333 Bloor Street East Toronto, Ontario M4W 1G9 Tel. (416) 935-7211 Fax (416) 935-7719 [email protected]
Dawn Hunt Vice-President Government & Intercarrier Relations
April 4, 2003
Mr. Jan Skora Director General Radiocommunication and Broadcasting Regulatory Branch Industry Canada 300 Slater Street Ottawa, ON K1A 0C8 Sent via email to: [email protected]
Dear Mr. Skora:
RE: Reply Comments – Canada Gazette Notice DGRB-004-02
Rogers Wireless Inc. is pleased to file the attached reply comments in response to comments that have been filed regarding the above noted proceeding.
If there are any questions regarding these reply comments, please do not hesitate to contact the undersigned.
Sincerely,
Original signed by Gerry Thompson On behalf of:
Dawn Hunt DH:jt
Attach. Department of Industry
CONSULTATION ON A NEW FEE AND LICENSING REGIME FOR CELLULAR AND INCUMBENT PERSONAL COMMUNICATIONS SERVICES (PCS) LICENSEES
DGRB-004-02
REPLY COMMENTS OF ROGERS WIRELESS INC.
April 4, 2003 REPLY COMMENTS OF ROGERS WIRELESS INC. DGRB-004-02
INTRODUCTION ...... 2 CURRENT AND PROPOSED SPECTRUM LICENCE FEES ARE TOO HIGH ...... 3 PROPOSED FEE CONFLICTS WITH FEDERAL POLICIES & POLICY OBJECTIVES...... 5 Treasury Board Cost Recovery and Charging Policy...... 5 Other Policy Objectives will be Compromised ...... 5 Public Benefits Must be Taken into Account ...... 6 Other Direct and Indirect Costs Must be Taken into Account...... 6 Other Significant Factors ...... 7 MANDATORY SYSTEM ACCESS FEE DESCRIPTION IS UNNECESSARY...... 7 SITING ISSUES SHOULD BE ADDRESSED IN UPCOMING TOWER REVIEW...... 8 ESMR SPECTRUM SHOULD BE INCLUDED IN THE PROPOSED REGIME...... 9 DISCOUNT FOR SPECTRUM LICENCE FEES IN RURAL AREAS AND FOR UNSUCCESSFUL LICENSEES IS UNNECESSARY ...... 10 DISCOUNT FOR 1900 MHz PCS SPECTRUM FEES IS UNWARRANTED...... 11 A CREDIT FOR LICENSEES THAT HAVE BEEN ASSIGNED A 30 MHZ BLOCK OF PCS SPECTRUM IS UNJUSTIFIED...... 14 MANDATED DIGITAL RESALE AND ROAMING AT 850 MHz IS UNNECESSARY ...15 The Market for Mobile Wireless Services is Highly Competitive ...... 16 Mandated Digital Cellular Resale and Roaming is Contrary to the Objective of Spectrum Licence Regime Harmonization ...... 17 PCS Licences Were Awarded Without Mandated Digital Cellular Resale and Roaming....18 Mandated Analog Cellular Resale and Roaming Was Only Intended for the Initial PCS Rollout Phase ...... 18 Mandated Digital Cellular Resale and Roaming would be Anti-competitive ...... 20 Mandated Digital Cellular Resale and Roaming would Unfairly Penalize Certain Licensees...... 22 Mandated Digital Cellular Resale and Roaming Would Unjustly Encroach on RWI’s PCS Licences ...... 24 Microcell Has Not Attempted to Negotiate Digital Resale Arrangements...... 24 Mandatory Digital Cellular Resale and Roaming is Contrary to the Objectives of Facilities-based Competition ...... 24 CONCLUSION...... 26
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INTRODUCTION
1. Rogers Wireless Inc. (“RWI”) is pleased to submit the following reply comments in response to the comments filed by various parties on March 14, 2003 in relation to the public consultation initiated by the Department of Industry (“the Department”) entitled, ‘Notice DGRB-004-02 – Consultation on a new Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees’ (“the Consultation Paper”).
2. RWI is in receipt of the comments that have been filed by the following parties:
• Bell Wireless Alliance (“BWA”) • Canadian Wireless Telecommunications Association (“CWTA”) • CityTel • Government of Japan • Information Technology Association of Canada (“ITAC”) • Kenora Municipal Telephone Service (“KMTS”) Mobility • Steve Lessard • Microcell Telecommunications Inc. (“Microcell”) • Ontario Telecommunications Association & Association des Compagnies de Telephone du Quebec (“OTA/ACTQ”) • Telus Mobility (“Telus”)
3. RWI does not intend to respond to all of the comments made by other parties. Rather, RWI will focus on the principle issues under discussion and the key issues in dispute.
4. RWI’s position on all of the issues raised in the Consultation Paper is set forth in RWI’s comments of March 14, 2003. Failure by RWI to respond to any argument raised by other parties that are in disagreement with RWI’s stated position does not signify RWI’s acceptance of any such opposing views.
5. As is detailed below, RWI notes that a number of parties agree on the following key issues regarding the proposed spectrum licence fee and licensing regime:
• The current and proposed spectrum licence fees are too high. • The proposed fee regime is contrary to a number of federal government policies and policy objectives. • A comprehensive assessment of the cumulative impact of direct and indirect taxation on mobile wireless licensees is required. • A mandatory system access fee (“SAF”) statement is unnecessary.
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• A modified condition of licence regarding public consultation is not required and, in any event, should be addressed via an upcoming tower policy review. • Spectrum that is used for the provision of Enhanced Specialized Mobile Radio (“ESMR”) services should be included in the proposed spectrum fee regime.
6. For the reasons provided below, RWI urges the Department to reject the following views that were expressed by some of the parties:
• Digital cellular resale and roaming should be imposed on cellular licensees as a condition of licence. • Fees for PCS (1900 MHz) spectrum should be less than fees applicable to cellular (850 MHz) spectrum. • A fee discount should be provided for spectrum that is used in rural areas and for licensees that have pursued unsuccessful business strategies. • Retroactive credits should be awarded to carriers that have been licensed with 30 MHz of PCS (1900 MHz) spectrum.
CURRENT AND PROPOSED SPECTRUM LICENCE FEES ARE TOO HIGH
7. RWI notes that the majority of respondents raised serious concerns regarding the spectrum licence fee that the Department has proposed in the Consultation Paper.
8. Consistent with RWI’s comments, the overwhelming consensus among these stakeholders is that the current and proposed fees are excessive and unjustified.
9. In its comments Telus has urged the Department to “dramatically reduce licence fees to sensible and realistic levels that are in the public interest and can be properly justified on a reasonable economic basis”.
10. Microcell has complained that “the fees currently being paid by cellular and PCS licensees are too high, and have been for some time”.
11. Similarly, the CWTA has indicated that “current fees levels are unduly high” and also states the following in this regard:
“Several factors call into question the appropriateness of the current fee levels as a measure for the economic value of cellular/PCS spectrum including the lack of any supporting measures or formulae at the time the fees were established, and
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the fact that under the current regime, the industry has yet to be profitable.”
12. With respect to the proposed fee, the CWTA states the following:
“CWTA believes that the application of the proposed fee ($0.052) would result in an unreasonable and unwarranted increase in the fees paid by cellular/PCS licensees, and in the aggregate revenue collected by the Department”.
13. Likewise, the BWA states that it “is strongly of the view that the proposed rate of $0.052 per MHz per person is excessively high and inappropriate”. This view is echoed by Telus which contends that “the proposed fee level is unjustified, unjustifiable and unreasonable”.
14. The BWA, the CWTA and Telus have all pointed out that the present existence of very challenging economic conditions dictates that spectrum licence fees should be dramatically reduced, rather than increased.
15. For example, the CWTA has noted the incongruity that would result by increasing fees when the wireless industry has not managed to attain profitability under the current fee regime. The CWTA states the following in this regard:
“It is also important to note that under the existing fee schedule, most cellular/PCS licensees, and the industry as a whole, have yet to achieve profitability.”
16. Similarly, Telus has submitted that the proposed licence fee “should not be forced upon an industry facing a tough financial environment and a shaky economy.”
17. Consistent with RWI, these parties fully expect that an increase in the level of spectrum licence fees that are paid by cellular/PCS licensees will have the effect of reducing the extent to which these licensees will invest in and deploy new and innovative services, and the extent to which they will expand coverage.
18. The CWTA states the following in this regard:
“Every dollar the government extracts from the operators represents one less dollar that the operators can invest in network resources or services”
“The CWTA submits that the proposed fee levels will increase an already unfair burden on wireless carriers thereby hindering these
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operators’ ability to: further innovate; to expand networks to connect more Canadians; and invest in the delivery of new broadband mobile services” 19. It is also clear from the following statement made by the CWTA that an increase in spectrum licence fees will result in increased rates for wireless customers:
“These fees also have a direct impact on the price of services that are provided to the consumer”
20. In light of the above, RWI agrees with the BWA and CWTA that the Department should give serious consideration to a lower spectrum licence fee rate, such as, for example, a rate of $0.01, or $0.02, per MHz per person.
PROPOSED FEE CONFLICTS WITH FEDERAL POLICIES & POLICY OBJECTIVES
Treasury Board Cost Recovery and Charging Policy
21. A number of respondents have made reference to the Treasury Board of Canada’s Cost Recovery and Charging Policy (“the Treasury Board Policy”) which governs the manner in which user charges are devised and applied by federal departments.
22. In its comments, the BWA has rightly pointed out that the requirements contained in the Treasury Board Policy seek to ensure that fees must only be established after a full consideration of a number of relevant factors:
“The Treasury Board’s requirement for full consultation, in the BWA’s view, is intended to ensure that all relevant factors, including the government’s overriding policy objectives for the sector, are considered in the fee setting process”.
Other Policy Objectives will be Compromised
23. A number of respondents have noted that, despite the Treasury Board Policy requirements, the Department has not demonstrated that the proposed fee regime will not jeopardize and frustrate a variety of overriding policy objectives.
24. For example, the CWTA states that:
“there is little provided by way of explanation in the consultation document to suggest how, if at all, the licence fee levels proposed by the Department will promote the government’s objectives”
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“The Department has not demonstrated that the government’s policy objectives to promote connectedness, deliver broadband services and foster innovation would not be compromised by the proposals in the consultation”.
25. RWI agrees with the BWA that the current consultation provides the Department with an opportunity to adjust its proposal such that it will better reflect the requirements of the Treasury Board Policy and other policy objectives.
Public Benefits Must be Taken into Account
26. Further, a number of parties have noted that the proposal lacks any explanation of how the many significant public benefits arising from the provision of mobile wireless services have been factored into the proposed spectrum licence fee.
27. As the BWA notes, public benefits must be taken into account by the Department when setting fees since they are part of the economic rent that the Department is seeking to recover through spectrum fees:
“The BWA submits therefore that the Treasury Board guidelines are explicit that such positive externalities are to factor into the fee setting process since, in effect, they are part of the economic return or rent provided to the Canadian public”
28. Yet, as the CWTA has observed, it does not appear that the Department has accounted for any public benefits arising from the use of the radio spectrum resource:
“the Department has not presented any impact assessments to identify all significant effects, positive and negative”
Other Direct and Indirect Costs Must be Taken into Account
29. Further, these parties have expressed serious concerns regarding the fact that the Department’s proposal does not appear to have taken into consideration the cumulative impact of multiple fees imposed on mobile wireless licensees by numerous federal departments and agencies.
30. The need for a consideration of these impacts was highlighted by the BWA in the following terms:
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“The BWA believes that an underlying principle of the Treasury Board’s Policy is that all these federal fees should have a bearing on the level of any additional user fees which are levied”
31. For its part, Telus states that:
“There is no evidence that the Department is working with the incumbent licensees to assess how the proposed new fee levels combine with all of the other multiple fees, taxes and levies from all federal sources”
32. Likewise, CWTA has noted that the Department’s proposal does not “contain any assessment of the cumulative impact of multiple fees from all federal sources”.
Other Significant Factors
33. Lastly, the BWA and Telus have noted, along with RWI, that their aggregate annual spectrum fees have declined in recent years, and are expected to continue to decline. These parties have noted that fees are declining as a result of their increasing reliance on auction PCS spectrum, and as a result of the implementation of more spectrally efficient technologies. In light of these trends, an increase in the aggregate spectrum fee revenues collected by the Department would be inappropriate and unjustified.
34. In summary, a number of parties have identified some very serious concerns with the Department’s proposal. It is clear that the result of the significant shortcomings that have been identified is that the proposed spectrum licence fees are unnecessarily and unjustifiably high.
35. If, as required by the Treasury Board Policy, the Department takes all of these factors into account, it will be found that the proposed spectrum licence fee must be dramatically reduced.
MANDATORY SYSTEM ACCESS FEE DESCRIPTION IS UNNECESSARY
36. The consensus among respondents is that a mandatory SAF statement is not necessary and, accordingly, these parties have encouraged the Department to refrain from imposing this requirement.
37. Telus has stated that it “strongly opposes this proposal on the basis that it represents inappropriate meddling in the private sector relationship between a service provider and its clients”.
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38. The CWTA has suggested that “the Department may not have the authority to impose such a condition”.
39. For its part, Microcell has suggested that this issue falls under the purview of the Commissioner of Competition and has noted that the Commissioner has already defined guidelines that govern the behaviour of licensees with respect to the SAF.
40. RWI agrees with all of the above noted views and continues to believe that the Department should not impose a mandatory SAF statement as a condition of licence.
41. In any event, RWI believes that the Department may not have the authority to impose such a condition, as it would impair the cellular/PCS licensees’ right to commercial speech that is guaranteed under the Charter of Rights and Freedoms.
42. In the alternative, if the Department elects to impose this as a requirement, then RWI urges the Department to adopt the SAF description that was proposed by RWI in its comments, which reads as follows:
The System Access Fee (SAF) is a fee charged on an ongoing basis to cover various costs associated with the operation, expansion, and maintenance of the network.
SITING ISSUES SHOULD BE ADDRESSED IN UPCOMING TOWER REVIEW
43. Most parties have noted that the Department has announced that a public consultation regarding tower-siting policy will soon be convened by the Department. In fact, Minister Rock announced on March 28, 2003 that Professor David Townsend of the University of New Brunswick will conduct the review and is expected to report back to the Department by Fall 2003. In light of the upcoming tower policy review, these parties have recommended that the Department should not revise the licence condition pertaining to siting issues and that this issue should be addressed in the upcoming review.
44. For example, in its comments, the BWA states that the proposed modifications of the licence condition in question “are appearing simultaneously with the Minister’s announcement of a pending national review of the Department’s tower approval policy and process. The BWA strongly believes that it would be inappropriate to change this condition of licence in the absence of a full consultation, especially when that consultation has already been announced by the Department”.
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45. Similarly, the CWTA states that it is “extremely concerned that the Department appears to be embarking on a dual and possibly simultaneous policy consultation on the same issue. This amounts to placing stakeholders in a situation of double jeopardy. CWTA submits that is would be inappropriate to modify this condition of licence prior to the completion of a full and complete consultation process”.
46. Telus submitted that “[t]aken together these changes would seem to represent a substantial change in antenna tower policy at a time when the Department is preparing to engage in a national, major consultation on this issue”.
47. RWI and, indeed, a number of other parties, do not agree with Microcell when it asserts that “the subject matter of [the Tower Policy Review] is something the Department must also consider as part of this Licensing Consultation”. In RWI’s view, proposing licence condition amendments in this proceeding and then again following the National Tower Review would likely be duplicative and wasteful of time and resources.
ESMR SPECTRUM SHOULD BE INCLUDED IN THE PROPOSED REGIME
48. Consistent with the comments filed by RWI, the BWA has urged the Department to include spectrum that is used for the provision of ESMR services in the proposed spectrum fee regime.
49. The BWA has noted that providers of ESMR services view themselves as direct competitors of cellular and PCS providers, and also that they are regulated in a similar, if not identical, manner as are cellular and PCS providers. The BWA states the following in this regard:
“As Nextel, the largest provider of ESMR service in North America noted, ESMR competes directly with the cellular and PCS spectrum that is the subject of this Consultation and, in Canada as well as in the U.S., are regulated virtually identically. The BWA submits that this same rationale provides a compellingly strong argument to include ESMR spectrum within the scope of this Consultation in order to ensure, in the interest of regulatory symmetry, that services which are substitutable are treated in a consistent manner”.
50. RWI notes that Telus has already requested special treatment for ESMR under the mobile spectrum cap1. Whether in the context of the mobile spectrum cap, or in the context of spectrum licence fees, RWI strongly believes that one group of licensees should not be advantaged to the
1 Canada Gazette Notice No. DGTP-003-02, ‘Consultation on a Request To Modify The Treatment Of Enhanced Specialized Mobile Radio Systems Under The Mobile Spectrum Cap Policy’.
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detriment of licensees that provide similar and competing services, and which choose to offer those services using different technologies. Accordingly, ESMR should not be provided with the preferential treatment that Telus has sought with respect to the mobile spectrum cap, and that has been proposed in regards to spectrum licence fees.
51. In RWI’s view, the record demonstrates that the Department should include ESMR in the proposed spectrum licence fee regime.
DISCOUNT FOR SPECTRUM LICENCE FEES IN RURAL AREAS AND FOR UNSUCCESSFUL LICENSEES IS UNNECESSARY
52. RWI notes that some parties have asserted that a spectrum licence fee discount should be applied for spectrum that has been licensed in rural areas.
53. In its comments, the BWA asserts that “licence fees in these areas should be heavily discounted well below the current rate of $0.037 per MHz per person in order to foster the expansion of wireless services infrastructure as a regional development initiative”.
54. Likewise, Telus claims that “applying a 50% discount to any license fee in such rural areas would recognize the economics of building a network in less populated areas of Canada”.
55. As stated in its comments, RWI believes that a suitable discount reflecting the relative value of spectrum in rural areas has already been incorporated in the fee calculation proposed by the Department.
56. For example, the spectrum fee formula proposed by the Department already includes a population factor, meaning that radio spectrum associated with sparsely populated areas will yield lower spectrum licence fees than an equivalent portion of spectrum associated with more densely populated areas.
57. To illustrate, RWI has estimated that the Department’s proposed formula would result in spectrum licence fees of about $1.9 million, $386,000, and $32,000 for a 10 MHz portion of spectrum in Montreal, London and Dawson Creek, respectively. Clearly, under the Department’s proposal, spectrum licence fees associated with rural areas will be dramatically lower than fees in more populated areas. An additional discount would be completely unjustified.
58. This is corroborated by the comments filed by OTA/ACTQ and CityTel. These carriers have estimated that they will enjoy a significant reduction in their fees under the proposed regime.
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59. For example, the OTA/ACTQ noted that, a number of its members “which serve only rural high-cost areas have historically paid amounts much greater than those contemplated under the new regime”. Similarly, CityTel states that its “costs would be lowered and this would help [CityTel] as one of the smaller companies that have tried to maintain cellular service in a less populated area”.
60. It is also important to note that these parties did not propose, as did the BWA and Telus, a two-tier rate scheme that would provide an even greater discount for fees associated with rural areas.
61. If the Department wishes to provide an incentive for the construction of mobile wireless networks in rural areas, then it should simply reduce the spectrum licence fee that it has proposed, as urged by RWI in its comments. RWI believes that an overall reduction would benefit small and large licensees, as well as licensees that serve urban and rural areas, in an equitable manner.
62. RWI notes that, in its comments, Microcell appears to suggest that spectrum licence fees should be calibrated to reflect the “franchise value” of licensees. Presumably, this would mean that those licensees that have executed a successful business strategy would pay a higher spectrum licence fee rate than licensees whose commercial strategy has proven unsuccessful. RWI urges the Department to reject any such proposals on the basis that calibrating spectrum licence fees in this manner would encourage the inefficient use of the radio spectrum resource. RWI notes that a stated objective of the proposed regime is to encourage the efficient use of the radio spectrum resource.
DISCOUNT FOR 1900 MHz PCS SPECTRUM FEES IS UNWARRANTED
63. RWI notes that both Telus and Microcell have asserted that a significant spectrum licence fee discount is required for 1900 MHz spectrum to account for propagation differences that they allege exist between 850 MHz and 1900 MHz spectrum.
64. Telus has alleged that a discount of 66% is justified, while Microcell has claimed that the discount should be 50%. For the reasons outlined below, the Department should reject those requests.
65. In particular, Microcell goes to great lengths in an attempt to demonstrate that there are significant propagation differences between 850 MHz and 1900 MHz spectrum. For example, Microcell’s comments included a technical analysis that was prepared for Microcell by Yves R. Hamel et Associes Inc. (“the Propagation Analysis”). RWI submits that the
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Propagation Analysis, and a number of related allegations made by Microcell, are seriously flawed.
66. First, in comparing propagation at 850 MHz with propagation at 1900 MHz the study failed to identify and compare the propagation characteristics of all digital technologies used in the cellular and PCS bands. The result is that the analysis is biased. For example, GSM and CDMA technologies operating at 1900 MHz yield a more favorable carrier-to-interference (“C/I”) performance than TDMA technology operating at 850 MHz. The net result is that the technologies operating at 1900 MHz will generate an equivalent, if not superior, propagation footprint than TDMA. The Propagation Analysis makes no mention of this very significant fact.
67. Second, the Propagation Analysis does not compare the propagation characteristics associated with urban and suburban areas. Instead, it only compares propagation in a rural environment. This significant omission has skewed the results of the analysis in order to support Microcell’s position.
68. RWI submits that within urban and suburban areas, where the bulk of network capital investment resides, the engineering practice of maximizing coverage area per base station is, of necessity, mitigated by other factors such as traffic volumes, interference, and coverage shadowing considerations. The effect of these factors is that any perceived propagation advantage of 850 MHz over 1900 MHz is eliminated.
69. In an urban environment, the use of a large cell or sector coverage area would result in significant call blocking, due to the significantly higher traffic levels that exist in urban areas. This has led to the common practice of reducing the cell or sector coverage area by reducing base station transmit power, by implementing down-tilted antennas, and by dividing the existing cell or sector into smaller sectors (known as “cell splitting”).
70. These common urban base station deployment practices have been conveniently omitted from the Propagation Analysis and overlooked by Microcell. So too, the fact that the radius or ‘reach’ of an urban or suburban base station is typically, and at most, 10% of the radius of a rural or corridor base station. Consequently, Microcell has ignored the crucial fact that the propagation characteristics of 850 MHz and 1900 MHz are equivalent in urban and suburban environments.
71. Further, RWI estimates that the reduced reach of a base station in urban 2 and suburban areas translates into a coverage factor of 10 , meaning that
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100 times the quantity of base stations are required to provide the same coverage in an urban or suburban area as in a rural or corridor area.
72. In addition, RWI submits that 1900 MHz has better interference-avoiding properties than 850 MHz frequencies. This is an engineering advantage unique to 1900 MHz, and it has been overlooked in the Propagation Analysis.
73. Further, RWI notes that the Propagation Analysis refers to SRSP 503 and SRSP 510, which identify that, in both rural or corridor and in urban or suburban areas, 1900 MHz base stations may operate at a higher effective isotropic radiated power (“EIRP”) than 850 MHz base stations. As well, the study lists industry-accepted receive signal strength indicator (“RSSI”) values for both 850 MHz and 1900 MHz receivers. GSM 1900 MHz receiver sensitivity is listed as having a RSSI that is 2 dBm lower than that of a GSM 850 MHz receiver. The higher base station EIRP and lower receiver RSSI values, combined with the interference-avoiding characteristics of 1900 MHz spectrum, provide 1900 MHz spectrum with a very real advantage over 850 MHz spectrum, especially in capital- intensive urban and suburban areas.
74. Moreover, in its comments, Microcell has asserted that 850 MHz spectrum enjoys an advantage with respect to in-building coverage. In making this assertion, Microcell has quoted a statement that is contained in a news release issued by RWI on February 14, 2003. In response, RWI submits that this quote is taken out of context and that it does not support Microcell’s claims.
75. RWI submits that the extent of in-building coverage provided by 850 MHz and 1900 MHz spectrum is a function of a whole range of factors, including radio frequency (“RF”) power, angle of incidence, as well as building materials such as concrete, steel, coated and non-coated glass, and hundreds of other materials that comprise a building. RWI has found that some buildings favour 850 MHz coverage while others favour 1900 MHz coverage, depending on the materials employed in constructing the building.
76. Further, Microcell has failed to consider that both the 850 MHz and 1900 MHz spectrum bands will be used by RWI to provide superior in-building coverage in the various types of building that are situated in RWI’s extensive coverage area. RWI’s news release merely demonstrates that it intends to augment the in-building coverage that it already provides by means of its 1900 MHz spectrum.
77. In any event, Microcell applied for a national PCS licence with the full knowledge that a discount, such as the discount it is now seeking, was not
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available. Similarly, Microcell was fully aware of the propagation characteristics of PCS spectrum, before obtaining its PCS licence.
78. For example, in its 1995 PCS licence application, Microcell advised the Department that it had “carried out some fifty carrier wave tests and seven GSM protocol tests across Canada in the last twelve months, and verified propagation and penetration characteristics at the 2 GHz frequencies in dense urban, urban, suburban, and forest environments”. It is important to note that Microcell’s 1995 PCS licence application is silent with respect to its need for a spectrum fee discount in order for its business plan to succeed. 79. For its part, Telus assumed the national PCS licence awarded to Clearnet Communications Inc. (“Clearnet”), when it acquired Clearnet. Telus was fully aware of the relative level of fees for PCS and cellular spectrum.
80. RWI strongly believes that, in seeking a discount for its 30 MHz block of PCS spectrum, Telus is seeking a competitive advantage since, in contrast to other licensees, this spectrum represents the majority of Telus’ licensed spectrum. In securing a discount for this portion of its spectrum, Telus would enjoy a significant cost advantage over competitors that have been licensed with 850 MHz cellular spectrum to a greater extent than Telus.
81. For the reasons outlined above, RWI urges the Department to reject the requests made by Microcell and Telus.
82. In the alternative, if the Department elects to provide a discount for 1900 MHz spectrum licence fees, any such discount should not apply to spectrum used to serve urban and suburban areas, for the reasons provided above.
A CREDIT FOR LICENSEES THAT HAVE BEEN ASSIGNED A 30 MHZ BLOCK OF PCS SPECTRUM IS UNJUSTIFIED
83. RWI notes that Telus has alleged that it has overpaid the amount of spectrum fees applicable to its 30 MHz of non-auction PCS spectrum, and that it is entitled to an immediate credit. RWI urges the Department to reject Telus’ claims for the following reasons.
84. Specifically, Telus asserts the following in this regard:
“Unlike cellular spectrum, where the fees are charged on a per channel utilized basis, the PCS fee structure charges are based on the size of the licensed block held, whether its [sic] fully utilized or not”.
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“The Department must redress this inequitable and uncompetitive situation immediately. There is no justifiable reason that certain carriers should have usage based pricing for the majority of their spectrum fees and a two thirds cost advantage on the rest versus their competitors”.
“Telus recommends that the Department immediately correct this and investigate how to financially compensate the two injured carriers for the past discriminatory pricing levied by the Department”.
85. In response, and as noted by RWI in its comments, Telus has enjoyed a cost advantage over competitors such as RWI in that it operates wideband radio channels using CDMA technology. Each of Telus’ CDMA channels consumes far more spectrum than non-CDMA channels that are employed by its competitors, yet the licence fees applicable to the CDMA channels do not reflect this greater degree of spectrum consumption. Additionally, since fewer CDMA channels are required to serve a given traffic load than non-CDMA channels, the net result is that Telus’ spectrum fee payments are lower than its competitors.
86. It is also important to note that, in being licensed with a single contiguous 30 MHz block of PCS spectrum, Telus has enjoyed a practical advantage over competitors that have been licensed with smaller blocks of PCS spectrum. Having a larger block of spectrum provides Telus with advantages in spectrum use planning that include simplified channel assignment, a low risk of adjacent channel interference, and less spectrum consumed by guard bands when compared to three 10-MHz blocks. Similarly, Telus enjoys an advantage in that it can add new air interface technologies, without necessarily disrupting or displacing existing air interface technologies. Licensees with smaller blocks of spectrum do not enjoy these advantages and, accordingly, their technical options are necessarily more complex and costly.
87. Lastly, Telus was well aware of the comparative characteristics of the licence fees applicable to PCS and cellular spectrum when it obtained its 30 MHz PCS licence through its acquisition of Clearnet, and should have governed its decisions accordingly.
88. In light of the facts noted above, RWI urges the Department to reject Telus’ recommendation without further consideration.
MANDATED DIGITAL RESALE AND ROAMING AT 850 MHz IS UNNECESSARY
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89. RWI notes that Microcell has raised an issue that falls outside the scope of the Department’s proposed spectrum licensing regime. Specifically, Microcell has attempted to significantly broaden the current requirements regarding resale and roaming beyond what is contemplated in the Consultation Paper.
90. While the Department has proposed that these requirements will continue to apply to incumbent cellular licensees that provide analog cellular services, Microcell alleges that “these obligations must be extended to encompass all technologies at 800 MHz”, including digital technologies.
91. While, in its 1995 PCS application, Microcell committed to constructing a network that would reach approximately 60% of the population, Microcell now proposes that it should be permitted to exploit the digital investments of its competitors.
92. RWI submits that this is nothing more than a bald attempt by a company with a poorly developed and executed business plan to prop itself up at the expense of its competitors. Microcell’s request should be rejected for the following reasons.
The Market for Mobile Wireless Services is Highly Competitive
93. At the outset, RWI categorically rejects the claims made by Microcell that the Canadian mobile wireless services market is not sufficiently competitive and that regulatory intervention, in the form of mandatory digital cellular resale and roaming, is required.
94. Specifically, on page 5 of its cover letter, Microcell has asserted the following in this regard:
“Despite the desire for all stakeholders to see competitive market forces rather than regulatory fiat govern the wireless industry, the last few years have only served to highlight that market incentives will not suffice to complete reasonable digital roaming arrangements”.
95. Similarly, in section 5 of its comments, Microcell makes the following allegations:
“In a context where players’ motives are truly pro-competitive in nature, we would expect to see a significant number of [digital roaming] arrangements between players of all sizes in a wide variety of geographic regions, with each player bringing its own resources and demand characteristics to the table”.
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96. In contrast, in section 3.1 of its comments, the BWA has noted that a number of federal government and independent reports have found that the Canadian mobile wireless services market is already fiercely competitive. RWI concurs with the BWA and notes that none of these reports have advocated any additional regulatory intervention.
97. This view is further corroborated by the CRTC. As has been noted by the BWA in its comments, the CRTC has already found that the wireless market is sufficiently competitive and that mandatory resale and sharing would not be appropriate.
98. The BWA has noted that, in Telecom Order CRTC 97-1797, the CRTC states the following in this regard:
”In the Commission’s view, based on the record of this proceeding, the question of whether to offer unrestricted resale and sharing is best answered by individual providers responding to their investment and business requirements. The Commission considers this to be appropriate and to be in the public interest in an increasingly competitive market characterized by new-facilities based entry. Accordingly, the Commission has concluded that it will not mandate unrestricted resale and sharing of cellular and PCS services.”
99. Clearly, the CRTC has already considered the issues raised by Microcell and has found that mandatory resale and sharing of cellular and PCS services would not be in the public interest.
Mandated Digital Cellular Resale and Roaming is Contrary to the Objective of Spectrum Licence Regime Harmonization
100. RWI notes that an expansion of the current analog cellular resale and roaming requirements would be contrary to the Department’s stated objective of harmonizing the cellular, non-auction PCS and auction PCS spectrum licensing regimes.
101. For example, in the Consultation Paper, the Department notes that “different privileges and conditions that have been associated with the various authorizations for [cellular and PCS] services” are among the “factors that have created imbalances among service providers”. The Consultation Paper further notes that:
“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
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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”.
102. The Department has decided to eliminate these differences by harmonizing the different licensing regimes. The Consultation Paper states the following in this regard:
“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”
103. RWI notes that the auction PCS and the non-auction PCS licence conditions pertaining to analog cellular resale and roaming are already fully harmonized. If, as Microcell has suggested, the non-auction PCS spectrum licence condition is expanded to include digital cellular resale and roaming, then it would no longer be harmonized with the corresponding auction PCS spectrum licence condition.
104. It is important to note that the auction PCS conditions of licence cannot be modified until the initial 10-year licence term has expired in 2011. RWI urges the Department to maintain the current harmonization of these conditions rather than create an imbalance between the non- auction and auction PCS licensing regimes, as requested by Microcell.
PCS Licences Were Awarded Without Mandated Digital Cellular Resale and Roaming
105. In 1995, Microcell applied for, and was subsequently awarded, a national 30 MHz PCS spectrum licence. Microcell’s application, and the business plan contained in its application, were based on a licence regime that did not include a provision for mandatory digital cellular resale and roaming. If Microcell’s future success was contingent on mandatory digital cellular resale and roaming requirements, then it should not have applied for a PCS licence in 1995.
106. If Microcell’s business plan has proven unsuccessful, then Microcell, not the cellular licensees and their shareholders, should carry the responsibility for this lack of success.
Mandated Analog Cellular Resale and Roaming Was Only Intended for the Initial PCS Rollout Phase
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107. Moreover, it is important to note that the Department imposed the current analog cellular resale and roaming requirements for no other reason than to help new entrant PCS licensees compete with incumbent licensees while they were rolling out their PCS networks.
108. It is also important to note that the imposition of these requirements had nothing to do with any perceived differences in propagation between 850 MHz and 1900 MHz spectrum, as alleged by Microcell in section 5 of its comments, nor was it ever the Department’s intent that new entrants must be provided with service coverage identical to cellular licensees. Rather, the requirement was imposed to offset the significant coverage deficit that new entrants would have until their networks were completed.
109. In the cover letter associated with the special authorization and licence conditions that were issued on April 16, 1996 to the 1995 PCS licensees, the Department states the following in this regard:
“we would emphasize that the provisions of condition 8.0 are solely for the purposes of ensuring that non-cellular PCS service providers are able to provide service coverage comparable to cellular service providers during their network construction phase and in no way relieves non-cellular PCS service providers of their obligation to expeditiously build their networks” (emphasis added)
110. RWI notes that this principle was reiterated by the Department in the PCS spectrum auction policy that was released in October 2000.2
111. All PCS licensees were required to include in their respective applications a network plan that provided details regarding the markets that they intended to serve in each of the five years of the initial licence term. Once awarded with a PCS licence, every licensee was obligated to fulfill the network plan included in its application. Given that the initial licence term associated with these licences expired in April 2001, it is reasonable to conclude that all licensees have completed the network rollout plan that was contained in their licence application.
112. Given that the analog cellular resale and roaming requirements were only intended for the initial rollout phase, it would appear that they are no longer required. These facts provide no basis for Microcell’s assertions that the cellular resale and roaming requirements should be expanded to include digital cellular technologies.
2 ‘Amendments and Supplements and Clarification Questions to the Policy and Licensing Procedures for the Auction of Additional Spectrum in the 2 GHz Frequency Range’, Industry Canada, October 2000, p. 21, 22.
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113. As a new entrant PCS licensee, Microcell has had more than ample time to roll out its PCS network, meaning that incumbent cellular licensees should no longer be under any obligation to provide analog cellular resale and roaming to Microcell, much less digital cellular resale and roaming. In addition to having completed the network roll-out specified in its 1995 PCS licence application, Microcell presently has approximately 1.2 million subscribers3, and provides PCS service to over 60% of the Canadian population4. Microcell has also entered into hundreds of GSM roaming arrangements with GSM operators in over 100 countries5.
114. Clearly, Microcell is no longer the new entrant that it was at the time that the Department elected to impose the analog cellular resale and roaming requirements. Indeed, Microcell’s ability to compete in the Canadian mobile wireless marketplace is now far greater than it was at the outset. Accordingly, the artificial support that was provided to Microcell in the form of analog cellular resale and roaming requirements is no longer necessary. It follows that an expanded requirement for digital cellular resale and roaming is entirely without merit.
115. It is also significant that, at a time when digital cellular services were widely available in Canada, and prior to the completion of the initial 5- year PCS licence term, the Department elected to extend the analog cellular resale and roaming requirements so that they would benefit PCS spectrum auction licensees, but it elected to not expand this requirement to include digital cellular resale and roaming requirements6. In other words, although incumbent digital cellular networks were more widely available in October 2000 than in 1995, the Department did not feel that it was necessary to expand the cellular resale and roaming requirement to include digital technologies. Therefore, Microcell’s claim that the requirement for analog cellular resale and roaming is out-of-date and that it should be renovated to reflect a new reality is misleading and inaccurate.
Mandated Digital Cellular Resale and Roaming would be Anti-competitive
3 ‘Microcell files the information circular related to its plan of reorganization’, Microcell Telecommunications Inc., February 19, 2003. (http://www.microcell.ca/EN/03/index.asp?id=03&sid=01&contentID=1839) 4 ‘Information Circular and Proxy Statement Pertaining to a Plan of Reorganization and of Compromise and Arrangement’, Microcell Telecommunications Inc., February 17, 2003, p. 76 (http://www.microcell.ca/EN/03/index.asp?id=03&sid=02). 5 Ibid, p. 76. 6 ‘Amendments and Supplements and Clarification Questions to the Policy and Licensing Procedures for the Auction of Additional Spectrum in the 2 GHz Frequency Range’, Industry Canada, October 2000, p. 21.
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116. Perhaps the most important reason for rejecting Microcell’s request for an expansion of the current resale and roaming requirements is that it is a transparent attempt by Microcell to obtain remedial relief for its own failed business strategy at the expense of its competitors.
117. In requesting mandatory digital resale and roaming, Microcell is seeking to avoid the capital expenditures required to expand its digital PCS network. By gaining mandated access to a digital network that has been financed and built by a competitor, Microcell would be able to avoid hundreds of millions of dollars worth of capital expenditures and ongoing interest costs.
118. For its part, RWI has assumed the risk and expense of financing and building three near ubiquitous networks: an analog network; a digital TDMA-based network; and an integrated digital GSM/GPRS-based network. In deploying these networks, RWI is able to make its services available to over 93% of the Canadian population. RWI has deliberately taken these significant and costly steps in order to fulfill its business strategy which, among other things, seeks to expand market share by providing highly advanced and widely available mobile wireless services to customers and prospective customers throughout Canada.
119. In contrast, Microcell has deliberately and consistently operated according to a dramatically different commercial strategy. Rather than seeking to make its services widely available, Microcell has focused its efforts on providing its services in major Canadian markets. Indeed, in its 1995 PCS application, Microcell committed itself to “establishing a network which will provide service within five years in all twenty-five Census Metropolitan Areas (CMAs) and several other cities and towns in all ten provinces. Our network will reach over sixty-three percent of Canadians”.
120. In effect, Microcell has “cream skimmed” the wireless market by concentrating its efforts on the most populated areas. It has elected to avoid the expense associated with the implementation of a more ubiquitous network, and instead used its capital to fund a price-leader strategy. This despite the fact that, in its 1995 PCS licence application, Microcell stated that success would be contingent on “service innovation and quality, not just on price”.
121. As time has shown, Microcell’s price-leader strategy has been unsuccessful. A telecommunications consultant has characterized Microcell’s failing fortunes in the following manner: “The Microcell story
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is about poor management since start-up. They tried to play the price leader and you don’t win that way”7.
122. Clearly, the objective of Microcell’s plea for the Department’s intervention at this late stage is to erase the competitive advantage that RWI created for itself by expanding the reach of its digital networks.
123. Microcell’s request is even more surprising given that it expects to erase approximately $1.7 billion of existing debt obligations and annual interest payments of up to $200 million as a result of Microcell’s re-capitalization plan that has recently obtained court approval8.
124. It should be readily apparent that a potential outcome of a digital cellular resale and roaming requirement is that Microcell would use its more favorable financial circumstances to finance continued price-leadership, while a competitor such as RWI would subsidize Microcell’s business plan. In the light of these anti-competitive and inequitable results, the Department should not accede to Microcell’s request.
Mandated Digital Cellular Resale and Roaming would Unfairly Penalize Certain Licensees
125. The notion that the current resale and roaming requirements should be expanded to include digital cellular is particularly perverse given that it would unfairly penalize RWI. Although, in theory, such a requirement would apply to all cellular licensees, in practice, it would only apply to RWI for the following reasons.
126. In order for Microcell customers to access the digital cellular network of another licensee, either the other licensee’s network must be compatible with Microcell’s network, or the wireless devices used by Microcell’s customers must be compatible with the network of the other licensee.
127. Microcell’s network utilizes GSM-based technology. Accordingly, the wireless devices used by Microcell’s customers are designed to operate on a GSM-based network. Some of these customers have handsets that are capable of accessing analog cellular networks.
128. RWI operates two digital 850 MHz cellular networks: one based on TDMA technology, the other based on GSM/GPRS technology. Bell Mobility, Telus Mobility, and a number of other carriers that have been
7 ‘Microcell gets OK on restructuring’, The National Post, March 18, 2003. 8 ‘Microcell Recapitalization Plan Approved by Court’, Microcell Telecommunications Inc., March 18, 2003.
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licensed to operate in the 850 MHz cellular B band, all utilize CDMA technology to provide digital services.
129. Therefore, in order for Microcell’s customers to be able to access another licensee’s digital cellular network, either the other network must utilize GSM-based technology, or the wireless devices used by Microcell’s customers must be capable of accessing a TDMA or CDMA network.
130. By default, Microcell would likely be more inclined to seek access to RWI’s GSM-based digital cellular network, since the wireless devices used by Microcell’s customer already possess the capability to access GSM networks. Beyond this scenario, RWI understands that at least one wireless device vendor will soon provide wireless devices that are capable of accessing both GSM and TDMA networks. This means that Microcell customers with dual-mode GSM-TDMA handsets would be able to access RWI’s TDMA network. RWI is not aware of any plans by wireless device vendors to manufacture GSM devices that are also capable of accessing CDMA networks.
131. These facts demonstrate that a digital cellular resale and roaming requirement would target only RWI since Microcell’s customers would not be capable of accessing any other network. Consequently, whatever digital cellular services and coverage are available to RWI’s customers, would also be available to Microcell’s customers. In contrast, all of the other cellular licensees would be free to differentiate their digital service offerings on the basis of service quality and coverage. RWI would have no such freedom to differentiate itself and to successfully compete. Clearly, this result would be inequitable and anti-competitive and, as such, it would be contrary to Canadian telecommunications policy objectives.
132. Further, a digital cellular resale and roaming requirement would serve as a disincentive for RWI to further enhance and expand its digital cellular services and coverage area. This disincentive would only be exacerbated by the fact that Microcell would be spared any such risk or expense, and would enjoy a significant cost advantage over RWI.
133. The disincentive created by the regime that Microcell has proposed would also discourage RWI from implementing more advanced technologies.
134. Microcell’s request is entirely hostile to the federal telecommunications policy objectives that aim to foster the development and provision of competitive, highly advanced and innovative telecommunications services throughout Canada.
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Mandated Digital Cellular Resale and Roaming Would Unjustly Encroach on RWI’s PCS Licences
135. As a practical matter, although Microcell has proposed that the digital resale and roaming requirements will pertain only to 850 MHz cellular licences, any such requirement will, of necessity, impinge on 1900 MHz licences.
136. For example, as stated in RWI’s comments, RWI operates a number of integrated networks that utilize the 850 MHz cellular and 1900 MHz PCS spectrum that has been licensed to RWI. If RWI were required to provide Microcell’s customers with access to its 850 MHz digital cellular network, it would have no means of ensuring that these customers would be restricted to that network. Due to the nature of RWI’s integrated networks, Microcell’s customers would also have access to RWI’s auction and non-auction PCS spectrum.
137. This result would go well beyond what Microcell has proposed, and it would represent an unjustifiable encroachment on RWI’s 1900 MHz licences.
Microcell Has Not Attempted to Negotiate Digital Resale Arrangements
138. Microcell’s plea for expanded cellular resale and roaming requirements is particularly hollow when it is considered that Microcell has made no attempt to avail itself of its rights to PCS resale from RWI. Further, RWI is not aware of any attempt made by Microcell to negotiate any such arrangements with other PCS licensees, although they have entered into analog cellular roaming arrangements.
139. RWI notes that non-auction and auction PCS licensees are required to offer PCS resale throughout their service area to other PCS licensees on a non-discriminatory basis. Therefore, the option of entering into negotiations for PCS resale has always been available to Microcell. It is not clear how it could be credibly asserted that a digital service is required, if the primary proponent has never attempted to negotiate the provision of the arrangements that it claims it so desperately requires.
Mandatory Digital Cellular Resale and Roaming is Contrary to the Objectives of Facilities-based Competition
140. As explained above, Microcell’s request for an expanded licence condition that incorporates digital cellular resale and roaming requirements is a transparent attempt by Microcell to avoid the risk and expense associated with the expansion of its digital network. Microcell
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seeks to avoid any further expansion of its network, despite the fact that it applied for and was awarded a national PCS licence.
141. Also noted above is the fact that the cover letter associated with the special authorization and licence conditions that were issued on April 16, 1996 to the 1995 PCS licensees, is clear in stating that the analog cellular resale and roaming requirement in “no way relieves non-cellular PCS service providers of their obligation to expeditiously build their networks”. Moreover, PCS licences were awarded on the condition that licensees would construct and expand their PCS networks in accordance with the network plan contained in their PCS licence application. As noted already, this principle was reiterated by the Department the PCS spectrum auction policy that was released in October 2000.
142. These facts plainly demonstrate that it has always been the Department’s intention that PCS licensees construct and expand their digital networks. In fact, a touchstone of the Department’s policy has been the encouragement of facilities-based competition. At no time in the past have PCS licensees been led to believe that network expansion should be avoided. Indeed, the very fact that the Department has proposed in the Consultation Paper that spectrum licence fees will be payable irrespective of a licensee’s use of the spectrum is ample evidence of the fact that the Department expects that licensees will construct and expand their networks and utilize the radio spectrum resource that has been licensed to them.
143. Further, to the extent that it has requested mandatory digital cellular resale and roaming, Microcell is, effectively, proposing that cellular licensees be required to unbundle their digital cellular networks to a much greater extent than incumbent local exchange carriers (“ILECs”) have been required to unbundle their local exchange networks under the terms of Decision 97-8. As noted already, the ILECs were required to partially unbundle their networks due to the fact that the local services market lacked any degree of competition. In stark contrast, and as noted above, the wireless telecommunications market is vigorously competitive.
144. In light of these facts, it would appear that Microcell’s demand that cellular licensees be required to unbundle their digital cellular networks is entirely inconsistent with federal policies and policy objectives related to competition in telecommunications services markets.
145. For the reasons outlined above, RWI urges the Department to reject Microcell’s plea for digital cellular resale and roaming requirements. Furthermore, as stated in its comments, RWI believes that the requirement regarding analog cellular roaming should be eliminated.
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CONCLUSION
146. As demonstrated above, a number of parties agree on the following key issues regarding the proposed spectrum licence fee and licensing regime:
• The current and proposed spectrum licence fees are too high. • The proposed fee regime is contrary to a number of federal government policies and policy objectives. • A comprehensive assessment of the cumulative impact of direct and indirect taxation on mobile wireless licensees is required. • A mandatory SAF statement is unnecessary. • A modified condition of licence regarding public consultation is not required and, in any event, should be addressed via an upcoming tower policy review. • Spectrum that is used for the provision of Enhanced Specialized Mobile Radio (“ESMR”) services should be included in the proposed spectrum fee regime.
147. In light of the significant degree of consensus among the parties regarding these issues, RWI urges the Department to modify its proposed spectrum licence fee and spectrum licensing regime accordingly.
148. Furthermore, for the reasons outlined above, RWI strongly recommends that the Department reject the following proposals that were made by other parties:
• Credits for PCS licensees that have been assigned 30 MHz blocks of PCS spectrum. • Spectrum fee discounts for 1900 MHz PCS spectrum, for spectrum that is used in rural areas, and for licensees that have pursued unsuccessful business strategies. • Mandatory digital cellular resale and roaming.
149. RWI thanks the Department for the opportunity to present its views in this consultation and refers the Department to RWI’s initial comments of March 14, 2003 for its position on the remaining issues identified within the Consultation Paper.
*** End of Document ***
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