Consultation on the Renewal of Cellular and Personal Communications Services (PCS) Spectrum Licences

March 2009

Contents


1. Intent

The intent of this document is to consult on the renewal of cellular and PCS licences that expire on March 31, 2011. These systems operate in the bands 824-849 MHz and 869-894 MHz for cellular, and the bands 1850-1910 MHz and 1930-1990 MHz for PCS. The decisions made as a result of this consultation will also apply to cellular and PCS licences that expire after this date.

The Department seeks comments on its proposal to renew licences and the licence conditions that would apply to new and renewed cellular and PCS licences as described below. Industry Canada is also undertaking a formal study to assess the current market value of these spectrum licences, and will launch a separate consultation in the coming months that will seek comments on a proposed fee.

1.1 Mandate

The Minister of Industry, through the Department of Industry Act, the Radiocommunication Act and the Radiocommunication Regulations, with due regard to the objectives of the Telecommunications Act, is responsible for spectrum management in Canada. As such, the Minister is responsible for developing goals and national policies for spectrum resource use and ensuring effective management of the radio frequency spectrum resource.

1.2 Legislation

The Minister of Industry is provided the general powers for spectrum management in Canada pursuant to section 5 of the Radiocommunication Act and sections 4 and 5 of the Department of Industry Act. The Governor in Council may make regulations with respect to spectrum management pursuant to section 6 of the Radiocommunication Act; these have been prescribed under the Radiocommunication Regulations.


2. Background

2.1 Cellular Licensing

On October 15, 1982, the Department announced that one 20 MHz block of cellular spectrum (sub-band B) was being set aside for the local telephone companies in their operating areas, that proposals were being accepted from other applicants for another 20 MHz block (sub-band A), and that two 5 MHz blocks would be held in reserve for future use. The local telephone companies included Bell operating companies, SaskTel, Alberta Government Telephones, Manitoba Tel (MTS) and numerous localized wireline telephone companies in Ontario, Quebec and British Columbia. The area of operation assigned to these local telephone companies generally corresponded to their wireline service.

On December 14, 1983, Industry Canada announced that Cantel (now Rogers Wireless) was the successful applicant for cellular spectrum sub-band A following a comparative licensing process. Local telephone companies were also invited to apply to provide service in cellular spectrum sub-band B in their operating areas, which as stated above, had been reserved for them. Applications were received from the majority of the telephone companies. To ensure a level playing field, all licensees were authorized to begin offering their cellular service no earlier than July 1, 1985.

In 1989, the two 5 MHz blocks of cellular spectrum that had been reserved for future use were assigned to the cellular licensees (one 5 MHz block going to the licensees in sub-band A and the other to those in sub-band B).

In March 1998, the Department released RP-019, Policy for the Provision of Cellular Services by New Parties, to extend the provision of cellular services to unserved and underserved areas. The new policy enabled entities, other than current licensees, to apply for authorization to provide cellular services in unserved and underserved communities. This policy currently applies only to the cellular licences.

2.2 PCS Licensing

In December 1995, Industry Canada awarded 10-year PCS licences to fourteen companies through a comparative licensing process. Specifically, national 30 MHz PCS licences were awarded to Clearnet and Microcell; a national 10 MHz PCS licence was awarded to Rogers Cantel; and a 10 MHz PCS licence was awarded to each of the eleven regional shareholders of Mobility Canada for their operating territories. Two licences (one 30 MHz and one 10 MHz) were held in reserve.

In January 2001, the Department auctioned the reserved 40 MHz of PCS spectrum. Although 52 spectrum licences were awarded, there remained some unassigned PCS spectrum in remote areas following the auction.

In November 2003, July 2005 and August 2007, the Department issued Canada Gazette notices to inform interested parties of its intent to license available PCS spectrum either on a first-come, first-served (FCFS) basis or, where demand in a particular area surpassed the available supply, through a competitive process. As a result, several licences were issued on an FCFS basis.

2.3 Introduction of Spectrum Licences

The Radiocommunication Act was amended in June 1996, to give the Minister of Industry the explicit authority to use auctions to select those to whom radio authorizations could be issued. This new method of licensing required a new class of radio authorizations that incorporated the concept of area licensing (spectrum licences).

In issuing spectrum licences, Industry Canada uses Tiers to describe geographic service areas. Borders were established in less populated and more remote areas, when possible, in order to minimize potential interference problems. As different wireless services and applications are best suited to different sizes of service areas, the Department established the following four Tier areas: Tier 1 is a single national service area; Tier 2 consists of 14 large service areas (mainly provincial); Tier 3 contains 59 smaller regional service areas; and Tier 4 comprises 172 localized service areas. The population associated with each service area is based on Statistics Canada census information.

An additional group of service areas was developed to accommodate the transition of non-auctioned cellular and PCS licences from apparatus-based licences to spectrum licences. These Local Telephone Service Areas (TEL), which are currently still in use, generally correspond to the wireline services areas of the telephone companies operating in Quebec, Ontario and British Columbia.

2.4 Transition of Cellular and Incumbent PCS Licences to Spectrum Licences

PCS auction licensees obtained 10-year spectrum licences with enhanced privileges, including transferability and divisibility, and did not require site-specific radio authorizations. By contrast, some cellular and incumbent PCS licensees were selected through a comparative licensing process and operated under five-year spectrum authorizations. These non-auction licensees were also required to obtain a radio licence for each site. Their fees were charged on a per station basis and were based on the number of channels used at each station.

In December 2003, Industry Canada released Canada Gazette notice DGRB-006-03, Spectrum Licensing Policy for Cellular and Incumbent Personal Communications Services (PCS). The notice announced the Department's policy for the transition of cellular and incumbent PCS licences to spectrum licences, and sought to simplify and harmonize the licensing and fee structure. The new spectrum licensing policy introduced licences with 10-year terms, as well as a single fee structure for all PCS and cellular carriers, and created a framework that was more efficient and fair. The transition from apparatus-based to spectrum-based licensing also removed the disincentive for service providers to use their spectrum intensively and efficiently by disassociating fees and the number of stations in the network.

Concurrently, the Department released DGRB-005-03, Radio Authorization Fees for Wireless Telecommunication Systems that Operate in the Radio Frequency Bands 824.040 MHz to 848.970 MHz, 869.040 MHz to 893.970 MHz or 1850 MHz to 1990 MHz, which pursuant to section 19 of the Department of Industry Act, fixed the fees for spectrum licences to be issued to cellular and incumbent PCS licensees. The new fee and licensing regime for cellular and incumbent PCS licensees came into effect on April 1, 2004, and new licences were issued.


3. Renewal of Cellular and PCS Licences

As noted above, many cellular and PCS licences are nearing the end of their licence term. In general, radio and spectrum licences are renewed by the Department unless a breach of licence condition has occurred, a fundamental reallocation of spectrum to a new service is required, or an overriding policy need arises. The issuance and renewal of licences are subject to the authority of the Minister under the Radiocommunication Act.

Section 5(1) of the Radiocommunication Act gives the Minister of Industry the power to fix and amend the terms and conditions of spectrum licences. Licensees must remain in compliance with these licence conditions throughout the licence term and submit an annual report for each year of their licence term indicating continued compliance. These reports are validated by the Department annually, including the final year of the term. The Minister retains the discretion under the Radiocommunication Act to suspend or revoke licences in the event of non-compliance.

As noted in the recently released 24/38 GHz and Advanced Wireless Services (AWS) papers, when undertaking a renewal consultation for long-term licences, the Department will generally include a review of the extent of deployment by licensees, a scan of the general environment and the demand for the spectrum from other parties.

Authorizations issued through the first licensing process for both cellular and PCS spectrum had an implementation condition that was removed in 2003 as the Department was satisfied that services had sufficiently been deployed. Licences issued following the 2001 auction still have the following mid-term implementation requirement, which the Department assesses annually. In particular, within five years of the initial date upon which the licence is issued, the licensee must demonstrate to the Department that the spectrum has been put into use. The establishment of coverage to 50% of the population within the licensed service area, or some other indicator of usage that is acceptable to the Department, will be required.

In the past, when initially licensing any new service, the Department has generally included a condition of licence requiring that the spectrum be put to use within a specified time frame. This condition is normally put in place to ensure that the spectrum is used and to deter spectrum acquisition either for speculation or warehousing purposes.

Implementation requirements were recently discussed in the context of the AWS auction where it was decided that there would be no mid-term implementation requirement, but that implementation would be reviewed at renewal. Unlike the AWS spectrum, the cellular and PCS bands are well established.

The deployment of services in the cellular and PCS bands has been extremely successful. PCS and cellular services are in great demand, with more than 21 million wireless subscribers in Canada at the end of Q3/08. According to the CRTC's 2008 report to the government, wireless service is available to 98% of Canadians and covers 20% of the geography. This coverage is significant considering Canada's vast land mass, which covers just less than 10 million km2.

Although some rural areas of the country are still unserved by cellular and PCS, service is being provided in areas where licensees have determined that there is a viable and sustainable business case. Licensees continue to slowly expand their services to Canadians and there are mechanisms in place for others who are interested in obtaining spectrum in unserved and underserved areas.

One such mechanism is the use of secondary markets. Transfers and/or subordinate licencing agreements can be an effective way for licensees to establish commercial arrangements with third parties for the use of the spectrum. Licensees may apply to Industry Canada to transfer their spectrum licence to another entity where the two parties have come to a commercial agreement. Subordinate licensing allows licensees to enter into arrangements where another party can operate within their licensed area without having to completely transfer their spectrum licence(s). Although these options are available to cellular and PCS licensees, the Department notes that there has been limited activity to date in this regard.

Another available mechanism is outlined in RP-019, Policy for the Provision of Cellular Services by New Parties, which enables entities to apply for authorization to provide cellular services in unserved and underserved communities. This policy continues to provide an opportunity for those interested in deploying services, but have been unable to establish an agreement to do so with an existing licensee. Future consultations may be issued to consider expanding this policy.

Given the above considerations, Industry Canada proposes to renew cellular and PCS licences where the licence is in compliance with all licence conditions. Licences will be renewed for a 10-year term and be required to remain in compliance with the licence conditions in Appendix A. Further details on the renewal process will be released in the decision. The Department is not proposing a condition of licence for deployment for cellular and PCS licences due to the extensive services being offered and the opportunities available for others to gain access to unused spectrum.

Holders of subordinate licences should note the text on renewal as stated in CPC-2-1-23, Licensing Procedure for Spectrum Licences for Terrestrial Services:

"When a primary licence is being considered for renewal, a joint application may be submitted to the Department requesting the renewal of the subordinate licence at the same time. The Minister has the authority to consider the joint application as well as all other relevant matters, and can grant the subordinate licence as requested, fix additional terms and conditions, or not grant the approval."

The Department invites comments on its proposal to renew cellular and PCS licences.

4. Proposed Changes to Some of the Existing Licence Conditions at Renewal

The following section proposes amendments, additions and deletions to some of the existing PCS and cellular licence conditions for the next licence term. Many of the proposed changes are to update the text with the current wording being used by the Department. Where changes are more significant, a discussion is included below. A full version of the proposed licence conditions is included as Appendix A.

4.1 Licence Term and Renewal

As stated earlier, licence conditions for cellular and PCS spectrum licences were updated in November 2005, and apply to spectrum licensed either through a competitive or FCFS process.

All cellular and PCS licences currently state:

"The term of this licence will expire on [date].

At the end of this term, licences will likely be renewed for a ten-year term unless a breach of a licence condition has occurred, a fundamental reallocation of spectrum to a new service is required, or an overriding policy need arises. A public consultation regarding the renewal of the licence will begin no later than two years prior to the end of the licence term if the Department foresees the possibility that it will not renew this licence."

The Department proposes to renew cellular and PCS licences for a 10-year term where the licence is in compliance with all licence conditions. Comments will be sought on licence terms in general in the upcoming Consultation on Revisions to the Framework for Spectrum Auctions in Canada.

4.2 Spectrum Aggregation Limit

In accordance with the August 27, 2004 decision by the Minister of Industry rescinding the mobile spectrum cap, this condition of licence is no longer required.

4.3 Research and Development

Currently, a licence condition requires licensees to invest a percentage of their adjusted gross revenues on research and development (R&D) and submit annual R&D statements demonstrating their level of investment. The Department is in the process of reviewing this condition of licence and, given that it applies to many licences other than cellular and PCS, discussions will take place in the upcoming Consultation on Revisions to the Framework for Spectrum Auctions in Canada. The R&D licence condition will remain in effect, subject to the decisions made in the aforementioned consultation.

4.4 Resale and Roaming

This condition of licence was originally established to assist in the development of PCS networks across Canada, following the initial deployment of analogue networks. The Department notes that analogue cellular networks have been phased out across Canada and PCS networks are well established.

Industry Canada proposes to remove the existing conditions of licence relating to resale and roaming, as they have been superseded by the new conditions of licence for mandated roaming and antenna tower and site sharing. These new conditions of licence came into effect on November 29, 2008, and apply to all cellular, PCS and AWS licences.

4.5 Implementation of Spectrum Usage

Section 3 discussed the issue of implementation of spectrum usage in the context of renewal of the cellular and PCS licences. In establishing the conditions of licence for the next licence term, it is noted that auctioned PCS licences have an implementation of spectrum usage condition of licence whereas incumbent PCS and cellular licences had their implementation licence condition removed.

The cellular and PCS markets are now well established. Cellular and PCS licensees (both auction and non-auction) have deployed services and, as noted above, 98% of the Canadian population is covered. There is, therefore, no longer a need for an implementation licence condition.

The Department notes that there are mechanisms in place such as RP-019, transferability and divisibility, as well as subordinate licensing, for those who are interested in obtaining spectrum in unserved and underserved areas.

Industry Canada is not proposing a condition of licence for implementation of spectrum usage on the new cellular and PCS licences.

The Department seeks comments on all licence conditions for renewed cellular and PCS licences (see Appendix A for a complete list of conditions).

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.

The 2007 Spectrum Policy Framework for Canada (SPF) states that the Department's policy objective is to maximize the economic and social benefits that Canadians derive from the use of the radio frequency spectrum resource. Market forces are relied upon to the maximum extent feasible to promote the efficient assignment of spectrum and to earn a fair return for the Canadian public for the privilege of access to spectrum, which is a public resource. In the context of setting of regulatory fees, this is done through the establishment of fees that estimate the value of the spectrum licences.

The User Fees Act, which came into effect on March 31, 2004, with the aim of strengthening the elements of accountability, oversight and transparency in the management of user fee activities, formally outlines certain additional requirements for the setting of new and amended fees.

5.2 Fee Review for Cellular and PCS Licences

In 2003, the Department issued DGRB-005-03, Radio Authorization Fees for Wireless Telecommunication Systems that Operate in the Radio Frequency Bands 824.040 MHz to 848.970 MHz, 869.040 MHz to 893.970 MHz or 1850 MHz to 1990 MHz, which specified the annual charges that would apply for legacy cellular and PCS spectrum awarded in 1985 and 1995. This fee order currently covers all of the frequency bands included in this consultation paper and sets the fee at $0.03512361 per MHz per population.

High mobility spectrum, such as cellular and PCS, is a very valuable resource and expectations suggest continuing growth and profitability in this sector.

As mentioned above, the SPF dictates that in managing spectrum, the Department must "earn a fair return for the Canadian public for the privilege of access to spectrum - a public resource." The challenge is to set fees that reflect the underlying market value while taking into account the wide variations in different markets and comparing prices paid for the spectrum in different auctions, which is further complicated by varying economic conditions, different auction bidding strategies and the overall demand for the spectrum at the time.

Industry Canada is undertaking a formal study to assess the current market value of cellular and PCS spectrum. The study will include, but not be limited to, an international fee comparison and a review of prices paid for similar spectrum in Canada. Once the study is complete, the Department will launch a separate consultation seeking comments on the proposed fee. Once a decision has been made, the revised fee will apply to the renewed licences following the end of their current term.


6. Next Steps

Following the close of this consultation, the Department will review the comments received and publish its decision outlining the procedure for renewal and the applicable licence conditions. Industry Canada will also undertake a formal study to assess the current market value of the spectrum licences and will launch a separate consultation seeking comments on the proposed fee.


7. Submitting Comments

Interested parties are invited to submit comments on the proposals outlined in the consultation no later than April 30, 2009, in electronic format (XHTML, Wordperfect, Microsoft Word or Adobe PDF) to the following e-mail address: ic.spectrumoperations-operationsduspectre.ic@canada.ca.

Written submissions should be addressed to the Director, Spectrum Management Operations, Radiocommunications and Broadcasting Regulatory Branch, Industry Canada, 300 Slater Street, Ottawa, Ontario, K1A 0C8.

All submissions should cite the Canada Gazette, Part I, the publication date, the title and notice reference number DGRB-002-09.

The Department will also provide interested parties with the opportunity to reply to comments from other parties. Reply comments will be accepted until June 1, 2009.


Appendix A — Proposed Licence Conditions for Cellular and PCS Spectrum Licences (Updated March 2009)

The following conditions of licence apply to licensees for radio frequency spectrum licensed through a first-come, first-served (FCFS) or competitive process for cellular or PCS spectrum.

1. Licence Term

This licence is issued for a 10-year term. The process for issuing licences after t his term and any issues relating to renewal will be determined by the Minister of Industry following a public consultation.

2. Licence Transferability and Divisibility

The licensee may apply, in writing, to transfer its licence in whole or in part (divisibility), in both the bandwidth and geographic dimensions. Departmental approval is required for each proposed transfer of a licence, whether the transfer is in whole or in part. 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 the licence.

The Department may define a minimum bandwidth and/or geographic dimension (such as the grid cell) for the proposed transfer. Systems involved in such a transfer shall conform to the technical requirements set forth in the applicable standard.

The licensee may apply to use a subordinate licensing process.

For more information, refer to Client Procedures Circular CPC-2-1-23, Licensing Procedure for Spectrum Licences for Terrestrial Services, as amended from time to time.

3. Eligibility

A licensee operating 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 that 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 Client Procedures Circular CPC-2-0-15, Canadian Ownership and Control, as amended from time to time.

4. Displacement of Incumbents

The licensee must comply with the revised transition policy outlined in Appendix 2 of the Policy and Licensing Procedures for the Auction of Additional PCS Spectrum in the 2 GHz Frequency Range issued on June 28, 2000, and the procedure for the relocation of incumbent microwave stations outlined in Client Procedures Circular CPC-2-1-09, Displacement of Fixed Service Stations Operating in the 2 GHz Frequency Range to Accommodate Licensed Personal Communications Services (PCS).

5. Radio Station Installations

Athough site-specific radio licences are not required for each radio station, the licensee must ensure that each radio station is installed and operated in a manner that complies with Client Procedures Circular CPC-2-0-03, Radiocommunication and Broadcasting Antenna Systems, as amended from time to time.

6. Provision of Technical Information

When the Department requests technical information on a particular station or network, the information must be provided by the licensee according to the definitions, criteria, frequency, and timelines specified by the Department. For more information, refer to Client Procedures Circular CPC-2-1-23, Licensing Procedure for Spectrum Licences for Terrestrial Services, as amended from time to time.

7. Compliance with Legislation, Regulation, and Other Obligations

The licensee is subject to, and must comply with, the Radiocommunication Act, the Radiocommunication Regulations and the International Telecommunication Union's Radio Regulations pertaining to its licensed radio frequency bands. The licence is issued on condition that the certifications made in relation to this licence are all true and complete in every respect. The licensee must use the assigned spectrum in accordance with the Canadian Table of Frequency Allocations and the stated spectrum policy.

8. Technical Considerations

The licensee must comply on an ongoing basis with the technical aspects of the appropriate Radio Standards Specifications and Standard Radio System Plans, as amended from time to time.

9. International and Domestic Coordination

The licensee must comply with the current and future agreements established with other countries. Although frequency assignments are not subject to site licensing, the licensee may be required to furnish all necessary technical data for each relevant site.

The licensee will use its best efforts to enter into mutually acceptable sharing agreements that will facilitate the reasonable and timely development of its respective systems, where applicable, and to coordinate with other licensed users in Canada and internationally where applicable.

10. Lawful Interception

Licensees operating as radiocommunication carriers and using this spectrum for circuit-switched voice telephony systems must, from the inception of service, provide for and maintain lawful interception capabilities as authorized by law. The requirements for lawful interception capabilities are provided in the Solicitor General's Enforcement Standards for Lawful Interception of Telecommunications (Rev. Nov. 95). These standards may be amended from time to time.

The licensee may request the Minister of Industry to forbear from enforcing certain assistance capability requirements for a limited period. The Minister, following consultation with Public Safety Canada, may exercise the power to forbear from enforcing a requirement or requirements where, in the opinion of the Minister, the requirement is not reasonably achievable. Requests for forbearance must include specific details and dates indicating when compliance to the requirement can be expected.

11. Research and Development

The licensee must invest, as a minimum, 2 percent of its adjusted gross revenues resulting from its operations in this spectrum, averaged over the 10-year term of the licence, in eligible research and development activities related to telecommunications. Eligible research and development activities are those which meet the definition of scientific research and experimental development adopted in the Income Tax Act. Adjusted gross revenues are defined as total service revenues, less inter-carrier payments, bad debts, third party commissions, and provincial and goods and services taxes collected. Businesses with less than $5 million in annual gross operating revenues are exempt from research and development expenditure requirements, except where they have affiliations with licensees that hold other licences with the research and development condition of licence and where the total annual gross revenues of the affiliated licensees are greater than $5 million.

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 (GL-03).

12. Mandatory Antenna Tower and Site Sharing

Licensees operating as radiocommunication carriers must comply with the mandatory antenna tower and site sharing requirements set out in Client Procedures Circular CPC-2-0-17, Conditions of Licence for Mandatory Roaming and Antenna Tower and Site Sharing and to Prohibit Exclusive Site Arrangements, as amended from time to time.

13. Mandatory Roaming

The licensee must comply with the mandatory roaming requirements set out in Client Procedures Circular CPC-2-0-17, Conditions of Licence for Mandatory Roaming and Antenna Tower and Site Sharing and to Prohibit Exclusive Site Arrangements, as amended from time to time.

14. Annual Reporting

The licensee must submit an annual report for each year of the licence term, including the following information:

  • a statement indicating continued compliance with all conditions of licence;
  • an update on the implementation and spectrum usage within the area covered by the licence;
  • existing audited financial statements with an accompanying auditor's report;
  • a report of the research and development expenditures for licensees whose annual gross operating revenues exceed $5 million (the Department reserves the right to request an audited statement of research and development expenditures with an accompanying auditor's report);
  • supporting financial statements where licensees are claiming an exemption based on an annual gross revenue of less than $5 million; and
  • a copy of any existing corporate annual report for the licensee's fiscal year with respect to the authorization.

All reports and statements are to be certified by an officer of the company and submitted, in writing, within 120 days of the licensee's fiscal year-end, to the address below. Where a licensee holds multiple licences, the reports should be broken down by service area. Confidential information provided will be treated in accordance with section 20(1) of the Access to Information Act.

Manager, Emerging Networks
Radiocommunications and Broadcasting Regulatory Branch
Industry Canada
300 Slater Street, 15th floor
Ottawa, Ontario
K1A 0C8

15. System Access Fees or Network and Licensing Charges

Licensees are not required nor permitted to levy charges to their subscribers on behalf of Industry Canada. In particular, charges which appear to be for spectrum management purposes, such as system access fees or network and licensing charges, are not mandated by Industry Canada.

16. Amendments

The Minister of Industry continues to have the power to amend the terms and conditions of spectrum licences (subsection 5(1) of the Radiocommunication Act).

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