Decision on Periodic Adjustments for Radio and Spectrum Licence Fees and Fees Related to Equipment Certification Services

DGSO-005-19
August 2019

1. Intent

1. Through the release of this document, Innovation, Science and Economic Development Canada (ISED), on behalf of the Minister of Innovation, Science and Economic Development (the Minister), hereby announces the decisions resulting from DGSO-001-19, Consultation on Periodic Adjustments for Radio and Spectrum Licence Fees and Fees Related to Equipment Certification Services (the Consultation on Periodic Adjustments for Fees).

2. In DGSO-001-18, Consultation on Licence Fees for Fixed Point-to-Point Radio Systems (the Consultation on Fixed Point-to-Point Fees), ISED consulted on the periodic fee adjustment that should apply to point-to-point radio licence fees (specifically Q2). Comments submitted in response to Q2 were considered in the Consultation on Periodic Adjustments to Fees, and the determinations in this Decision will apply to licence fees for fixed point-to-point systems.

3. Comments and/or reply comments to the Consultation on Periodic Adjustments for Fees were received from:

  • Bell Mobility Inc. (Bell)
  • British Columbia Broadband Association (BCBA)
  • Canadian Network Operators Consortium Inc. (CNOC)
  • Rogers Communications Canada Inc. (Rogers)
  • Royal Canadian Mounted Police (RCMP)
  • Saskatchewan Telecommunications (SaskTel)
  • Shaw Communications Inc. (Shaw)
  • Telesat Canada (Telesat)
  • TELUS Communications Inc. (TELUS)
  • Xplornet Communications Inc. (Xplornet)

4. Comments and/or reply comments for Q2 of the Consultation on Fixed Point-to-Point Fees were received from:

  • Bell
  • Canadian Electricity Association (CEA)
  • Canadian Wireless Telecommunications Association (CWTA)
  • Canwisp
  • Cogeco Communications Inc. (Cogeco)
  • Corridor Communications Inc. (CCI)
  • Ecotel Inc. (Ecotel)
  • E-Comm 911 (E-Comm)
  • Kativik Regional Government
  • Québecor Média (Québecor)
  • Rogers
  • SaskTel
  • Seaside Wireless Communications (Seaside)
  • Shaw
  • TELUS
  • TeraGo Networks (TeraGo)
  • Xplornet

2. Scope

5. This Decision applies to all radio and spectrum licence fees, as well as all fees related to certification and registration in respect of radio and telecommunications apparatus.

6. Examination fees for radio operator and amateur radio operator certificates as well as fees for the assignment of a call sign or prefix in the amateur radio service are outside the scope of this Decision.

3. Mandate

7. Under the Department of Industry Act, the Minister may fix fees in respect of the privileges provided by radio and spectrum licences. Under that same authority, the Minister may also fix fees in respect of services offered by ISED relating to the certification and registration of radio and telecommunications apparatus. Under the Radiocommunication Act, the Governor-in-Council may make regulations prescribing fees for radio authorizations.

8. The Minister is responsible for developing national policies and goals for spectrum resource use and for ensuring effective management of the radio frequency spectrum.

4. Policy objectives

9. Spectrum is a scarce and valuable public resource. ISED encourages its efficient and optimal use through policies and standards. Radio and spectrum licence fees are one mechanism designed to both promote the effective use of spectrum and earn a fair return for the Canadian public for the privilege of access to this public resource.

10. In developing policies and licensing frameworks, ISED is guided by the policy objectives of the Telecommunications Act, and the Spectrum Policy Framework for Canada (SPFC), which seeks to maximize the economic and social benefits that Canadians derive from the use of the radio frequency spectrum resource.

5. Background

11. The Service Fees Act (SFA) is federal legislation that was enacted in June 2017 and replaced the User Fees Act. The SFA requires that federal departments adjust their fees every year by the percentage change over 12 months in Statistics Canada’s April All-Items Consumer Price Index (April to April CPI) for the previous fiscal year. These annual adjustments must begin in the 2019-2020 fiscal year.

12. The annual CPI adjustment required by the SFA would not apply to fees that are adjusted periodically through the operation of other legislation or regulatory instruments. For example, ISED fees for radio licences, spectrum licences and services related to the certification and registration of radio and telecommunications apparatus are currently not so adjusted and are therefore subject to the SFA’s default annual adjustment by the change in the CPI.

13. Recognizing that the implementation of an alternative periodic fee adjustment model is possible, ISED sought proposals for alternative fee adjustments/escalators through Q2 of the Consultation on Fixed Point-to-Point Fees and the Consultation on Periodic Adjustments for Fees.

6. Comments received for Q2 of the Consultation on Fixed Point-to-Point Fees

14. In November 2018, ISED published the Consultation on Fixed Point-to-Point Fees. Q2 of this Consultation invited proposals for a fee escalator that takes into account fee predictability for the radio licence fees under consideration.

15. CEA, CCI, SaskTel, Shaw and E-Comm supported a fee adjustment tied to inflation, as measured by the CPI or a similar index, such as that required by the SFA.

16. Proposals for alternative fee adjustments were mixed. Canwisp and Seaside proposed a fee adjustment of 7% every 5 years. EcoTel proposed an annual fee adjustment be a fraction of a base point, for example, in the vicinity of a tenth of a percent. TeraGo proposed applying a fee adjustment every 5 years at the CPI rate determined for the fifth year. Xplornet proposed that licences be granted for a 10-year period with a one-time payment, further suggesting that, under this fee model, considerations relative to the SFA would not be required. 

17. Bell, CWTA, Cogeco, Québecor and TELUS reserved their comments for the Consultation on Periodic Adjustments for Fees. TELUS noted that if fees are not based solely on administrative cost recovery, the application of an inflation factor is an arbitrary increase that is not connected to increases in administrative costs for ISED. Rogers commented that any periodic adjustments, which must be made to comply with legislation, should have a minimal impact on facilities-based operators and Canadian consumers and businesses that rely on them. Kativik Regional Government raised concerns that fee escalations may contribute to remote regions being priced out of spectrum licences.

7. Comments received for the Consultation on Periodic Adjustments for Fees

18. In March 2019, ISED published the Consultation on Periodic Adjustments for Fees. In this Consultation, ISED invited comments on the application of the CPI-based fee adjustment as per the SFA, and on proposals, with supporting rationale, for an alternative fee adjustment model for all fees within the scope of the consultation.

19. SaskTel supported the SFA’s CPI adjustment. Bell, Rogers, Shaw, TELUS, and Telesat opposed it. CNOC opposed any form of adjustment that would increase licence fees. Bell, Rogers, Shaw, Telesat, TELUS, Xplornet, and CNOC expressed concerns regarding the high radio and spectrum licence fees in Canada in comparison to other jurisdictions. The RCMP did not object to fee adjustments, but noted its concern that fee increases may have a greater negative impact to rural regions.

20. Proposals for an alternative fee adjustment were mixed, as outlined in paragraphs 21 to 26 below.

21. Bell proposed an alternative adjustment model wherein ISED would annually forecast the expected costs of managing spectrum resources in two years’ time. Should the expected amount of radio and spectrum licence fees be greater than the forecasted costs, then no change to radio and spectrum licence fees would be applied. Should the expected amount of licence fees be less than the forecasted costs, ISED would increase fees by the CPI.

22. Rogers proposed that ISED adopt an administrative cost-recovery spectrum fee regime similar to that of the United States. Should a periodic adjustment to spectrum fees be required to comply with the SFA, Rogers proposed that it be based on the average annual population growth as determined by the official census conducted by Statistics Canada, which would equal approximately 5% every 5 years.

23. Xplornet also proposed that ISED adopt a fee model similar to that of the United States. Under this model, licences would be granted for 10 years based on a single payment set to recover ISED’s costs of issuing spectrum licences. Should a periodic fee adjustment be necessary, Xplornet proposed an adjustment not exceeding 5% applied every five years.

24. Shaw proposed a fee adjustment based on the change in the average unit price to consumers of wireless service (i.e. price per GB of data or price per voice call minute or a combination of the two) over a 12-month period. Should a CPI adjustment be implemented, Shaw proposed that it be the average of the annual change in the CPI over the past 3-10 years applied at a fixed rate.

25. Telesat proposed that ISED conduct a review of its satellite and earth stations licence fees to determine an appropriate periodic fee adjustment.

26. TELUS submitted that spectrum licence fees, pursuant to paragraph 16(a) of the SFA, are exempted from the periodic fee adjustment required by the SFA on the basis that they are fixed by contract. Should ISED apply an adjustment for spectrum licence fees, TELUS proposed that an annual CPI adjustment only apply to the portion of fees that recover costs incurred by ISED for spectrum administration.

8. Discussion

27. Radio and spectrum licence fees are charged for the privilege of using the radio spectrum resource. These licence fees are charged in connection with a licensing regime that grants access to a public resource pursuant to a statutory scheme, and are therefore subject to SFA’s requirements in respect to periodic adjustments.

28. In the Consultation on Periodic Adjustments for Fees, ISED invited proposals for an alternative fee adjustment model that, if adopted, would apply to all fees within the scope of the Consultation. Many of the proposals received only addressed spectrum licence fees, such that the adjustment mechanisms put forward in those proposals may be arbitrary if applied to fees for radio licences as well as fees for certification and registration.

29. Several respondents proposed forms of periodic adjustment models under which some in-scope fees would be adjusted by a fixed percentage. Most parties did not provide sufficient rationale to justify their suggested percentages. In the absence of such rationale, this form of adjustment would be arbitrary with respect to in-scope fees. In periods of slow economic growth, fixed increases could well exceed the increases that would otherwise apply if using the CPI.

30. The CPI for Canada is a widely used economic indicator that represents the weighted average of prices of a basket of consumer goods and services, including services related to communications (such as telephone and Internet access services). The SFA provides a clear methodology for applying an annual CPI-based adjustment, meaning that CPI adjustments will be applied in a predictable manner from year-to-year.

31. Several respondents to both the Consultation on Periodic Adjustments for Fees and the Consultation on Fixed Point-to-Point Fees supported a fee adjustment tied to inflation, as measured by the CPI or a similar index, such as that required by the SFA (CEA, CCI, SaskTel, E-Comm). There was no clear consensus among respondents for a preferred alternative fee adjustment model.

 32. Following careful consideration of all comments, it does not appear that there is any one alternative fee adjustment model to the SFA’s CPI model that would effectively contribute to the actualization of the objectives outlined in Section 4 of this Decision, meet the requirements of the SFA, and that could uniformly be applied across all in-scope fees. The SFA’s CPI model will allow for a consistent adjustment of all fees by means of a widely used and predictable economic indicator.

33. For the reasons set out above, fee adjustments following March 15, 2020, will continue to be based on the April to April CPI, pursuant to section 17 of the SFA.

Decision: Periodic fee adjustments following March 15, 2020, will continue to be based on the April to April CPI, as set out in the SFA.

9. Implementation

34. Since no alternative form of fee adjustment model has been chosen by ISED, subsequent adjustments will continue to be based on the April to April CPI as published by Statistics Canada, typically in May, in the previous fiscal year. As proposed in the Consultation on Periodic Adjustments for Fees, ISED intends to change the anniversary date for subsequent adjustments to April 1 to better align with the licence billing cycle and federal fiscal year. As a result, the next CPI adjustment following the March 15, 2020 adjustment is expected to take place on April 1, 2021, subject to any amendments that may be required to the Radiocommunication Regulations or amendments to existing, or the creation of new, ministerial fee orders.

35. Note that, in accordance with the SFA, a CPI adjustment will not be applied to a new fee during the first fiscal year that the fee is fixed or prescribed.

10. Obtaining copies

36. All spectrum-related documents referred to in this paper are available on ISED's Spectrum Management and Telecommunications website.

37. For further information concerning this Decision or related matters, contact:

Director, Broadcast, Coordination and Planning
Spectrum Management Operations Branch
Innovation, Science and Economic Development Canada
235 Queen Street, 6th floor
Ottawa ON K1A 0H5
Email: ic.spectrumregulatory-reglementationduspectre.ic@canada.ca.

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