Executive Summary: Key Legal and Evidentiary Issues

• Whether the sale and subordination of spectrum licences by TerreStar Solutions Inc. constituted a "telecommunications service" under section 23 of the Telecommunications Act for purposes of the National Contribution Fund.
   
• The Federal Court of Appeal considered whether the Commission's application of the "incidental" test raised an extricable question of law reviewable under section 64 of the Act.
   
• Adequacy of the Canadian Radio-television and Telecommunications Commission's reasons in both its initial decision and its review decision was challenged by TerreStar.
   
• TerreStar alleged that the Commission engaged in retroactive decision-making by treating spectrum monetization revenue as contribution-eligible.
   
• Classification of spectrum sale and subordination revenues as "operating revenues" under generally accepted accounting principles was also disputed.
   
• Costs in the amount of $5,000 were addressed as part of the disposition of the appeal.

Facts of the case

TerreStar Solutions Inc. (TerreStar) provides mobile-satellite services to consumers and businesses in Canada and holds several spectrum licences issued by Innovation, Science and Economic Development Canada under the Radiocommunication Act. Since November 2000, the Canadian Radio-television and Telecommunications Commission (the Commission) has operated a contribution regime under subsection 46.5(1) of the Telecommunications Act, requiring telecommunications service providers with operating revenues of at least $10 million to contribute to the National Contribution Fund. Contributions are calculated on "contribution-eligible revenues," determined by subtracting approved deductions—including non-telecommunications service revenue (NTSR)—from total operating revenues.

In 2021, TerreStar earned revenue from selling and subordinating spectrum licences it was not using. Approximately 98% of the deductions it claimed related to subordination of ancillary terrestrial component spectrum to other providers, while about 2% related to the sale of 10 MHz of spectrum in Manitoba. In March 2022, TerreStar sought to deduct these amounts as NTSR from its operating revenues. Commission staff advised in June 2022 that such revenue, whether from lease, sale, or subordination, qualified as a "telecommunications service" and was therefore not deductible. TerreStar then applied to the Commission in November 2022 for a declaration that subordination specifically did not meet that definition. The Commission denied the application in June 2023 (the initial decision) and subsequently denied TerreStar's application to review and vary that decision on June 12, 2024 (the review decision). TerreStar appealed the review decision to the Federal Court of Appeal under section 64 of the Act.

Policy and legislative provisions at issue

The dispute centered on section 23 of the Telecommunications Act, which extends the definition of "telecommunications service" in subsection 2(1) to include "any service that is incidental to the business of providing telecommunications services." Subsection 2(1) defines "telecommunications service" as a service provided by means of telecommunications facilities, including provision of such facilities by sale, lease, or otherwise, and defines "telecommunications facility" as any facility, apparatus, or other thing used or capable of being used for telecommunications. TerreStar argued that spectrum could not be classified as a "telecommunications facility" under the interpretive principle of ejusdem generis, and that subordination of spectrum was therefore not a "telecommunications service." The Commission relied on its prior Order CRTC 2001-288, which defined NTSR by reference to section 23, and on the policy objective in Decision CRTC 2000-745 of applying contribution obligations across the broadest possible range of telecommunications services. The applicable legal standard for "incidental" services, drawn from Telecom Decision CRTC 2006-3 and Telecom Decision CRTC 90-12, asks whether a service engages fundamental elements of the telecommunications system or relates to the essential nature of the business.

Reasoning and analysis

The Court found that the Commission's determination did not raise an extricable question of law. Both parties agreed on the legal standard for "incidental" services; the actual dispute concerned how the Commission applied that standard to TerreStar's circumstances, which the Court characterized as a factually suffused question of mixed law and fact falling outside the scope of a section 64 appeal, citing Teksavvy Solutions Inc. v. Bell Canada, 2024 FCA 121, and Canadian National Railway Company v. Emerson Milling Inc., 2017 FCA 79. The Commission had rejected TerreStar's characterization of itself as solely a mobile-satellite service provider, finding instead that spectrum monetization was a key element of its business given that spectrum is a scarce resource allocated for telecommunications purposes.

On adequacy of reasons, the Court applied the standard from R. v. Sheppard, 2002 SCC 26, as adopted in Manitoba Métis Federation Inc. v. Canada (Energy Regulator), 2023 FCA 24, which requires that reasons permit meaningful appellate review without demanding perfection. The Court found that specific paragraphs of both the initial and review decisions sufficiently explained the Commission's conclusions. On retroactivity, the Court held, relying on Bell Canada v. Amtelecom Limited Partnership, 2015 FCA 126, that the Commission had not altered the legal landscape but had applied the existing standard in section 23 to TerreStar's actual circumstances. Finally, on the operating revenues issue, the Court found that the Commission had not made a legal ruling on the meaning of operating revenues but had simply observed that TerreStar itself had reported the spectrum-related revenues as operating revenues in accordance with generally accepted accounting principles.

Ruling and overall outcome

The Federal Court of Appeal dismissed TerreStar's appeal on all grounds, concluding that the Commission's determination that spectrum sale and subordination revenues were incidental to TerreStar's telecommunications business did not raise an extricable question of law, that the Commission's reasons were adequate, that no retroactive decision-making had occurred, and that the Commission had not erred regarding the classification of operating revenues. The appeal was dismissed with costs, and the parties agreed that costs of $5,000 would be awarded to the successful party, the Attorney General of Canada.