Consultation on the Renewal of 24 and 38 GHz Spectrum Licences and Spectrum Licence Fees for 24, 28 and 38 GHz Bands
5. Licence Fees
5.1 Authority and Requirements
The Department's authority to set spectrum licence fees is pursuant to the powers granted to the Minister of Industry in section 19 of the Department of Industry Act. The Act states that the Department may establish fees following a public consultation. On March 31, 2004, the User Fees Act (which can be found on the Department of Justice website at http://laws-lois.justice.gc.ca/eng/acts/U-3.7/) came into effect with the aim of strengthening the elements of accountability, oversight and transparency in the management of user fee activities. The latter Act formally outlines requirements for the setting of new and amended fees. This document will serve as the required consultation under the Department of Industry Act and the User Fees Act.
In general, fees established by the Department for spectrum authorizations have as their goal to:
- promote the efficient allocation of resources (i.e. to eliminate the excess demand that often exists with "free goods," by subjecting programs to a market test of supply and demand;
- promote an equitable approach to financing government programs, mandatory or otherwise, by fairly charging clients or beneficiaries who benefit from services beyond those enjoyed by the general public; and
- earn a fair return for the Canadian public for the privilege of access to, or exploitation of, public resources.
In considering options for a 24 and 38 GHz renewal fee, the Department has considered fee treatment in both Canada and other countries. For the international fee comparison, countries that have licensed similar spectrum were reviewed, and for the domestic fee comparison, the review involved fees established either through an auction process or through an administrative process. It should be noted that it is difficult to draw conclusions on the value of spectrum due to the high level of dissimilarity that exists among markets. Demographics, timing, relative competitiveness, as well as supply and demand all have significant impacts on spectrum values.
5.2 International Fee Comparison
In the area of spectrum management, Canada compares relatively closely with Australia and the United Kingdom, where fees are used as spectrum management tools to promote efficient use of this resource. In the United States, licence fees are restricted to levels sufficient for cost recovery.
Australia has no licensed spectrum in the 24 GHz frequency band. However, in 1999, Australia licensed 850 MHz in the 28 GHz and 300 MHz in the 31 GHz by auction in 29 areas with a 15-year term for similar services. Twenty-four areas had winning bids around $A0.0001/MHz/pop. Only Adelaide, Brisbane, Melbourne, Perth and Sydney received higher bids, ranging from $A0.0006/MHz/pop in Perth to $A0.009/MHz/pop in Sydney.
In 2000, the United Kingdom auctioned three 224 MHz licences for Broadband Fixed Wireless services in the 28 GHz range in 14 different service areas for 15-year terms. Sixteen of the 42 licences sold at bids ranging from £0.0004/MHz/pop (Northern Ireland) to £0.002798/MHz/pop in London.
In 1998, the Federal Communications Commission (FCC) auctioned microwave frequencies from 27 GHz to 31 GHz for Local Multipoint Distribution System (LMDS) services for 10-year terms (Auction 17). In 1999, the FCC reauctioned defaulted and unsold licences (Auction 23).
Auction 17 offered 986 licences. "A" block licences were comprised of three blocks: one of 850 MHz and two blocks of 150 MHz (1150 MHz), and "B" block licences that were single blocks of 150 MHz in each of the 493 Basic Trading Areas. These licences sold for a wide range of prices with a low of $US 0.00033/MHz/pop and a high of $US 0.042/MHz/pop.
In July 2004, the FCC ran an auction in the 24 GHz range (Auction 56). This auction offered five licences of 80 MHz in each of the 176 Economic Areas of the United States for a total of 880 licences and lasted four rounds with three bidders winning seven licences for net bids of $216,000. The results of this auction ranged from $US0.00019/MHz/pop to $US0.0003/MHz/pop.
5.3 Domestic Fee Comparison
In establishing a proposal for a fee for the 24 GHz and 38 GHz licences, the Department also reviewed other fees being paid by licensees in Canada. Both auction prices and administratively set fees were studied.
Local Multipoint Communications Systems (LMCS) (25.35 - 28.35 GHz)
The fee order for this band was set out in Gazette Notice DGRB-004-96. The 28 GHz band was opened to provide wideband wireless telecommunications common carrier services that would be able to carry basic and advanced communications, providing such services as wireless cable TV, Internet access, video teleconferencing and various other multimedia services. Fees were set at $0.50 per household for a 500 MHz block. Although there are no current licensees in this band, the fee is still valid for future licensing processes unless a new fee order is established, as is discussed in this document.
Fixed Radio Systems: 38.4 - 40.0 GHz
The licensing fee for these bands was first released in October 1997 and announced in Gazette Notice DGRB-004-97. The goal of the 38 GHz frequency band was to provide new fixed service applications to local broadband wireless facilities, as well as cell site network support for cellular and Personal Communications Services (PCS). The annual fee was fixed at $120 per 25 km2 cell, per spectrum block (50 MHz). Licence areas can be defined by the applicant, and assignments can be made on a shared-use basis, as appropriate. There are currently 41 active licences under this licensing process.
Fixed Wireless Access (FWA) in Rural Areas: 3400-3550 MHz
In September 1999, the spectrum for FWA systems was released in an attempt to provide an economical alternative to wireline services in rural areas. Specifically, the goal was to provide improved telephony and data services that are reliable and affordable to rural subscribers. Typically, rural service areas have high service costs because of the extensive wireline facilities needed to serve few customers over a large area. The annual fee was fixed at $60 per 25 km2 cell, per spectrum block (25 MHz), multiplied by the total number of cells. The same grid cell framework as the FWA Fixed Radio Systems regime was employed. Furthermore, the $60 fee combined with the 50 MHz block ensured the same fee results as the Fixed Radio Systems.
Multipoint Communications Systems (MCS) and Multipoint Distribution Systems (MDS) 2500-2690 MHz
The fee schedule for both of these frequencies was released in December 1999 and announced through Gazette Notice DGRB-013-99. The frequencies provided wireless alternatives capable of facilitating services such as wireless cable TV, high-speed Internet access, video teleconferencing and other multimedia services. The annual fee was assigned at $1.30/MHz/1000 households. Using an average number of 2.6 persons per household, this fee can also be expressed as $1.30/MHz/2600 people.
24 and 38 GHz Auction (Licences currently up for renewal)
The first Canadian auction took place in fall 1999, with bids totalling $171,821,520. It was anticipated that the spectrum would be used for high-speed Internet and electronic commerce applications and that it would enable service providers to offer competitive voice, data and multimedia services.
At the close of this auction, 27% of the licences had received no bids; however, all of the major urban areas were acquired. When analyzed on a per MHz per population basis, auction bids ranged from $35,800,000 for Block A (400 MHz of 24 GHz spectrum) in Toronto (which represents $0.01588055/MHz/pop) to $20,000 for Block A in Red Deer (which represents $0.00025192/MHz/pop).
2300 and 3500 MHz Auction
In February 2004, an auction was held to license spectrum for Wireless Communications Services (WCS) in the 2300 MHz band and FWA spectrum in the 3500 MHz band. A subsequent two-phase auction was held starting in September 2004 for the 457 licences that remained unassigned after the 2004 auction. The licences were offered in Tier 4 service areas, generating $68,761,545 in total winning bids from both auction processes. The spectrum was divided into 5 blocks: D (50 MHz), E (50 MHz), F (50 MHz), G (25 MHz), W (30 MHz).
At the close of the two-phase residual auction, only 10 licences (approximately 1.2%) had received no bids; however, all of the major urban areas were acquired. When analyzed on a per MHz per population basis, auction bids ranged from $238,000 in Tier 4129w Lloydminster (which represents $0.2505158/MHz/pop) and $625 in Tier 4027w La Malbaie (which represents $0.00069635/MHz/pop).
|Licensing Process||Frequency||Annual Licence Fee/ Average Auction Bid (per annum) ($/100 MHz/pop)|
|LMCS - Comparative Review
$0.50 / household / 500 MHz block
|23.5 - 28.35 GHz||0.03846|
|Fixed Radio Systems - First-Come, First-Served
$120 / 25km2 cell / 50 MHz
|38.4 - 40.0 GHz||N/A|
|FWA in Rural Areas - FCFS Administrative
$60 / 25km2 cell / 25 MHz
|3400 - 3550 MHz||N/A|
- Comparative Review
$1.30 / MHz / 1000 households
|2500 - 2690 MHz||0.05|
|Wireless Broadband Communications - Auction
$171,821,520 for 12 GHz
|24 and 38 GHz||0.058859*|
|WCS and FWA - Auction
$68,761,545 for 205 MHz
|2300 MHz and 3500 MHz||0.17002*|
* Auction fees have been restated as annual payments by applying a 5% annual discount rate to the term of the associated licence.
International Comparison Table
To facilitate comparison with Canadian fees, the upfront payment data for the 27, 28 and 31 GHz frequency bands from Section 5.2 (see Table 3) has been restated as annual payments by applying a 5% annual discount rate to the term of the associated licence.
|Australia||28 GHz and 31 GHz||1999||0.00088 4||0.07891|
|United Kingdom||28 GHz||2000||0.00826 5||0.05781|
|United States||27 GHz and 31 GHz||1998||0.00604 6||0.76716|
|United States||24 GHz||2004||0.00308 7||0.0481|
5.4 Proposed Fee
Industry Canada notes that at the time of the 24/38 GHz auction in 1999, interest in wireless technologies and the potential for high-speed Internet was extremely high. These bands were anticipated to be instrumental in delivering these services. As a result, the 24/38 GHz auction generated significant interest and revenues. Developments since that time have demonstrated that the spectrum has not fulfilled the expectations of the licensees and the value of the spectrum today is not considered to be represented by the bids made during the auction.
The Department is proposing a fee derived from the fee order set out for licences in the 38.4-40.0 GHz frequency range (http://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf01499.html). Under that fee order, spectrum is available on a first-come, first-served basis with an annual fee of $120 per 50 MHz block per 25km2 grid cell. The Department anticipates interest in the 24 and 38 GHz auctioned spectrum licences from operators requiring multiple stations within the same licence area and notes that for those with more limited needs, other spectrum options are available. Consequently, existing licences under the first-come, first-served process of more than 10 grid cells were considered. The current fee for each licence was divided by the MHz authorized and the population of the Tier 3 in which the licence is found. This provided a $ per MHz per population fee for each existing first-come, first-served licence. Those results were then averaged and an annual fee of $0.003205 per 100 MHz per population is proposed for 24 and 38 GHz licences, with a minimum fee of $150 per licence per year. Industry Canada believes that the proposed fee is a reasonable assessment of the economic value of this spectrum. See Appendix B for a complete list of the proposed annual fees.
Examples of the proposed annual renewal fees are as follows:
|3-05 Southern New Brunswick||2,145||2,145||536|
|3-48 Red Deer||2,544||2,544||636|
|3-57 Prince George||2,564||2,564||641|
Based on an international and domestic fee comparison, the Department believes that the proposed fee is a reasonable assessment of the economic value of the spectrum as it reflects the low demand for the spectrum and the excess supply. Although a similar process will be used in developing renewal fees for other bands in which international and domestic fees will be reviewed and demand and use of the spectrum will be considered, the proposed fees for 24 and 38 GHz will have no bearing on other renewal fees where the value of the spectrum may be very different.
Local Multipoint Communications Systems (LMCS) (25.35-28.35 GHz)
The Department is also considering applying the above annual fee to the 28 GHz spectrum given that it could be used for similar services. As noted in Section 6.4, 28 GHz spectrum currently has an annual fee of $0.50 per household for a 500 MHz block of 28 GHz, which translates to a significantly higher fee than is being proposed for the 24 and 38 GHz spectrum. Given the similarity in the bands, the Department believes that the annual fees in these bands should be consistent.
A licensing process has not been defined for the 28 GHz spectrum. As with the 24 and 38 GHz spectrum, there does not appear to be excess demand for this spectrum. The Department is therefore considering making 28 GHz spectrum available through a first-come, first-served licensing process as outlined in Section 8.
Comments are invited on whether the same fee should apply to LMCS spectrum in the 28 GHz range.
5.5 Cost Elements
To determine the direct costs associated with the renewal of these licences, Industry Canada has estimated the amount of time required to develop and implement this renewal process over the first three years.
The initial costs are highlighted in Table 5. In addition to the full-time equivalent projections, the Department has included all other cost elements such as accommodation, corporate services, employee benefits etc. These costs are identified to ensure transparency and to fulfill the requirements of the User Fees Act; however, it should be noted that the proposed fee is based on an estimated value of the spectrum rather than cost recovery.
5.6 Revenue Elements
The expected revenues for three years are highlighted in Table 6. These estimates were developed assuming that the majority of the current 24 and 38 GHz licensees will renew their licences at the proposed annual fee of $0.003205/100 MHz/population. Annual revenues increase over the three-year period as additional licences come to the end of their terms. Although it is likely that there will be some new licences issued and some current licences that won't be renewed, the Department anticipates that the number of licences issued will be very similar to the number issued currently.
5.7 Service Standards
Industry Canada has established service standards for certain licensing processes. In general, where service standards exist, analysis and domestic coordination are required by the Department prior to issuing a licence. The Department proposes using the existing microwave application service standard of four weeks from receipt of a complete application, for which coordination with a foreign administration or other agency is not required. If, however, such applications do require coordination with a foreign administration or other agency, they will usually be processed within 10 weeks. This estimate is based upon typical processing time provided by foreign administrations or other agencies, and actual delays for specific licence applications may vary. It should also be noted that delays due to foreign administration or other agency activities are beyond Industry Canada's control.
Negotiated In-service Dates
Some licence applications are very complex, involving multiple frequencies. In other instances, applicants may request that their radio licences be issued on a specific future date. When requested, a specific in-service date may be negotiated.
The Department invites comments on any issues related to the fee as proposed and also invites comments on ideas or proposals for ways to improve the service to which the fee relates.
6. Procedure for Licence Renewals
Industry Canada's decisions resulting from this consultation will be announced and licensees will be invited to apply for licence renewal at that time.
7. Unassigned or Returned 24 and 38 GHz Spectrum and 28 GHz Local Multi-point Communications System (LMCS) Spectrum
As indicated earlier, at the end of the 24 and 38 GHz auction, there remained some unassigned spectrum, and since the auction, additional spectrum in these bands has been returned to the Department. After the establishment of the renewal policy, there may be additional spectrum returned to the Department. Given the current demand for this spectrum, it is anticipated that the Department will make this spectrum available for licensing using a first-come, first-served process. Industry Canada also currently holds 3 GHz of LMCS spectrum in the 28 GHz range and is considering making this spectrum available for licensing in a first-come, first-served process.
It is proposed that any unassigned or returned 24 and 38 GHz spectrum be made available for licensing on a first-come, first-served basis where demand does not exceed supply and any annual renewal fee established as a result of this consultation be applicable to new 24 and 38 GHz licences. In situations where demand exceeds supply, the Department may consider a competitive licensing process. The Department is also considering making the 28 GHz spectrum available for licensing in a first-come, first-served process.
Should the Department consider making 28 GHz spectrum available for licensing using a first-come, first-served process? If yes, on what basis (block size, tier size, etc.)?
8. Submitting Comments
Interested parties are invited to submit comments on the proposals outlined in the consultation no later than June 5, 2008, in electronic format (WordPerfect, Microsoft Word, Adobe PDF or ASCII TXT) to the following e-mail address: DOS@ic.gc.ca, with a note specifying the software, version number and operating system used.
Written submissions should be addressed to the Director, Spectrum Management Operations, Radiocommunications and Broadcasting Regulatory Branch, Industry Canada, Room 1583D, 300 Slater Street, Ottawa, Ontario, K1A 0C8.
All submissions should cite the Canada Gazette, Part I, publication date, the title, and the notice reference number DGRB-001-08.
Copies of this document and documents referred to herein are available electronically on the Spectrum Management and Telecommunications website at http://www.ic.gc.ca/spectrum.
Official versions of Canada Gazette notices can be viewed on the Canada Gazette website at www.gazette.gc.ca/rp-pr/p1/index-eng.html. Printed copies of the notices can be ordered by telephoning the sales counter of Canadian Government Publishing at 613-941-5995 or 1-800-635-7943.
March 28, 2008
Michael D. Connolly
Broadcasting Regulatory Branch
Appendix A: Proposed 24 and 38 GHz Conditions of Licence
The following conditions of licence apply to radiocommunication carriers/service providers/users, with exceptions noted for radio frequency spectrum pursuant to the policy document, Policy and Licensing Procedures for the Auction of the 24 and 38 GHz Frequency Bands.
Under paragraph 5(1)(b) of the Radiocommunication Act, the Minister of Industry may amend the terms and conditions of a spectrum licence. Any proposed amendment would be on an exceptional basis, and only following a consultation. Confidential information requested by Industry Canada pursuant to the conditions of licence will be treated in accordance with subsection 20(1) of the Access to Information Act and with the Privacy Act. All such requested information should be submitted to the:
Manager, Wireless Networks
Radiocommunications and Broadcasting Regulatory Branch
300 Slater Street, 15th Floor
Ottawa, Ontario K1A 0C8
The headings of the conditions are for convenience of reference only, and are not intended to be a full or precise description of the text to which they refer.
1. Licence Term
The term of this licence is 10 years from the date of licence issuance. For subsequent terms, Industry Canada may consult, if required, prior to the end of the licence term to deal with the specifics of the renewal process, including whether licence fees should apply for a subsequent licence term.
The Department will make appropriate decisions at the time of renewal.
Note: Details for the renewal process are subject to the future consultation on the general application of renewals as was raised in the AWS paper (DGTP-007-07). It is expected that the decisions resulting from the consultation will apply to the renewal of all long-term spectrum licences.
2. Licence Transferability and Divisibility
The licensee may apply to transfer its licence(s) in whole or in part (divisibility), in both the bandwidth and geographic dimensions. The Department may define a minimum bandwidth and/or geographic dimension (such as the grid cell as described in the Areas for Competitive Licensing) to the proposed transfer. Systems involved in such a transfer shall conform to the technical requirements set forth in the applicable standards.
Departmental approval is required for each proposed transfer of a licence, whether the transfer is in whole or in part. The licensee must apply to Industry Canada in writing. The transferee(s) must also provide an attestation and other supporting documentation demonstrating that it meets the eligibility criteria and all other conditions, technical or otherwise, of this licence.
3. Eligibility Criteria and Authorized Use
The licensee acting as a radiocommunication carrier must comply on an ongoing basis with the eligibility criteria in section 10(2) of the Radiocommunication Regulations. The licensee must notify the Minister of Industry of any change which would have a material effect on its eligibility. Such notification must be made in advance for any proposed transactions within its knowledge. For more information, refer to the Client Procedures Circular CPC-2-0-15, Canadian Ownership and Control, as amended from time to time.
The licensee may employ the radio frequencies that are the subject of this licence as a radiocommunication carrier in order to operate one or more interconnected radio-based transmission facilities (any radio apparatus that is used for the transmission or reception of intelligence to or from anywhere on a public switched network) which may be used by the licensee or another person to provide radiocommunication services for compensation.
Radiocommunication Service Provider
The licensee, acting as a radiocommunication service provider, must comply on an ongoing basis with the eligibility criteria in section 9(1) of the Radiocommunication Regulations. The licensee must notify the Minister of Industry of any change which would have a material effect on its eligibility. Such notification must be made in advance for any proposed transactions within its knowledge.
The licensee, as a radiocommunication service provider, may employ the radio frequencies that are the subject of this licence to operate radio apparatus used by the licensee or another person for the provision of radiocommunication services for compensation, but not radio apparatus that is used for the transmission or reception of intelligence to or from anywhere on a public switched network.
The licensee acting as a radiocommunication user must comply on an ongoing basis with the eligibility criteria in section 9(1) of the Radiocommunication Regulations. The licensee must notify the Minister of Industry of any change which would have a material effect on its eligibility. Such notification must be made in advance for any proposed transactions within its knowledge.
The licensee, as a radiocommunication user, may employ the radio frequencies that are the subject of this licence for personal or government use or for a business other than the business of a radiocommunication service provider or carrier. The radio frequencies shall not be employed by the licensee or any other person for the provision of radiocommunication services for compensation.
4. Radio Station Installations
For each radio station, the licensee must ensure that it is in compliance with all of the requirements of CPC-2-0-03, Radiocommunication and Broadcasting Antenna Systems, as amended from time to time.
5. Laws, Regulations, and Other Obligations
The licensee is subject to and must comply on an ongoing basis with the Radiocommunication Act, the Radiocommunication Regulations, the Telecommunications Act and the International Telecommunications Union Radio Regulations pertaining to its licensed radio frequency bands.
6. Technical Considerations
The licensee must comply on an ongoing basis with the technical aspects of the appropriate Standard Radio System Plan (SRSP), as amended from time to time. Refer to section 4 of the policy document entitled Policy and Licensing Procedures for the Auction of the 24 and 38 GHz Frequency Bands.
7. International and Domestic Coordination
The licensee must comply on an ongoing basis with the requirements of cross-border sharing and coordination arrangements established between Canada and the United States, as amended from time to time. Although frequency assignments are not subject to site by site licensing, licensees may be required to furnish all necessary technical data to Industry Canada for each relevant site in order for international coordination to be effected with the United States as per the terms of any existing or future sharing arrangement. Should international coordination be required, Industry Canada will identify the appropriate data elements, format and means of submission.
Coordination between licensees within Canada will follow similar procedures as those for international coordination.
8. Lawful Interception (Applies only to Radiocommunication Carriers)
Licensees must, from the inception of service, provide for and maintain lawful interception capabilities. The requirements for lawful access capabilities are provided in the Solicitor General's Enforcement Standards for Lawful Interception of Telecommunications (Revised November 1995). These standards may be amended from time to time, following consultation with the Department of Public Safety and the licensees.
Licensees may request that the Minister of Industry forbear from enforcing certain lawful interception capability requirements for a limited period of time. The Minister, following consultation with the Department of Public Safety, may exercise the power to forbear from enforcing a requirement or requirements where, in the opinion of the Minister, the requirement(s) is (are) not reasonably achievable. Forbearance requests must include specific details and dates when compliance to requirement(s) can be expected.
Applicants should be aware that a legislative package is being developed to ensure that law enforcement and national security agencies acting with lawful authority have effective access to communications and information. Industry Canada continues to meet with the Department of Public Safety and the Department of Justice on this initiative, and will provide licensees with appropriate guidance until such time as any new legislation is enacted.
9. Research and Development (Applies only to Radiocommunication Carriers)
The licensee must invest, as a minimum, two percent of its adjusted gross revenues resulting from its operations in the 24 and 38 GHz radio frequency bands, over the term of the licence, in eligible research and development activities related to telecommunications. Businesses with less than $5 million in annual gross operating revenues are exempt from meeting the research and development expenditure requirement.
To facilitate compliance with this condition of licence, the licensee should consult the Department's Guidelines for Compliance with the Radio Authorization Condition of Licence Relating to Research and Development. (http://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf01638.html)
10. Annual Reporting (Applies only to Radiocommunication Carriers)
The licensee must submit an annual report for each year of the term of the licence indicating continued compliance with all licence conditions, including:
- an update on the implementation and spectrum usage within the area covered by the licence;
- audited financial statements as required under the licensee's jurisdiction of incorporation, including an audited statement of research and development expenditures with an accompanying auditor's report, prepared in accordance with the same standards of reporting; and
- a copy of any existing corporate annual report for the licensee's fiscal year with respect to the authorization.
The reports are to be submitted, in writing, within 120 days of the licensee's fiscal year end, to the address provided in the introduction to the conditions of licence.
Appendix B: Proposed 24 and 38 GHz Annual Fees
|3-03 Main N.S.||760,894||9,754||9,754||2,439||2,439||2,439||2,439|
|3-04 Cape Breton||147,044||1,885||1,885||471||471||471||471|
|3-34 North Bay||122,253||1,567||1,567||392||392||392||392|
|3-35 Sault Ste.
|3-38 Thunder Bay||234,833||3,010||3,010||753||753||753||753|
|3-42 Moose Jaw||104,297||1,337||1,337||334||334||334||334|
|3-48 Red Deer||198,479||2,544||2,544||636||636||636||636|
|3-57 Prince George||200,007||2,564||2,564||641||641||641||641|
|3-58 Dawson Creek||60,717||778||778||195||195||195||195|
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