Archived—DGRB-001-98 — Canadian Wireless Telecommunications Association

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September 11, 1998

Mr. Ronald G. Amero
Director, Space and International Regulatory Activities
Radio Communication and Broadcasting Regulatory Branch
Industry Canada
300 Slater Street
Ottawa, Ontario
K1A 0C8
DSIR@ic.gc.ca

Dear Mr. Amero:

Subject: Gazette Notice No. DGRB-001-98 - Spectrum Licence Fees for Mobile Satellite Services Using Radio Spectrum Above 1 GHz, published in the Canada Gazette, Part I on June 13, 1998;

Gazette Notice No. DGRB-005-98 - Extension to Comment Period for Notice No. DGRB-001-98, published in the Canada Gazette, Part I on July 25, 1998

The Canadian Wireless Telecommunications Association (CWTA) is pleased to submit the attached comments on behalf of its members in response to the issues raised in the above noted discussion papers.

Sincerely,

(original signed)

J. David Farnes
Vice President, Regulatory Affairs

Attachment

Introduction

The Canadian Wireless Telecommunications Association (CWTA) offers the following comments on behalf of its members in response to the issues raised in Gazette Notice No. DGRB-001-98 .) Spectrum Licence Fees for Mobile Satellite Services Using Radio Spectrum above 1 GHz, later amended by DGRB-005-98 .) Extension to Comment Period for Notice No. DGRB-001-98.

The CWTA represents the wireless telecommunications sector in Canada and counts among its members mobile satellite services (MSS), cellular, personal communications services (PCS), enhanced specialised mobile radio (ESMR), local multipoint communications systems (LMCS) and mobile radio licensees. The members of the Association offer a range of telecommunications services to over 7 million Canadians. The CWTA is diverse in terms of scale and scope of operations of its members, with members ranging from national service providers to regional and local players.

Please note that the opinions expressed herein do not represent the views of ICO Global Communications Inc.

The Association supports Industry Canada's initiative to create a fair and equitable spectrum licence fee structure. In the CWTA's opinion, the direction taken in the proposed approach for spectrum licence fees for MSS above 1 GHz generally meets this objective. The CWTA submits the following comments respecting the Department's proposal.

Impact of this Change on the Provision of MSS in Canada

The Department invites comments on the following:

The impact this change in licensing approach may have on the provision of mobile satellite services in Canada.

The CWTA notes that the proposed revision to the MSS licence fee structure represents a significant increase to the overall licence fees of operators of existing MSS systems, known as Geostationary Earth Orbit (GEO) satellite systems or "GEOs". This increase in fees may in turn be transferred to MSS customers and negatively impact the ability of existing MSS licensees to provide service. It should also be recognised that existing MSS providers have based their business models on the licence fee structure previously established by Industry Canada and major increases in licence fees would invalidate these models. The potential impact of the proposed licensing approach is severe, and hence clearly contrary to Canada's best interests.

To address this issue, the Association believes that the reasons for the proposed increase in licence fees should be well understood by both the Department and the MSS providers.

Once such an understanding exists, a discussion between Industry Canada and the affected service providers could lead to a fair and equitable licence fee structure.

The operators of the soon-to-be-launched MSS systems, known as Low Earth Orbit (LEO) satellite systems or "Big LEOs", are generally in favour of the proposed licence fee structure, although certain clarifications and adjustments to the proposal are necessary.

Appropriateness of the Proposed Annual Fee

Comments are also requested respecting:

The appropriateness of the proposed annual fee reflecting the economic value of the spectrum resources.

As stated above, the proposed annual licence fee of $18,000 per 500 kHz represents a considerable increase to the licence fees of the GEO service providers. The Association believes that a revision to the structure of licence fees should not translate in an increase of the existing service providers' licence fees.

"Big LEO" service providers believe that the $18,000 annual fee per 500 kHz reflects fair economic value for the spectrum being used at reasonable capacity and generating revenues.

The $18,000 annual fee for 500 kHz is high for start-up operations. These operations will have minimal cash flow in the first couple of years of operation, and no profit for several years. The CWTA suggests as a more equitable approach a "ramping up" licence fee plan. For example, start-up operations would pay 25% of full licence fees in year one, 50% the following year and full fees in year three and onwards. In this way, the Department will receive reasonable economic rent at all times and start-up operations will be given the opportunity to finance the construction of a viable business in their early years.

The Department's proposal suggests that all MSS spectrum resources above 1 GHz have a similar economic value. However, the CWTA believes that spectrum which is shared with other services may not have the same value as dedicated spectrum. For example, spectrum at 2 GHz, allocated to MSS and currently heavily used by terrestrial systems, may not be as valuable as "clean" spectrum in the lower L band.

It should be emphasised that both the current and the proposed licence fee structure render licensing fees, on a per subscriber terminal basis, which are significantly higher than those incurred for a terminal registered in the United States (US). The Association fears that such a situation may stimulate a "grey" market, in which Canadian companies and users are encouraged to use American addresses or subsidiaries to register terminals, thereby avoiding higher Canadian licence fees and resulting in lowered revenues for Canadian MSS providers. The CWTA stresses the importance of Canada aligning its MSS licence fees structure and tariffs with the US. Any variances could unduly penalise Canadian companies.

Suitability of the Proposed Minimum Bandwidth and Increment for Assessing the Fee

The CWTA makes the following points with regards to:

The suitability of using a minimum bandwidth of 500 kHz with increments of 500 kHz as the basis for assessing the fee for any particular network.

Industry Canada proposes to use a minimum bandwidth of 500 kHz with increments of 500 kHz as the basis for assessing the fee for any particular network. However, the 500 kHz increment is incompatible with the current spectrum assignment. The CWTA recommends that the licence fee for spectrum in excess of the 500 kHz minimum bandwidth be assessed on a pro rata basis. Alternatively, the 500 kHz increment may be reduced and made consistent with the current spectrum assignment.

Proposed Reduction of Licence Fees for Shared Spectrum

Finally, the Department requests comments in response to:

The proposed reduction of licence fees where sharing of a common band of radio frequencies among two or more service providers is required.

With respect to the proposed reduction of licence fees where sharing of a common band of radio frequencies among two or more service providers is required, the MSS industry was unable to reach a consensus on the suitability of the 1/3 multiplier.

Where more than one Canadian service provider is authorised to use the spectrum associated with a given mobile satellite network, Industry Canada proposes a fee for an individual service provider that is 1/2 of the authorisation fee for the network. The CWTA finds this multiplier to be acceptable.

Additional Comments

Further to the above comments, the CWTA makes the following points.

It is unclear in Industry Canada's proposal whether licence fees will be charged for both uplink and downlink spectrum, should a MSS system use different spectrum for these links. The CWTA recommends that this issue be clarified in the finalised licence fee structure.

There is also some confusion regarding the definition of the term "service provider". Based on discussions with the Department, the CWTA concludes that to qualify as a MSS "service provider", a company must buy its satellite access directly from a satellite operator, whereas a company buying its satellite access from a service provider would be considered "reseller". However, in the telecommunications industry, the terms "reseller" and "service provider" are often used interchangeably. The CWTA suggests that Industry Canada use a more accurate term than "service provider" for the entity that buys its access directly from a satellite operator, for example "first tier service provider", or preferably "licensee". It should also be noted that in some instances, as in the case of an operator of a Canadian satellite, the satellite operator may also be a "service provider". The Association requests that the Department clearly define and understand the terms "service provider", "reseller", "network operator", "satellite operator", etc.

Industry Canada's proposal suggests that it is in agreement with the MSS position respecting the inappropriateness of spectrum auctioning for global MSS systems. We would like to emphasise that the CWTA opposes spectrum auctioning and recommends that the Department not opt for spectrum auctioning for global MSS spectrum in the future.

In Section 4 of the Gazette Notice, Industry Canada states that:

After the Department has reviewed all the responses, and incorporated any necessary changes, the Department will adopt an appropriate licensing approach and set the fee pursuant to section 19 of the Department of Industry Act.

The CWTA recommends that once "... the Department has reviewed all the responses and incorporated the necessary changes..." the Department continue to follow an open public process in order to "...adopt an appropriate licensing approach and set the fee... " Additionally, substantial changes made to the proposed spectrum licence fee structure should be submitted to the public for comment.

Conclusion

The CWTA is in favour of Industry Canada's initiative to create a fair and equitable spectrum licence fee structure. In the CWTA's opinion, the direction taken in the proposed approach for spectrum licence fees for MSS above 1 GHz generally meets this objective. The Association offers its comments on ways in which the proposed spectrum policy may be amended in order to successfully achieve simplified and cost-effective spectrum management.

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