OTTAWA - Big-city dwellers will get cash back from their phone companies and tens of thousands of rural residents will finally get to kiss dial-up Internet goodbye, following a decision Tuesday by the federal telecommunications regulator.

Urban Canadians in Quebec, Ontario, Manitoba, Alberta and British Columbia will get between $20 and $90 back from the large phone companies within the next six months. Subscribers in 287 rural and remote communities will get access to high-speed Internet by 2014.

The windfall comes from a $770-million fund collected from the so-called Bell companies by the Canadian Radio-television and Telecommunications Commission (CRTC).

"Today's announcement is a positive solution for Canadian consumers," CRTC chairman Konrad von Finckenstein said in a statement.

"Subscribers of the major telephone companies in urban areas will enjoy a rebate on their home telephone service. And residents in hundreds of rural communities will soon be able to take advantage of the many social and economic benefits broadband Internet access provides."

In 2002, the CRTC stopped the phone companies from lowering their rates in urban areas in order to protect new competition in the local, home-phone market. The commission diverted that money to a so-called deferral account.

By 2006, competition in local phone service was established and there was no more need to keep an artificial floor on the rates. The commission then had to figure out how to distribute the money.

The issue went to the Supreme Court of Canada in 2008, with a consumer group arguing that the entire amount should go back to consumers in a rebate. The phone companies wanted to spend the fund on service improvements in the rural areas. The court sided with the commission's formula for allocating the cash.

The CRTC said in its decision Tuesday that $310.8 million will go to urban, home-phone customers. Another $421.9 million will be spent on better rural Internet access and $35 million will help improve accessibility for disabled Canadians.

The companies involved in the rebate and the improvements to rural broadband include Bell Canada (TSX:BCE) and Bell Aliant (TSX:BA.UN), Telus (TSX:T) and MTS Allstream (TSX:MBT). SaskTel will use its $1.5-million share of the fund entirely for improved access for the disabled.

Bell decried the decision, which came only a day after the CRTC ruled that the large phone companies must offer smaller Internet service providers access to their highest broadband speeds.

"It's a bad week for broadband for those reasons," said Mirko Bibic, senior vice-president of regulatory and government affairs. "It's rather backward- looking ... it reflects further how out of touch CRTC thinking is."

The decision said the phone companies can offer customers special service promotions instead of a straight-up rebate, if the promotions are worth more than the rebate.

If a customer cancels an account with one of the big companies within the next six months, the rebate will be applied to their final bill, the ruling said.

The commission also rejected a proposal by Bell to construct wireless-based networks in certain rural and remote communities instead of hard-line service. It felt that customers in those areas would not get the same quality of service as those in cities.

One commissioner disagreed with that part of the decision. Len Katz said the CRTC shouldn't be prescribing the kind of technology that the companies use to provide the broadband services.

Bibic said the commission erred when it assumed the wireless technology wouldn't adequately serve customers.

"Why build yesterday's technology when the rest of Canada's getting tomorrow's technology?" Bibic said.

Bell's main competitor for Internet users in Quebec applauded the decision. If the commission had allowed Bell to set up wireless service in the province, it would have competed directly with cable and wireless firms trying to do the same.

"The idea that the commission would step into the market and give a half-billion subsidy to one of our competitors was inconceivable," said Dennis Beland, director of regulatory affairs for Quebecor Media, owner of cable firm Videotron.

"These communities are going to have the best of both worlds now. They'll have a wireline Internet service, and in addition have those four wireless broadband competitors knocking at their doors, trying to offer them the best service possible."

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