, who delivered the majority judgment, said that the water company’s statutory duty to supply meant that it was not “a mere commercial vendor of a commodity but ... a public body entrusted with the management of the water for the benefit of the whole body of inhabitants,” a status which “compell[ed] them as such to supply this element, necessary not merely for the private purposes and uses of individuals but indispensable for the preservation of the public health and the general salubrity of the city.” He went on to say that “the city ... is in a sense a trustee of the water-works, not for the body of rate-payers exclusively but for the benefit of the general public, or at least of that portion of it resident in the city.” He found that it would be an evasion of this duty to charge higher rates in particular cases, and that the city was bound “to dispense the water for the benefit of all, charging only such rates as are uniform, fair and reasonable.”[21]

Toronto1893 was applied by the Ontario Court of Appeal in 1899 in Scottish Ontario and Manitoba Land Co. v. Toronto (City of).[22] The plaintiff, an operator of hydraulic elevators, alleged that water supplied by the city was not of the required quality (because it contained sand, which was damaging to its hydraulic equipment) and sued for breach of contract. The trial judge dismissed the case on the ground that the action was not maintainable as a claim for breach of contract. The case came before the court of appeal on that issue. Justice Osler delivered the majority judgment. Referring to the judgment of Chief Justice Strong in Toronto1893, he concluded that the supplying of water was a municipal function or duty and not a matter of contract. He therefore dismissed the appeal.[23]

In St. Lawrence Rendering Co. Ltd. v. Cornwall (City of),[24] Justice Spence, citing the two preceding cases, stated that at common law public utilities are compelled to treat all consumers alike, to charge one consumer no more than another, and to supply the utility as a duty rather than as a result of contract. He therefore restrained the City of Cornwall from interrupting the flow of water to an industrial establishment that the city apparently regarded as a nuisance and whose activities it wanted to curtail. He noted that the Public Utilities Act imposed a duty on the city to provide the service of public utilities upon request. In these circumstances, he concluded, the relationship between the city and consumers “is not a matter of contract but of duty and the common law,” and the city was under a duty both at common law and under the Public Utilities Act to continue to supply water.[25] In Chastain v. British Columbia Hydro and Power Authority,[26] Justice McIntyre granted a declaration that a public utility (in this case, an electricity and gas company) was not entitled to demand that the plaintiffs provide a security deposit as a precondition for obtaining access to its services. The plaintiffs claimed that this requirement was not imposed on all customers and thus violated the obligation of the company, as a public utility, to furnish service on equal terms to all. Justice McIntyre noted that, although the company was not a public utility subject to the provisions of the Public Utilities Act, “[i]t partakes so much of the nature of a public utility that it must be amenable to the law governing public utilities.” He continued:

The obligation of a public utility or other body having a practicalmonopoly on the supply of a particular commodity or service of fundamentalimportance to the public has long been clear. It is to supply its product toall who seek it for a reasonable price and without unreasonablediscrimination between those who are similarly situated or who fall into oneclass of consumers. The great utility systems supplying power, telephone andtransportation services now so familiar may be of relatively recent origin,but special obligations to supply service have been imposed from the veryearliest days of the common law upon bodies in like case, such as carriers,innkeepers, wharfingers and ferry operators. This has been true in Englandand in the common-law jurisdictions throughout the world.[27]

Cornwall and Chastain have been cited repeatedly asauthority for the proposition that public utilities have a common law duty toserve.[28]

In Chastain, Justice McIntyre referred to the 1877 judgment of the United States Supreme Court in Munn v. Illinois,[29] where, he said, the historical roots of the principle he had described were examined. Munn concerned the constitutionality of a state law regulating grain-elevator charges, over which a small number of companies had what the court described as a “virtual monopoly”. The majority concluded that such regulation did not violate the Fourteenth Amendment protection against deprivation of property without due process. In his judgment, Chief Justice Waite quoted at length from Lord Hale’s seventeenth century treatise De Portibus Maris, including the following key passage:

A man, for his own private advantage, may, in a port or town, set up awharf or crane, and may take what rates he and his customers can agree forcranage, wharfage, housellage, pesage; for he doth no more than is lawfulfor any man to do, viz., makes the most of his own. ...

If the king or subject have a public wharf, unto which all persons thatcome to that port must come and unlade or lade their goods as for thepurpose, because they are the wharfs only licensed by the queen ... orbecause there is no other wharf in that port, as it may fall out where aport is newly erected; in that case there cannot be taken arbitrary andexcessive duties for cranage, wharfage, pesage, &c., neither can they beinhanced to an immoderate rate, but the duties must be reasonable andmoderate, though settled by the king's license or charter. For now the wharfand crane and other conveniences are affected with a publick interest, andthey cease to be juris privationly; as if a man set out a street in new building on his own land, it isnow no longer bare private interest, but is affected by a publickinterest.[30]

Chief Justice Waite derived from this passage the principle that businesses“affected by a public interest ... cease to be juris privati only” and may therefore be regulated by the state.This proposition laid the foundation for modern American public-utilityregulation for decades to follow, and despite Canada’s fundamentally differentapproach to property rights, the case has been received here too as an importantaffirmation of the state’s authority to regulate private business.[31]

To the authorities I have already considered, we must now add the 1918 judgment of theJudicial Committee of the Privy Council in Minister of Justice for the Dominion of Canada v. City ofLévis.[32] In Lévis, the Privy Council affirmed thatsuppliers of “prime necessities”, such as water, have a duty to provide theirservices to the public that derives from the circumstances and the nature of therelationship between the parties and that exists independent of both statute andcontract. The facts of the case are straightforward. The federal government hadsigned a contract with the city for the supply of water to one of its buildings.The city claimed that the contract covered the supply of water to the postoffice in that building but not to the customs and excise office in the samebuilding and accordingly demanded a higher charge than that provided for in thecontract. The federal government refused to pay the higher charge, arguing thatthe charges for water amounted to the imposition of a tax on federal governmentproperty, which contravened the British NorthAmerica Act, 1867. The government said that, in the absence of anagreement between the parties, its only obligation was to pay whatever sum as tothe government appeared proper. The city took the position that there was noobligation to supply water under the relevant municipal law except to personsprepared to pay the relevant charge. The federal government applied for a writof mandamus to require the city to supply water.

At first instance, the Quebec Superior Court held that the federal government was liable to pay for the service rendered on a quantum meruit basis, and that the sum proposed by the city was a fair one. It therefore dismissed the application for mandamus. On appeal, it was held that the charge for water was a water rate, as well as a tax, and the government could be compelled to pay that rate without violating the prohibition against taxation of federal government property. The court therefore dismissed the appeal by the federal government with a recommendation that the federal government pay the rate demanded by the city.

The federal government appealed to the Privy Council. Lord Parmoor, who delivered the judgment of the Privy Council, observed that the city was under a statutory obligation to supply water only to taxpayers and, since the federal government was not liable to taxation, it could claim no right to service under the statute. But that did not end the matter. Lord Parmoor said:

It must be recognized, however, that water is a matter of primenecessity, and that, where waterworks have been established to give a supplyof water within a given area for domestic and sanitary purposes, it would behighly inconvenient to exclude from the advantages of such supply Governmentbuildings, on the ground that these buildings are not liable to watertaxation. The respondents are dealers in water on whom there has beenconferred by statute a position of great and special advantage, and they maywell be held in consequence to come under an obligation towards parties, whoare none the less members of the public and counted among their contemplatedcustomers, though they do not fall within that class who are liable totaxation, and who being in the immense majority are expressly legislated forand made subject to taxation.

In a frequently quoted passage, Lord Parmoor continued as follows:

Their Lordships are therefore of opinion that there is an impliedobligation on the respondents to give a water supply to the Governmentbuilding provided that, and so long as, the Government of Canada is willing,in consideration of the supply, to make a fair and reasonable payment. Thecase stands outside of the express provisions of the statute, and the rightsand obligations of the appellant are derived from the circumstances and fromthe relative positions of the parties.[33]

The judgment is a remarkable one. First, the Privy Council disposed of the case on a pointthat was apparently not argued before it or in the courts below (where argumentrevolved around the city’s taxing powers). Second, it did so without referenceto a single authority. The decision also represents a rare instance of a casewhere the Privy Council has taken a different view than the English courts on afundamental point of law. As we saw in our review of Hoddesdon, the English courts had declined toimpose a duty to serve on a gas company despite the fact that it had a de factomonopoly on the supply of the commodity. As Simpson v. Attorney-General[34]illustrates, the only situations where the English courts were prepared toimpose such a duty was where the supplier had a legal monopoly or benefittedfrom some other special privilege. In Simpson, which was decided some fourteenyears before Lévis, the House of Lordsruled that the public had a right to pass through certain locks that therespondent had constructed on his own land upon payment of a reasonable charge.It was of central importance to the judgment in that case that the locks hadbeen constructed pursuant to letters patent that conferred upon the respondentthe right to make cuts or diversions in a public waterway as part of theproject. The effect of sanctioning the cuts, Lord McNaughton said, was to conferon the patentee a “virtual monopoly” in regard to navigation on the river.Referring to “the doctrine of Lord Hale,” he said that the locks, “althoughprivate property”, had as a result become “‘affected with a public interest’ andceased ‘to be juris privati only.’” Heconcluded, “so long as the private owner kept the locks open and took toll allmembers of the public belonging to the class for which they were made wereentitled to free passage on paying the regular charges.”[35]

Lord McNaughton also made reference to Allnutt v. Inglis. In that case, customers of a warehouse brought suit against its owners over the level of charges they imposed for the storage of goods. The warehouse operated pursuant to a certificate of the Lords of the Treasury that conferred upon the owners the right to hold goods in bond. No other warehouse in the port of London had been similarly authorized. Chief Justice Ellenborough said that “if, for a particular purpose, the public have a right to resort to [an individual’s] premises and make use of them, and he have a monopoly of them for that purpose, if he will take the benefit of that monopoly, he must as an equivalent perform the duty attached to it on reasonable terms.”[36] It was held that the owners of the warehouse could charge only a reasonable price for the use of their facility.

In Lévis, as the Privy Council made clear, the city had no similar legal monopoly over the supply of water.[37] By recognizing that a right of public access to essential services (“prime necessities”) may exist outside of situations where a supplier has a legal monopoly or privilege, and that a duty to supply may arise whenever a supplier enjoys a “special advantage” in relation to the provision of such a service, Lévis represents a clear break with English precedent. The Privy Council’s assertion that a duty to supply may arise “from the circumstances and from the relative positions of the parties” echoes—perhaps consciously—the words used in the argument unsuccessfully made by counsel for the school in Hoddesdon.[38]

Lévis has never been referred to in a reported English case and recent English case law continues to limit the duty to serve to situations where the supplier has a legal monopoly or privilege.[39] The decision of the Privy Council has had a mixed reception elsewhere: while Lévis and the doctrine of “prime necessity” that it articulates form part of the common law of New Zealand,[40] the reasoning underpinning the judgment has been rejected in Australia.[41] But Lévis has been accepted in Canada without reservation. Lévis is in effect an endorsement of the principles adopted by the Supreme Court of Canada in Toronto 1893.[42]

Tsawwassen Indian Band v. Delta[43]is an interesting application of Lévis. In twoseparate proceedings, Indian bands had sought declarations in the Supreme Courtof British Columbia that the municipalities within which their respective landslay (the city of Delta and the district of Salmon Arm) had a common law duty tocontinue to supply certain municipal services to residents on the bands’ lands(fire protection services in the case of Delta; water, sewer, and fireprotection services in the case of Salmon Arm). Negotiations to secure theprovision of the services had failed in both cases. In the Salmon Arm case, thetrial judge distinguished Lévis on thebasis that Lévis concerned supply toone building rather than supply to several acres. The court said that thedifference in size between a small parcel of land and a reserve comprisingseveral acres brought with it the potential for alternative methods of supply,and found that the band was capable of providing its own services. The courtconcluded that the municipality could terminate provision of the relevantservices on reasonable notice, which it fixed at fourteen months, referencingthe length of time that might be required for the band to establish its own fireservice. In the Delta case, the trial judge followed Salmon Arm and fixed anotice period terminating on the same date fixed in the Salmon Arm case.

The court of appeal, reversing the lower court decisions, affirmed that the relationship between the municipality and the bands gave rise to a duty to serve under the principles enunciated in Lévis. The municipalities did not have a legal monopoly on the supply of water, sewer, and fire protection services, but one can deduce from the facts that they were the only available suppliers. The relationship between the parties, the court said, determined not just “the nature” but also the “extent of the common law obligation” the municipalities owed the Indian bands.[44] The factors the court found relevant to its analysis were the municipalities’ experience in providing public services, controlling the existing infrastructure necessary to provide the services, and collecting taxes to pay for the services. While the circumstances gave rise to a duty on the part of the municipalities to supply the relevant services, the court was also of the opinion that, given the size of the bands in question and the fact that both bands had become independent taxing authorities, the duty was terminable upon reasonable notice. The matters were remitted to the lower courts so that reasonable notice could be determined, taking into account, inter alia, the time that would be necessary for the bands to put their own systems into place.[45]

In Long Lake Cottage Owners Assn. v. Thorhild (County) No. 7, the Alberta Court of Queen’s Bench, citing Lévis and Tsawwassen, recently held that residents of a hamlet have a right to continue receiving water from a municipal well faced with closure by the local municipality until a viable alternative supply could be arranged.[46]

II. The Scope of the Common Law Duty

At the beginning of this article, I posed a series of questions about the scope of the duty to serve. I will now address these from the perspective of the common law.

A. To Which Services Does the Duty Attach?

Chastain says that the duty to serve attaches to services “of fundamental importance to the public” and specifically identifies “telephone services” as within that category.[47] Other decisions use phrases such as “prime necessities”, “essential services”, and “necessities of modern life”[48] to describe the type of services that attract the duty to serve. No case identifies, however, any other type of telecommunications service (for instance, mobile telephone service, Internet access service, or data services) as subject to the duty.[49]

B. Is There a Duty to Extend Service?

There appears to be no foundation for imposing a common law duty on a public utility to extend service beyond its existing lines of supply. American authority on the point seems clear.[50] The duty to serve is limited by the utility’s capacity to serve.[51]

The issue arose in Holmberg v. Public Utilities Commission of Sault Ste. Marie,[52] but the case was decided on the basis of the applicable statute without reference to the common law. A resident of a new subdivision successfully applied to the Ontario courts for mandamus to compel a public utilities commission (the “PUC”) to provide water and electrical service. The PUC had refused to do so because the developer of the lands had failed to complete installation of a water main and to install a secondary line and transformer necessary to supply the houses with electricity, in contravention of an agreement with the municipality for the development of the lands. An order directing the PUC to supply the services had been granted at first instance without written reasons. On appeal, the PUC acknowledged that it had a duty to provide service under section 55 of the Public Utilities Act, but argued that that did not include a duty to extend its lines of supply. Section 55 provides as follows:

55. (1) Where there is a sufficient supply of the public utility, thecorporation shall supply all buildings within the municipality situate uponland lying along the line of any supply pipe, wire or rod, upon the requestin writing of the owner, occupant or other person in charge of any suchbuilding.[53]

The PUC said that, until the water main was tested (which involved digging down to test for possible leaks) and the secondary line and transformer were installed, no service could be demanded as of right. The court of appeal had no difficulty in concluding that the applicant’s property lay along an existing water supply line and that section 55 imposed a statutory duty to supply that service. The situation relating to electricity was different, however, because the facilities required to supply power were not in place. The court concluded that the installation of the secondary line and transformer was not a prerequisite to the creation of a statutory duty to serve. That duty applied unless there was “no supply line at all” from which service could be provided.[54] Since there was a supply line, the court held that the failure of the developer to perform its agreement with the municipality to install those facilities did not defeat the PUC’s statutory duty to provide service.

Some authorities suggest that a duty to extend service may be implied from a franchise arrangement conferring an exclusive right to provide a service.[55] The franchise model, though familiar in other public-utility settings,[56] has not been widely adopted in Canada for telecommunications services. Canadian telecommunications carriers are generally free to define for themselves the limits of their operating territories, and none enjoys a legal monopoly within its territory. As a result, there is rarely a foundation for the implication of a duty to provide telephone service based on the exclusivity conferred by a franchise. Where exclusivity has been expressly granted by statute, a duty to serve is often linked to that exclusive right, but both right and obligation are usually for a limited term. For example, the 1888 act of the New Brunswick legislature incorporating the New Brunswick Telephone Company (now a constituent part of Bell Aliant) gave the company the exclusive right to maintain telephone communication between St. John and Fredericton, and between several other places, on the condition that “the said Company shall within two years of the passing of this Act construct, erect and equip Telephone communication between these several points or places between the same.” The exclusivity was limited, however, to a period of ten years.[57] The Island Telephone Company Limited, which was incorporated by the legislature of Prince Edward Island in 1929 (also now a constituent part of Bell Aliant), enjoyed a similar period of exclusivity subject to an obligation (of indefinite duration) to “establish new exchanges wherever good telephone practice shall require.”[58]

C. Is There a Duty to Serve Where There Are Multiple Suppliers?

Public-utility services have historically been provided on a monopoly (or near-monopoly) basis and it seems fair to say that the existence of a monopoly has been one of the defining features of the public utility.[59] A legal or “practical monopoly” is present in Cornwall, Chastain, and the other Canadian public-utility cases cited above in which a duty to serve has been held to arise. This is equally true of the Lévis line of cases, although they do not all mention the point. In Lévis, the supplier did not have a legal monopoly, but was found to have a position of “great and special advantage” deriving from the fact that it was the only convenient source of supply. Tsawwassen and Long Lake are also cases in which the suppliers had, in effect, a “practical monopoly” of the sort that the supplier of gas and electricity was found to have in Chastain.[60] In Commercial Alcohols Inc. v. Bruce Power, L.P.,[61] the Ontario Superior Court supports the view that the duty to serve arises only where there is a monopoly in the supply of the relevant commodity. That case concerned the interpretation of a contract for the supply of steam energy by Bruce Power. The court said that, as Bruce Power did not have a monopoly over provision of steam energy, the obligation of a public utility or other body having a practical monopoly on the supply of a particular commodity or service of fundamental importance to the public referred to in Chastain did not apply.

Many of the markets previously dominated by monopolies, including telecommunications, electricity, and gas, have now become, in whole or in part, competitive. How is the traditional duty to serve imposed by the common law on the former monopolies affected by this change? This is one of the issues I will examine in the next section. Where the common law is concerned, however, the situation seems clear: the existence of a monopoly or near-monopoly is critical to the existence of a duty to serve and once that condition no longer obtains the common law duty to serve no longer arises.

III. The Common Law Duty to Serve and Regulation

In Canada, the common law duty to serve exists alongside statutory service obligations imposed on telecommunications carriers by the Telecommunications Act and regulatory policies promoting universal access to basic telecommunications services promulgated by the CRTC.[62] In this section, I examine these other service obligations and how they interrelate with carriers’ common law duties.

A. The Regulatory Framework

The Telecommunications Act affirms that Canadian telecommunications policy has among its objectives “to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada” (the “universal service objective”).[63] The act requires that rates for telecommunications services shall be just and reasonable and specifies that no carrier shall unjustly discriminate or give an undue preference in relation to the provision of a telecommunications service.[64] The act empowers the CRTC to ensure compliance with these and other obligations and confers broad regulatory powers on the CRTC for that purpose.[65] The act does not impose a statutory duty to serve on carriers.

Exceptionally, the Bell Canada Act imposes a duty on Bell Canada to provide telephone service “[w]here a telephone service is requested ... in a municipality or other territory within which a general telephone service is provided by the Company.” The duty applies if the premises for which the service is requested front on “a highway, street or lane or other area along, over, under or on which the Company has a main or branch telephone service or system,” but not if “the telephone on the premises would be situated more than 62 metres or such other distance as the Commission may specify from the highway, street, lane or other area.”[66]

The ongoing relevance of the common law duty to serve is reflected in CRTC decisions. The CRTC was evidently referring to the common law when it stated in a 1979 decision that there was a duty on Bell Canada and CNCP Telecommunications to provide their monopoly services (public telephone service and telegram service, respectively) to “anyone seeking service in their entire operating areas irrespective of location.”[67] In 1999, the Commission said that a local exchange carrier’s obligation to serve means that it “must provide service to subscribers in its service territory at a reasonable price without unjust discrimination.” It added that “[t]he concept of an ‘obligation to serve’ developed within the context of a traditional, regulated monopoly in telecommunications services.”[68]

In 1985, the CRTC proposed to add a stipulation to carriers’ standard termsof service expressly requiring them to supply their tariffed services “to allwho apply.”[69] Possibly as a consequence ofquestions raised by some carriers about the Commission’s power to prescribe aduty to serve,[70] the provision ultimatelyadopted (and that continues to apply today) stopped short of imposing anaffirmative duty to serve and instead specified when the duty does not apply. The resulting text, article 3.1 ofthe Terms of Service, provides asfollows:

3. Obligation to Provide Service

3.1 The Company is not required to provide service to an applicantwhere:

  1. the Company would have to incur unusual expenses which theapplicant will not pay; for example, for securing rights of way orfor special construction;

  2. the applicant owes amounts to the Company that are past dueother than as a guarantor; or

  3. the applicant does not provide a reasonable deposit oralternative required pursuant to these Terms.[71]

Article 3.2 adds the requirement that, “[w]here the Company does not provideservice on application, it must provide the applicant with a written explanationupon request.”

While there is no duty to serve prescribed by the Telecommunications Act or the Terms of Service, the prohibition on unjust discrimination imposes an implicit duty to serve in some circumstances; it precludes a carrier from refusing service to a potential customer without just cause if it is providing the service to an existing customer in similar circumstances.[72]

As a general matter, the Telecommunications Act does not empower the CRTC to require a carrier to extend service beyond its existing lines. This gap in regulatory authority was critically commented upon by the Board of Railway Commissioners as long ago as 1910, which described the governing legislation as “lame” in contrast to the corresponding legislation respecting railways, which gave the same board ample authority to require railways to extend their lines.[73] In 1928, the board concluded for this reason that it was powerless to assist rural residents in the townships of Madoc and Elsevir, who had petitioned it for an order requiring Bell Canada to extend its lines to their area.[74]

The one circumstance in which the CRTC is empowered to order the construction of facilities is provided for in section 42(1):

Subject to any contrary provision in any Act other than this Act or anyspecial Act, the Commission may, by order, in the exercise of its powersunder this Act or any special Act, require or permit any telecommunicationsfacilities to be provided, constructed, installed, altered, moved, operated,used, repaired or maintained or any property to be acquired or any system ormethod to be adopted, by any person interested in or affected by the order,and at or within such time, subject to such conditions as to compensation orotherwise and under such supervision as the Commission determines to be justand expedient.[75]

This power is not free-standing. In order to trigger the power to order theconstruction of facilities, the Commission must be acting “in the exercise ofits powers under the Act or any special Act.” The 1992 decision of theCommission ordering Bell Canada and BC TEL to modify their switches tofacilitate the interconnection with competitive providers of long distanceservices which had been mandated under section 40 of the Telecommunications Act provides an example ofa situation where section 42 applied. A violation of section 27(2), whichprohibits unjust discrimination by telecommunications carriers, might also serveas a trigger for a section 42 order to extend a carrier’s lines, although nosuch order has ever been made.[76]

The Commission has said that “[t]he obligation to serve [not only] requires ILECs [i.e., incumbent local exchange carriers] to provide telephone service to existing customers, new customers requesting service where the ILEC has facilities, [but also to] new customers requesting service beyond the limits of the ILEC’s facilities.”[77] Such requests by new customers are governed by Commission-approved tariffs. These do not, however, impose an obligation on carriers to extend their facilities so much as to define a process for dealing with such requests. Bell Canada’s tariff is representative. The tariff provides that “when the Company elects to provide service or facilities in territory other than that as stated in [the Bell Canada Act], the construction charges specified in its tariff shall apply.” This includes a free allowance for the first 165 metres of construction, which is deemed to be covered by monthly rates and rentals, after which a cost-based charge applies.[78]

B. Universal Service

The CRTC’s consideration of the duty to serve has taken place almost entirely within the context of discussions of its universal access policy.

A review of the decisions of federal regulatory authorities prior to 1976—the year thatjurisdiction over telecommunications was transferred to the CRTC[79]—suggests that the Commission’spredecessors[80] did not see the promotion ofuniversal access to telephone service as a regulatory objective. These agenciesconstrued their mandate narrowly: it was to ensure that rates were just andreasonable and free of unjust discrimination and undue preferences; andconsideration of the telephone companies’ duty to serve were addressed onlywithin the context of disputes over individual service issues.[81] The CRTC brought a fresh approach to regulationand a concern for broader social issues. The CRTC made the universalavailability of telephone service at affordable prices, now endorsed as anobjective of Canadian telecommunications policy by the Telecommunications Act,[82] one of its prime objectives.[83]The absence of a statutorily mandated duty to serve and a power to require theconstruction of extensions to facilities to implement it does not seem to haveimpeded the CRTC in pursuing that objective. It did so principally byincorporating consideration of accessibility to a carrier’s telephone servicesin its assessment of the justness and reasonableness of the carrier’s rates. TheCommission made it clear that, where it regarded the level of availability oftelephone service as unsatisfactory, it would be reluctant to authorize rateincreases until the carrier could demonstrate significant progress towardsimproving the situation.[84] Under this regime,telephone companies were allowed to recover the costs of improved access throughrate increases for other services sanctioned by regulation—and in particularlong distance telephone services. By means of this “regulatory bargain”, theCommission was able to drive a continued expansion of access to service over thefollowing decades.[85] The Commission’s decisionin British Columbia Telephone Company—Extension ofService to Remote Communities[86]provides a good example of this process in action. In that case, the Commissionendorsed a plan under which the company would contribute up to $10,000 persubscriber to extend or improve service to remote locations, which sum would berecoverable by the company from the general body of telephone customers. It wasthe “regulatory bargain”, and not the prescription or enforcement of the duty toserve, that underpinned the Commission’s universal access policy and to whichthe success of that policy must be attributed.

The elaborate system of internal telephone company cross-subsidies that evolved during thisperiod became so central to the Commission’s universal access policy that theCommission initially resisted proposals for the introduction of competition inthe provision of long distance telephone services out of concern for the threatcompetition might pose to the sustainability of the mechanism funding universalaccess.[87] These concerns were ultimatelyovercome through adoption of a scheme under which new entrants were required tomake payments to the incumbents to preserve affordable rates for basicservices.[88] An amendment to theTelecommunications Act in 1998 provided a statutory foundation for the creationof a new subsidy mechanism under which all carriers now pay a CRTC-prescribedpercentage of their revenue into a fund to subsidize the provision of basicresidential local telephone services in Commission-designated high-cost servingareas.[89]

In Telephone Service to High-Cost Serving Areas, the Commission for the first time defined a “basic service objective” (BSO) for ILECs. The services to which the BSO applies include:

  • Individual line local service with touch-tone dialling, provided by adigital switch with capability to connect low-speed data transmission to theInternet at local rates [i.e., “Primary exchange service”];

  • Enhanced calling features, including access to emergency services, VoiceMessage Relay Service, and privacy protection features;

  • Access to operator and directory assistance services;

  • Access to the long distance network; and

  • A copy of a current local telephone directory.[90]

The BSO does not purport to impose a requirement on ILECs to provide therelevant services. The Commission made it clear in setting the objective that it didnot expect the industry to extend and improve service to all areas immediately; theonly actual obligation imposed was a requirement that all incumbents not meeting theobjective submit multi-year service improvement plans designed to achieve the basicservice objective in their entire service territory.[91]

The Commission has rejected proposals to impose a duty to serve on pay telephone service providers and to impose a duty on a carrier to serve as a toll carrier of last resort.[92] The Commission has also said that it would consider including an obligation to provide toll-free Internet access in the carriers’ “obligation to serve” if there was evidence that no ISP was providing such service.[93]

In its recent decision in Obligation to Serve and Other Matters, the Commission considered whether it should play a role in improving access to broadband Internet services and, specifically, whether it should add access to broadband Internet services to the BSO.[94] Some parties, including most ILECs and other major Internet access providers, argued that the Commission lacked the legal authority to require them to provide broadband Internet access; and other parties, including consumer groups, took the contrary view. In the end, however, the Commission decided that it would not add the provision of broadband Internet access to the BSO. The Commission noted that the rollout of broadband Internet access in Canada has been successful through a combination of market forces, targeted funding, and public-private partnerships at all levels of government, even though service gaps remain in rural and remote areas. It decided that the existing policy should continue. Instead of adopting any prescriptive measures, the Commission established target speeds (5 Mbps downstream and 1Mbps upstream) for broadband Internet access and stated that these speeds should be available to all Canadians by the end of 2015 and that it would monitor progress towards reaching these targets.[95]

C. The Impact of Competition

I have stated above that the common law duty to serve attaches only to services provided on a monopoly or near-monopoly basis. The CRTC has implicitly acknowledged this limit on the common law duty to serve.[96] It is appropriate to turn now to a consideration of how the CRTC has addressed the duty to serve in the increasingly competitive environment that has emerged since the 1990s.

Although competition in the provision of public long distance telephone services was introduced in 1992, it was not until 1997, when the Commission liberalized the provision of local exchange services, that the Commission was compelled to address the implications of competition for the duty of the incumbents to provide telephone service.[97] The subject attracted considerable comment in the proceeding that led up to the 1997 decision. Stentor, the umbrella group for the major incumbents, submitted that in a competitive environment the incumbents’ obligation to serve would in effect become a “carrier of last resort” obligation under which Stentor members would be ready to serve not only their own customers, but also competitors' customers. Stentor also submitted, however, that the case for maintaining such an obligation would disappear in a competitive marketplace after the incumbents made interconnection and other essential facilities available to new competitors. The Commission responded that it would not be appropriate, in markets characterized by effective facilities-based competition, to designate one carrier as having carrier of last resort responsibilities. It also considered it unlikely that fully effective competition would develop in all areas in the near term, and even then that it would be unlikely that market forces, on their own, would achieve the Telecommunications Act's accessibility objective in all regions of Canada. The Commission concluded that the most appropriate way to reach this goal was “to maintain the incumbents’ current obligation to serve,” pending further investigation into an approach for serving high cost areas more suited to a fully competitive environment.

In Telephone Service to High-Cost Serving Areas, the 1999 decision in which it established the BSO, the Commission invited comment on how the obligation to serve might be changed where competition is present. However, it again concluded that effective local service competition would not likely occur in the short term and that, in the meantime, “incumbent local carriers must retain their obligation to serve.”[98]

Over the following ten years, local exchange markets became increasingly competitive and ILECs and others in the industry began to call on the Commission to exercise its statutory power to forbear from regulating local exchange markets[99] where competition had taken hold, as it had in long distance and other markets in similar circumstances. The Commission initially resisted these calls for local forbearance. In 2005, however, the Commission initiated a proceeding that resulted a year later in a decision entitled Forbearance From the Regulation of Retail Local Exchange Services. The Commission said that it would be prepared to forbear from regulating local exchange services in a relevant market where an applicant ILEC could demonstrate that it had suffered a 25 percent market share loss in the relevant market, had met certain quality of service standards in relation to services provided to competitors, had complied with certain measures designed to facilitate competition, and could in fact demonstrate that “rivalrous behaviour” existed in the relevant market.[100] The Commission declined, however, to relieve incumbents of their duty to serve. The Commission stipulated that incumbents would continue to be required to offer primary exchange service in forborne markets, reasoning that there may remain pockets of uncontested customers for whom the incumbent would remain the primary or only local exchange carrier. It also decided, “in order to ensure that residential stand-alone PES is available to all residential customers in forborne markets ... to retain in forborne markets the ILECs' obligation to serve with respect to residential stand-alone PES.”[101]

Pressure for further deregulatory measures prompted the Governor-in-Council to intervene in the following months with two initiatives. First, the Governor-in-Council directed the CRTC, in exercising its powers and performing its duties under the Telecommunications Act, to “rely on market forces to the maximum extent feasible as the means of achieving the telecommunications policy objectives,” and “when relying on regulation, [to] use measures that are efficient and proportionate to their purpose and that interfere with the operation of competitive market forces to the minimum extent necessary to meet the policy objectives.”[102] Second, the Governor-in-Council issued an order varying the criteria established by the Commission in its local forbearance decision by eliminating the 25 percent market-share-loss requirement and substituting a test which mandates forbearance in a local exchange where there are at least two other independent facilities-based service providers serving the same local exchange that are capable of serving at least 75 percent of the local residential lines.[103]

The variance order did not alter the CRTC’s conclusions respecting continuation of the duty to serve, but in response to the Governor-in-Council’s direction to “rely on market forces to the maximum extent feasible,” the CRTC adopted an “action plan” for reviewing past regulatory measures, including the obligation to serve.[104] It was against this backdrop that the CRTC launched Proceeding to Review Access to Basic Telecommunications Services and Other Matters in 2010.[105] Examination of the obligation to serve and the BSO formed part of the agenda. The proceeding went through several phases. It is sufficient for present purposes to note that there was a diversity of views expressed about how these two issues should be addressed in the future. The large ILECs argued that the obligation to serve and the basic service objective should be eliminated in forborne exchanges and retained in regulated exchanges. These parties generally argued that market forces are sufficient in forborne exchanges to ensure that high-quality PES continues to be accessible to all subscribers. They also argued that, if the obligation to serve and the basic service objective were to be retained in forborne exchanges, ILECs should be given greater pricing flexibility by raising the price ceiling on stand-alone PES to the highest affordable level. Other parties, including consumer groups and small ILECs, submitted that the obligation to serve and the basic service objective should be retained in both regulated and forborne exchanges. They argued that reliance on market forces alone, even in forborne exchanges, would not ensure that vulnerable (e.g., low-income) and uncontested (i.e., without access to competitive wireline services) customers would continue to have access to quality voice services at affordable rates. Most of the large cable carriers submitted that the obligation to serve and the basic service objective should be eliminated wherever at least one competing alternative wireline or wireless voice service is provided within an ILEC’s serving territory. “These parties argued that mobile wireless services are pervasive across the vast majority of Canada and are substitutes for wireline services.”[106]

The Commission decided that ILECs should “continue to have an obligation to provide stand-alone [primary exchange service], which includes unlimited local calling at a flat monthly rate and a choice of long distance service provider,”[107] but gave the ILECs the freedom to charge higher rates for the service (subject to a price ceiling).[108] The Commission also rejected the idea that the obligation to serve and the BSO should be applied symmetrically to all carriers. In regulated exchanges, the Commission said, it would not be appropriate because “the majority of competitors have a minimal presence”; and in forborne exchanges, it “would be unduly duplicative and would not be a minimally intrusive means of achieving the policy objectives underlying the obligation to serve.”[109]


The scope of carriers’ service obligations is defined by an amalgam of common law duties, statutory service obligations and CRTC-mandated policies that can be summarized in the following points:

  1. At common law, suppliers of services of fundamental importance tothe public are required to provide their services on demand. Telephoneservices are included within this category, but no Canadian court hasever extended the duty to other types of telecommunications service.

  2. The duty arises only in respect of the territory that the serviceprovider professes to serve. There is no duty on the part of a serviceprovider to extend its service beyond its existing lines of supplyunless denial of service would subject a potential customer tounreasonable discrimination.

  3. The duty arises only where a carrier has a monopoly (de jure or defacto) on the provision of the relevant service, or the service supplierstands in a position of special advantage and the circumstances and therelative position of the parties is such that the imposition of such aduty is warranted.

  4. The common law duty to serve exists alongside statutory obligationsimposed on telecommunications carriers by the Telecommunications Act, whichrequires them to charge just and reasonable rates and prohibits unjustdiscrimination. The act is silent, however, on the matter of the duty toserve (although, exceptionally, the BellCanada Act imposes such a duty on Bell Canada).

  5. In the exercise of its regulatory mandate, the CRTC has adoptedpolicies promoting universal access to basic telecommunicationsservices. Since 1993, it has been a statutory objective of Canadiantelecommunications policy “to render reliable and affordabletelecommunications services of high quality accessible to Canadians inboth urban and rural areas in all regions of Canada.”[110] The Commission’s authority to impose anobligation on carriers to extend service to unserved areas is limited,however, and, instead of imposing prescriptive measures, the Commissionrelied in the past on its rate-setting power to encourage the necessaryinvestment. Using this approach, the Commission permitted carriers torecover the cost of network expansion and improvement through increasedrates (and indicated that it would withhold approval of increases whereservice was judged inadequate). This approach has now been superseded bya scheme administered by the Commission, which provides explicitsubsidies to support the provision of basic telecommunications servicesby ILECs in certain “high-cost areas”.

  6. The Commission has also defined a non-binding basic serviceobjective for ILECs. The BSO includes the provision of individual localline service (primary exchange service). The CRTC has declined to extendthe BSO to other services, such as pay phone service and toll-freeaccess to the Internet.

  7. The Commission has forborne from the regulation of ILECs’ localexchange services in exchanges where competition has taken hold. The BSOno longer applies in such cases. The Commission has, however, decidedthat ILECs should continue to have an obligation to provide stand-aloneprimary exchange service throughout their territories.

  8. The Commission has rejected the idea that the obligation to serveand the BSO should be applied symmetrically to all carriers.

  9. The Commission has also rejected proposals that it should add theprovision of broadband Internet access to the BSO. The Commission hasopted instead to continue the existing policy, which relies upon acombination of market forces, targeted funding, and public-privatepartnerships at all levels of government, to expand the reach ofbroadband. The Commission has established target speeds for broadbandInternet access and set a date of 2015 for achievement of those targets,which, it has said, it will monitor.