Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees
One of Industry Canada's priorities is to create a marketplace framework for the wireless telecommunications industry that is fair, efficient, and competitive. This framework would operate in accordance with common regulations, policies and procedures. The telecommunications policy for Canada is set out in section 7 of the Telecommunications Act, whose objectives include fostering increased reliance on market forces for the provision of telecommunications services and ensuring that regulation, where required, is efficient and effective. This provides the stability and efficiency required to conduct business, while maintaining consumer confidence in the products, services and transactions of the marketplace.
Canada's Innovation Strategy was launched on February 12, 2002. The fee regime proposed in this consultation is a step toward a better innovation environment. It aims to build an environment of trust and confidence where the public interest is protected and marketplace policies provide incentives to innovate. Instruments such as legislation, regulations, codes and standards help create the conditions necessary for Canadians to enjoy the social and economic benefits of innovative activities.
Rapid technological advances in the information and communications technologies sector are important innovations in their own right. The unprecedented technological change that has occurred in the cellular and Personal Communications Services (PCS) industry coupled with the evolution of the licensing processes, as well as the different privileges and conditions that have been associated with the various authorizations for these services, are all factors that have created imbalances among service providers. For example, PCS auction licensees obtained 10-year spectrum licences with enhanced privileges such as transferability, divisibility and not requiring site specific radio authorizations. By contrast, cellular and incumbent PCS licensees, who were selected through a comparative licensing process, operate under five-year spectrum licences. They are also required to obtain radio licences, and do not have the enhanced privileges of transferability and divisibility of PCS auction spectrum licences.
In order to rectify the situation, the Department proposes, through this consultation, to amend the five-year spectrum licences of cellular and incumbent PCS licensees to provide them with enhanced privileges similar to those of auction PCS licences, thereby eliminating the requirement for radio licences and introducing a common fee regime. This transition from apparatus-based to spectrum-based licensing will provide cellular and PCS licensees with a more common marketplace framework.
This consultation paper solicits public comments on all issues related to the proposed new framework. Following the March 5, 2003, closing date for receipt of comments on this consultation paper, copies of all submissions will be made available to the public through Industry Canada's Radio Spectrum Management and Telecommunications Web site, as well as through a commercial printing and copying service. Respondents are required to provide their comments in electronic format to facilitate posting on the Department's Web site.
Certain Rules of Interpretation
In the document:
- Cellular licensee – is a radiocommunication carrier who operates radio apparatus installed in a base station that communicates on the transmit and receive frequencies in the radio frequency band 869.040 MHz to 893.970 MHz and the transmit and receive frequencies in the radio frequency band 824.040 MHz to 848.970 MHz.
- Currency – unless otherwise specified, all references to sums of money are in Canadian currency.
- Headings – refers to the descriptive headings of paragraphs inserted solely for convenience of reference and are not intended to be used as complete or accurate descriptions of content. These shall not be used to interpret the provisions of this document.
- Incumbent PCS Licensee – is a PCS licensee authorized in the comparative selection and licensing process in 1995.
- PCS licensee – is a radiocommunication carrier who operates radio apparatus installed in a base station that communicates on the transmit and receive frequencies in the radio frequency band 1850 MHz to 1990 MHz.
- Number/Gender – the use of words in the singular or plural, or with a particular gender, shall not limit the scope or exclude the application of any provision of the document to such person or persons or circumstances as the context otherwise permits.
This section provides background on the regulations, policies and procedures that impact on cellular and PCS licensees and are of particular interest in this consultation.
Under section 5 of the Radiocommunication Act, the Minister may issue radio authorizations including, but not limited to, radio licences in respect of radio apparatus, spectrum licences in respect of the utilization of specified radio frequencies within a defined geographic area, and any other authorization relating to radiocommunication that the Minister considers to be appropriate. The power to issue spectrum licences came into effect in 1996 as a result of amendments to the Radiocommunication Act. This power provides for a new class of radio authorization that accommodates the concept and process of area licensing. The Minister may also fix the terms and conditions of any radio authorization including the terms and conditions concerning the services that may be provided by the holder thereof
In accordance with section 19 of the Department of Industry Act, the Minister may fix spectrum licence fees in respect of the rights and privileges provided. In accordance with section 6(1)(l) of the Radiocommunication Act, the Governor in Council may make regulations prescribing fees for radio authorizations, including those for cellular and PCS.
Traditionally, for each site at which radio apparatus is to be installed, the Department requests administrative and technical information such as site elevation, effective radiated power, and antenna pattern. Notably, since 1996, the Department has also been in a position to issue spectrum licences, which are defined as authorizations to use specific spectrum in a specified geographic area.
In 1986, the Department prescribed a new fee schedule designed to simplify the licensing and billing process by incorporating licence fees which normally would be paid by users of mobile stations into fees paid by cellular licensees. When PCS was licensed in 1995, the Department's process of licensing and charging fees evolved further by establishing a licence fee for each 10 MHz block of frequencies instead of using individual frequency channels. This was due, in part, to the variety of frequency channelling schemes for the technologies available for PCS.
On December 14, 1983, the then Minister of Communications announced that he would issue radio licences to Rogers Cantel Inc. (now Rogers Wireless Inc.) to provide a national cellular service in Canada in the cellular spectrum block A. The Minister had previously set aside cellular spectrum block B for the local telephone companies. Since the cellular licensing decision, the majority of the telephone companies have acquired site specific authorizations for their operating territories. A list of the cellular site licensees is provided in Appendix A.
The cellular licensees have each been awarded 25 MHz of spectrum in the 800 MHz frequency band and are required to obtain site specific authorities in the form of radio licences. The radio licences have a term of one year, expiring on March 31st of each year, with radio licence fees charged for each transmit or receive frequency at a site. Radio licence fees, for each assigned transmit or receive frequency at each site, are set out in Schedule III, Part V, Item 4, of the Radiocommunication Regulations available on the Department Web site at: http://www.ic.gc.ca/spectrum, in Official Publications.
Following the original special authorizations, cellular licensees were awarded five-year special authorizations until 2001 when, the special authorizations were renewed as five-year spectrum licences expiring on March 31, 2006. The licence conditions continue to include the requirement to obtain site specific authority normally in the form of a radio licence. A generic copy of an existing spectrum licence is provided in Appendix B.
On December 15, 1995, Clearnet PCS Inc., Microcell Networks Inc., Rogers Cantel Inc. and eleven local telephone companies that applied under Mobility Canada were selected, through a comparative selection and licensing process, to provide PCS in the 2 GHz frequency band. The new entrants were awarded 30 MHz of spectrum while Rogers and the local telephone companies were awarded 10 MHz each in their operating territory. On April 15, 1996, they were granted five-year special authorizations which outlined the conditions of licence. One of these conditions required that licensees obtain site specific authority, normally in the form of a radio licence.
The radio licences have a term of one year and expire on March 31st of each year. Radio licence fees, for each 10 MHz-assigned block of transmit or receive frequencies at each site, are set out in Schedule III, Part V, Item 5 of the Radiocommunication Regulations available on the Department Web site at: http://www.ic.gc.ca/spectrum, in Official Publications.
In March 2001, the special authorizations were renewed as five-year spectrum licences, expiring on March 31, 2006. Again, a condition of licence requires that PCS licensees obtain site specific authority, normally in the form of a radio licence. A generic copy of this spectrum licence is provided in Appendix C.
On February 1, 2001, the Minister of Industry announced five provisional licence winners of the PCS spectrum auction. The provisional licence winners bid on 52 spectrum licences for bids totalling $1.48 billion. These licences have enhanced privileges such as transferability, divisibility, and a 10-year licence term. A generic copy of an auctioned spectrum licence is provided in Appendix D. It is important to note that with the payment of the winning bids, no other fees or payments for these licences will be required for the duration of the licence term.
Enhanced specialized mobile radio (ESMR) licensees are not part of this consultation. Spectrum is a de facto commercial input for ESMR, cellular and PCS; however, the 'market conditions' (prevailing supply and demand) for spectrum, are quite different for these services. Spectrum is dedicated and allocated specifically for cellular and PCS services. On the other hand, there is no spectrum allocation dedicated solely to ESMR; it is drawn from the general purpose land mobile spectrum and is made available, as needed, on a first-come, first-served basis to a wide variety of services being offered in this band such as paging, data communication, dispatch, and communication for industrial and public safety needs. The licensees in this band may operate as radiocommunication users, and radiocommunication service providers/carriers. ESMR licensees must contend for spectrum with these other services, not with cellular and PCS.
In the past, it has been suggested that because ESMR competes with PCS and cellular telephony, it should be subject to similar radio authorization fees. Government policy clearly states that fees are to reflect the value of spectrum as a de facto commercial input and, as noted above, the prevailing demand and supply conditions for general purpose land mobile spectrum (the ESMR input) are very different from those for cellular and PCS spectrum notwithstanding that the respective service outputs may have similarities. It should be noted that while ESMR is excluded from this proposal, it remains a potential candidate for spectrum licensing.
The proposal for the transition of cellular and incumbent PCS licensees does not obviate the requirement that licensees meet established legislative, policy and technical requirements. Further, the initiatives proposed here are without prejudice to future decisions and actions of the Department on associated matters and do not limit the existing policies of the Department governing these services. The following section describes certain legislation, policies and technical considerations that are of particular interest to the transition and that remain in effect.
Spectrum licences subject to this consultation will continue to be subject to relevant provisions in the Radiocommunication Act and the Radiocommunication Regulations. For example, the Minister continues to have the power to amend the terms and conditions of spectrum licences (paragraph 5(1)(b) of the Radiocommunication Act). As well, section 40 of the Radiocommunication Regulations1 regarding the assignment of frequencies, continues to apply. It is important to note that the Minister, pursuant to this regulation, would reallocate spectrum only under certain circumstances (e.g. a change in international allocation or where an overriding policy need arises to address a national security issue), taking into consideration that licensees have complied with the conditions of licence, made large investments in infrastructure, and are serving an established client base. If a reallocation were contemplated, it would take place only after full public consultation.
Cellular and incumbent PCS licensees will continue to be subject to the spectrum aggregation limit in force. Also, under section 10.3 "Application of the Spectrum Aggregation Limit" of the document Amendments and Supplements and Clarification Questions to the Policy and Licensing Procedures for the Auction of Additional Spectrum in the 2 GHz Frequency Range, issued October 2000, the Department clarifies, with respect to the spectrum aggregation limit, what is meant by an affiliate and an entity which has an operating and/or marketing arrangement.
The document Policy for the Provision of Cellular Services by New Parties (RP-019) effected changes to policy respecting the authorization of cellular service providers operating in the frequency bands of 824-849 MHz and 869-894 MHz. This policy facilitates the provision of cellular services to unserved and underserved areas in a timely and orderly manner by enabling entities, other than those which previously were or could have been authorized to offer such services, to obtain access to cellular spectrum in areas where incumbent licensees are not offering services or are underserving the area. Actions taken as a result of this consultation do not obviate this policy. The Department will continue to accept applications from potential new cellular service providers for authorization to offer cellular mobile voice telephony services in areas where competitive cellular service provision is not being offered at the time the application is made. The Department will follow the procedures for the submission of applications, including public notification of an application, that are outlined in RP-019.
The current arrangement for PCS licensees falls under the terms of an interim sharing arrangement that provides for frequency sharing in the border area. The operation of PCS systems that are within 120 km of the Canada/United States border shall comply with both domestic, technical sharing criteria and the terms of any interim sharing arrangement between Industry Canada and the Federal Communications Commission (FCC) of the United States. The present arrangement is entitled Interim Sharing Arrangement Between Industry Canada and the Federal Communications Commission Concerning the Use of the Band 1850 to 1990 MHz. As per the terms of this arrangement, licensees may be required to furnish all necessary technical data to Industry Canada for each relevant site for international coordination.
Coordination is required of any cellular transmitter installations which are within 70 Km (45 miles) of the Canada/ United States border to eliminate any harmful interference that might otherwise exist, and to ensure continuance of equal access to the frequency block by both countries. Systems operators carry out the necessary coordination and are required to notify Industry Canada of the arrangements. The general principles for the coordination of cellular systems in the border area are outlined in SRSP-503.
Cellular, incumbent PCS and PCS auction licensees do not operate under common regulations, policies and procedures and this has led to a number of market distortions. Spectrum and radio apparatus are not only complements but also substitutes for each other. Historically, the number of stations and the effective radiated power of equipment have been used as indicators of the amount of spectrum consumed by licensees. With advances in wireless technology and increases in scale as well as variety of wireless services, this method of measuring spectrum utilization may be considered counterproductive. An example of such substitution is "cell-splitting" that is, increasing the number of radio sites in a specific geographic area to increase the overall capacity of the network in that geographic area, while reusing the same spectrum. With the current fee regime, cell-splitting will result in an increase in fees for cellular and incumbent PCS licensees in the same geographic area, despite the fact licensees are utilizing spectrum more efficiently.
Another distortion the existing system creates is a no-cost opportunity for cellular and incumbent PCS licensees to 'warehouse' their spectrum, thus, distorting spectrum availability. Essentially, in some areas, licensees are not offering service and are not charged a licence fee, nevertheless, they maintain the allotment of the spectrum. Also, as cellular licensees are licensed on a channel by channel basis, they may be offering service in an area but may not be utilizing all the 25 MHz of spectrum allotted to them. They maintain the allotment of the 25 MHz of spectrum but pay no licensing fees for that unused allotment. The Department has partially addressed this situation by introducing a policy entitled Policy for the Provision of Cellular Services by New Parties (RP-019) referred to in section 3.3 of this document.
A third distortion is the effect on the investment decisions of licensees. With apparatus based licensing, fees attached to radio sites add to the cost of network expansion. The presence of these marginal costs may compromise the economics of otherwise extending the network into lesser populated areas or corridors along major highways, where the business case may be borderline.
1 Section 40 of the Radiocommunication Regulations reads: "The assignment of a frequency or frequencies to a holder of a radio authorization does not confer a monopoly on the use of the frequency or frequencies, nor shall a radio authorization be construed as conferring any right of continuing tenure in respect of the frequency or frequencies."
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