Archived—DGRB-001-98 — Iridium Canada

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Response to Canada Gazette Notice No. DGRB-001-98

Consultation on Spectrum Licence Fees for Mobile Satellite Services in Canada Using Mobile Satellite Service Spectrum above 1 GHz

1. General

Iridium Canada Communications Inc. (Iridium Canada) welcomes the opportunity to comment on Industry Canada's Notice No. DGRB-001-98 published in Canada Gazette dated June 13, 1998, later amended by DRGB-005-98 (Extension to the comment period).

Iridium Canada is in favor of approaches taken by Industry Canada which lead to simplified, cost effective spectrum management. The direction taken in the proposed approach for spectrum licence fees for MSS above 1 GHz generally meets this objective. The proposed fee structure fosters the efficient use of the scarce and valuable resource that is radio spectrum, and Iridium Canada supports this goal. Iridium Canada offers below a series of comments to Industry Canada on ways the current policy can either be improved or clarified.

2. Comments on the points raised by Industry Canada:

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

Iridium Canada is generally favorable to the proposed licence fee structure, taking into account the need for some adjustments or clarifications. The proposed structure will foster the implementation in Canada of more spectrum efficient mobile satellite systems. This, at the end, will benefit Canadian subscribers, as the licence fee on a per subscriber basis will end up being lower for those spectrum efficient systems.

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

Iridium Canada believes that the $18,000 annual fee per 500 kHz represents a fair economic "rent" for spectrum that is being used at reasonable capacity and is generating revenues.

Iridium Canada is of the view, however, that not all MSS spectrum allocations above 1 GHz have similar Economic Value. For example, the 2 GHz spectrum allocated to MSS is presently heavily used by terrestrial systems and may not be as valuable as clean MSS spectrum assigned in the lower L band. Iridium Canada suggests that the proposed value of $18,000 per 500 kHz be applicable only to spectrum that is not shared with other services.

Iridium Canada notes that the proposed licence fee structure, as well as the current one, results in licensing fees on a per subscriber terminal basis that are significantly higher than those incurred for a terminal registered in the United States. This situation may stimulate a grey market, where Canadian companies/users would be encouraged to use a US address or subsidiary for registering a terminal in the United States, thus avoiding the higher Canadian Licence Fees. This would also result in lower revenues for Canadian Service Providers. Iridium Canada suggests that Industry Canada examine the U.S. Licence Fee structure for MSS and consider the consequences of any disparity between U.S. and Canadian fees.

It is not clear in the current Industry Canada proposal whether fees will be charged for both uplink and downlink spectrum, should the MSS system use different spectrum for these two links. Iridium Canada recommends that this point be clarified in the final text of the proposed licence fee structure.

The $18,000 annual fee for 500 kHz is high for start-up operations which will have little cash flow in the first year or two, and no profit for several years. Iridium Canada suggests as a more equitable approach a ramping-up mechanism, such as: 25% in year one, 50% in year two, and full fee in year three and thereafter. This will ensure that the Department receives a reasonable economic rent at all times and will allow start-up operations to put more financing in the early years towards building a viable business.

There is some confusion regarding what exactly is a service provider, versus a reseller. Iridium Canada understands from discussions with Industry Canada that a company has to buy its satellite access directly from the Satellite Operator in order to qualify as an MSS service provider. Any other company buying its satellite access from a service provider would be considered a reseller. In some cases, for the operator of a Canadian satellite for instance, the satellite operator can also be a service provider. Iridium Canada requests Industry Canada that such definitions be clarified in the final text of the proposed spectrum licence fee.

2.3 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 is proposing to use a minimum bandwidth of 500 kHz with increments of 500 kHz as the basis for assessing the fee for any particular network. Iridium Canada found that the 500 kHz increment is not compatible with the way spectrum is currently assigned. Iridium Canada therefore proposes that either spectrum exceeding the 500 kHz minimum bandwidth be either charged on a pro rata basis, or that a smaller increment be used, which increment should be consistent with the way spectrum is currently assigned.

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

Iridium Canada has reviewed the proposed reduction of licence fees where sharing of a common band of radio frequencies among two or more service providers of two or more satellite networks. The rationale for using a1/3 multiplier for that sharing scenario is not fully understood. In concrete terms, the only MSS spectrum above 1 GHz that is likely to be shared in a 5 year horizon is the CDMA portion of the 1610-1626.5 MHz band. To our knowledge, there is so far only one Canadian service provider that is planning on using that portion of the band. Current MSS licensing and financing activities around the world lead us to believe that there might be a second one many years from now, but we could not put a name on a third CDMA system. Iridium Canada is of the opinion that it would be more equitable that Industry Canada use a multiplier that is adjusted to reflect the actual sharing expected within a 5 year horizon, beginning with a 1/2 multiplier if only one MSS system is expected to use the band during the 5 year horizon.

In the other sharing scenario where two or more service providers are associated with a single mobile network, the 1/2 applicable multiplier is acceptable to Iridium Canada.

3. Other Comments:

Iridium Canada notes that the Industry Canada proposal suggests that they have concurred with the global MSS providers with respect to the inappropriateness of spectrum auctioning for Global MSS Systems and that they will therefore not resort to spectrum auctioning for global MSS spectrum in the future. We welcome this position

Iridium Canada is currently paying developmental licences and will soon be paying terminal licences that expire on March 31st 1999. Iridium Canada is of the opinion that the transition to the new spectrum licence fee structure would be simplified if it that new regime were to begin on April 1st, when licences are normally renewed.

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