Archived—DGRB-001-98 — Stratos Mobile Networks

Note: Documents received from the public are published in the language of the author.

This information has been provided by external sources. Industry Canada does not ensure the accuracy, the currency or the reliability of the content.

Response Of Stratos Mobile Networks To Industry Canada's Gazette Notice No. Dgrb-001-98, Canada Gazette, Part 1, June 13, 1998

Consultation On Spectrum Licence Fees For Mobile Satellite Services In Canada Using MSS Spectrum Above 1 GHz

Stratos Mobile Network ("Stratos") is pleased to have the opportunity to respond to the proposal contained in Canada Gazette Notice No. DGRB-001-98 (the "Notice"). As set out below, this proposal will have profoundly negative implications for Stratos if it is implemented in its current form without taking into account the particular circumstances that relate to the provision of Inmarsat services in Canada and elsewhere. Because of these implications, Stratos cannot support the comments of the Radio Advisory Board of Canada ("RABC") with respect to the Notice, except to the extent that the RABC recommends that the Department further explore the impact of the proposal on existing MSS service providers, including Stratos, before any new fee structure is introduced.

Background on Stratos

Stratos is well known to the Department as a Newfoundland and Canadian success story in wireless communications. From its modest beginning in 1985, serving primarily the merchant marine market in the Atlantic Ocean, the enterprise has grown to become a relatively large international network of networks serving the mobile communications needs of a variety of maritime, aviation and land-based users. Such growth has not come easily and not without much hard work and entrepreneurial spirit on the part of many, as well as, of course, considerable business risk. Stratos is a wholly owned operating subsidiary of Stratos Wireless, which recently became Canada's new signatory to the International Maritime Satellite Organization (INMARSAT). Stratos has operated and managed on Teleglobe's behalf the Inmarsat facilities in Canada since August 1996. These assets have now been transferred to Stratos' parent company. Stratos has also received approval in principle from the Department to operate Inmarsat subscriber terminals in Canada on a non-exclusive basis.

As the Department is aware, the mobile services provided by Stratos are competitive with, or will be competitive with other MSS service providers such as TMI, AMSC, Iridium and Globalstar. Stratos also competes with terrestrial wireless se rvice providers such as cellular and PCS operators in those areas of the country covered by such terrestrial operators. More importantly, perhaps, for purposes of the establishment of a new and equitable MSS fee structure, the Department must note that Stratos also competes directly with other Inmarsat service providers and resellers based in the U.S., Australia, the United Kingdom, France, and other European countries who legitimately can, and do provide Canadian customers with Inmarsat services similar to those provided by Stratos. The reason for this is historical. The Inmarsat system was designed for maximum flexibility to enhance safety, and therefore customers (mobile earth station users) may use any Inmarsatland earth station to route their calls.

Overview of Industry Canada Proposal

The new fee structure proposed in the notice, as we understand it, is an attempt to correct what are perceived to be "inequities" created by the current approach. The proposal abandons mobile user terminals as the basis for licence fees (currently $41 each year per terminal), and instead proposes to base licence fees on spectrum which is assigned to a licensed service provider, regardless of whether the spectrum may actually be used by the service provider (or by resellers) using mobile terminals licensed by the Department.

The Department's proposal is designed to base licence fees on the perceived economic value of the spectrum assigned. It also effectively attempts to charge licence fees for the use in Canada of spectrum by space stations which are not regulated by Canada. In using assigned spectrum as the measuring stick, the proposal assumes that the assigned Canadian service provider will hold all the licences, and that all Canadian users will obtain service from that service provider either directly or via resellers. We understand that such an assumption is applicable to the other MSS service providers in Canada. But it most assuredly does not apply to Stratos in offering Inmarsat service in Canada. The reasons for this are set out below.

Problems in Applying the Proposal to Inmarsat Services

The spectrum used by Inmarsat amounts to 2 x 13.5 MHz and is within the L-band MSS allocations specified in the Radio Regulations. The Inmarsat network has evolved considerably over time, and with the current third generation of Inmarsat satellites, the typical spectrum used in Canada on a national basis (as indicated in the Stratos application for approval in principle), whether by resident or roaming terminals, is closer to 3 MHz. This much smaller bandwidth is used in accessing the Inmarsat network's spot beams whose footprints cover all continental areas including North America. Effectively therefore, the spectrum used by customers of the Inmarsat service in Canada is 3 MHz, and not 27 MHz. In view of this, the calculation of licence fees on the basis of the totality of assigned spectrum as proposed, and not just that spectrum that generates revenues in Canada, would create an enormous financial burden for Stratos.

The Inmarsat system (as do many of the latest regional satellite systems) operates on a DAMA (demand Assignment Multiple Access) architecture. This means that the spectrum used by the subscriber is dynamic and under the control of the Inmarsat Network Control Center. The choice of the actual 5 kHz channel chosen for a specific conversation or service, is made based on the channel congestion and destination factors. Co-ordination of the actual spectrum available for selection is carried out through mutual frequency co-ordination policy meetings between the affected parties and the participating countries. Industry Canada is a party to those discussions. The choice of the spectrum available is made to ensure that a quality grade of service is maintained on a world-wide basis.

While Stratos is the sole Canadian signatory under the Inmarsat treaty, as indicated above, the provision of Inmarsat services internationally is such that Stratos does not, and cannot, control all use of Inmarsat spectrum in Canada by mobile terminals communicating with the Inmarsat network. There are at least three other Inmarsat service providers, apart from Stratos, operating in Canada, soliciting and providing service to Canadian customers, including those who are agents of service providers operating out of foreign countries. It may well be that these service providers are operating without proper authorization from Industry Canada, but their activities in Canada, or serving Canadian customers offshore, are entirely in conformity with Inmarsat's international practices.

To illustrate the above situation, Stratos has carefully reviewed its records in respect of the number of mobile terminals able to access the Inmarsat network, which are currently used by Canadian customers. As of July 27, 1998, there were 37,360 Inmarsat mobile terminals commissioned and registered with Stratos through direct sales, joint venture or service partner agreements, or through foreign accounting authority services. Of these 37,360 terminals, only 3,760 are commissioned through, and under the control of, Stratos. And of these 3,760 commissioned terminals, only 2,141 were being actively used by Canadian customers and generating revenue for Stratos in fiscal 1997/98.

As the Department is aware, a large proportion of these terminals used by Canadian subscribers are for use abroad, not in Canada. For instance, they may be used by the Canadian Navy in the Persian Gulf, or by Canadian mining companies in South America or the Caribbean. In fact, the number of Inmarsat terminals licensed for use in Canada, or on Canadian ships, as required under the Radiocommunication Act is estimated to be in the order of 500.

There is no technical means by which Stratos or Inmarsat can identify the physical location of terminals and thus require inter-service provider roaming charges for terminals not controlled by Stratos that may roam into Canada on an unlicensed basis. Unless Industry Canada can monitor and enforce the use of roaming terminals in Canada, and require payment of spectrum fees by customers who purchase and subscribe to services from the Stratos competition, Stratos would be required under the proposal to pay licence fees for spectrum used by its competitors. Such a result would be anything but equitable. Not only would it contradict the notion of paying for the perceived economic value of spectrum, it would amount to a kind of punitive tax levied on Stratos at the behest of its competitors. It makes even less economic or administrative sense to expect Stratos to pay for spectrum used by Inmarsat terminals used outside Canada (by Canadians), the revenue for which also flows to Stratos' Inmarsat competitors.

It is Stratos' understanding of the current licensing regime, that an individual customer of a non-Canadian service provider cannot directly obtain authority to operate a terminal, but would have to arrange for service in Canada from an authorized Canadian operator. If there is no such Canadian service provider associated with a MSS satellite network, the customer would not be able to operate a terminal in Canada. This being the case, it should not be possible for other Inmarsat service providers competing with Stratos to operate in Canada without Industry Canada being aware of their activities, and therefore being able to obtain from them the appropriate license fees. But this clearly is not the current situation. Further, Canada (through Industry Canada) is party to the recent GMPCS MoU, in which the ITU is proposing that international roaming with type approved terminals be allowed, without the need for additional licences. This proposal, if implemented, would obviously compound the problem for collecting fees for use of spectrum in Canada.

Recommendation of Stratos Mobile Networks

We understand on the basis of discussions in the RABC that the proposed new MSS fee structure is more or less acceptable to the big LEO operators in Canada, subject to certain qualifications and clarifications. While licence fees based on assigned spectrum may ultimately make economic sense for these service providers, it does not work for Stratos/Inmarsat. It is impractical to expect that Industry Canada or Stratos could monitor or enforce the use of roaming Inmarsat terminals in Canada. It is also impractical to expect Stratos to pay fees in respect of spectrum used by its Inmarsat competitors outside Canada, and then to assume that Stratos can somehow recoup these fees from competitors who will, in most cases, have already paid licence fees to other jurisdictions in respect of the same terminals and spectrum use.

In view of these circumstances, Stratos recommends the retention of licence fees on a pre-terminal basis for all Inmarsat t erminals resident in Canada and registered to Canadian service providers. This will maintain the present practice and will not create an administrative burden since the Department can continue to licence terminals to the service provider rather than to individual subscribers. Stratos recommends for this purpose retention of the current licence fee of $41 per year per mobile terminal. A fee at this level should lead to competitive parity among service providers competing with one another. Such a fee is approximately equal to the level of fees currently paid by terrestrial wireless service providers, and considerably more than the level of fees (converted to a per terminal basis which we understand will ultimately result from the application of Industry Canada's proposal to the LEOs. Such a fee level also represents a sound estimate of the economic value to Inmarsat service provi ders in Canada, such as Stratos, of obtaining access to Inmarsat space segment from Canada.

If the Department is unable to accept fees based on terminals for a subset of MSS service providers, then the licence fees must acknowledge, in the words of the consultation paper, "the mutual operation of competing services". The multipliers proposed by the Department are wholly inappropriate in their application to Stratos' circumstances, and the operation of the Inmarsat network with international, competitive service providers. We would suggest that the proposal should apply in the following way to Stratos. Since the Inmarsat spectrum is not shared, but is accessed by more than one service provider, the « multiplier proposed is unfair. Rather the multiplier should be in direct relationship to the number of authorised service providers in Canada. If there are five, the multiplier should be l/5. This would help ensure that service could only be provided via those service providers who are properly authorized by Industry Canada.

The above suggestions are two possible ways of making the Department's proposal more equitable in respect of Stratos's Inmarsat services. There may well be others. As drafted, however, the proposal is wholly unacceptable to Stratos. Indeed, were the proposed fee structure to be implemented without any changes in respect of Inmarsat, Stratos would be forced to reconsider whether it could continue to operate its Inmarsat business from within Canada.

As noted above, we understand that the RABC submission recommends that the Department continue discussions with the existing MSS service providers in respect of the considerable increase in fees that the proposal would represent for them. We are very much in agreement with that recommendation, and look forward to further discussions with the Department with a view to establishing a reasonable and fair fee structure for all MSS service providers.

Date modified: