Mobility Floor 16 200 Consilium Place Scarborough, Ontario Canada M1H 3J3

Ed Prior 416 279 7523 Telephone Director, 416 279 3166 Facsimile Government & Regulatory Affairs [email protected]

March 14, 2003

Mr. Jan Skora Director General Radiocommunications and Broadcasting Branch Industry Canada 300 Slater Street Ottawa, Ontario K1A 0C8

Dear Mr. Skora:

Subject: Canada Gazette Notice DGRB-004-02, Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees (and as amended by DGRB-001-03)

TELUS Mobility is pleased to have the opportunity to submit its comments on Canada Gazette Notice DGRB-004-02 (and as amended by DGRB-001-03) and the associated public Consultation Document – Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees. This document contains a number of proposals of immediate and direct economic impact upon TELUS Mobility, its profitability and network expansion plans.

TELUS was a party in the development and fully supports the comments of the Canadian Telecommunications Association (CWTA) in this consultation.

TELUS understands that Industry Canada has added a Reply Comment phase with responses scheduled for April 4, 2003. TELUS will evaluate the need for participation in this phase after examining the responses to the current phase of the Consultation.

Sincerely,

Electronic filing

Ed Prior Director, Government & Regulatory Affairs Attachment

DGRB-004-02

Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees (as amended by DGRB-001-03)

Response of TELUS Mobility

Submitted to Industry Canada

March 14, 2003

Executive Summary

In the Consultation Document, the Department makes a number of proposals on a variety of issues related to the fee and licensing regimes currently used for cellular and PCS services and also attempts to more closely align these regimes with that used for auctioned spectrum.

The fee proposals are by far the most significant and far-reaching aspect of the Gazette Notice. TELUS strongly opposes these proposals. Simply put, the Department is proposing changes that would raise the already needlessly high spectrum fees currently paid by TELUS and the rest of the Canadian wireless industry to an even higher level, without any apparent economic justification. TELUS would have expected that in the current difficult telecom environment the Department would be taking action in exactly the opposite manner and actively considering fee reductions to stimulate and encourage continuing investment in one of Canada’s most important enabling infrastructures. The Department’s actions in this consultation surprise TELUS because they depart significantly from the usual Department’s role. In our view the proposals contain many shortcomings. Shortcomings that must be dealt with include the following:

• the existing fee levels are too high and are not justified • any fee increases at this time are particularly damaging given current economic conditions and outlook • there is a “quick fix” that the Department must implement immediately to end the current fee inequities • the proposed fee levels are far too high and are not justified • fees in urban and rural areas should not be equivalent • not all spectrum is created equal – propogation characteristics must be considered • the Department should have used a blended industry rate • the Department’s assumption of future licence fee growth is erroneously high • the Department has provided no analysis nor any evidence of examination of alternative fee models • the Department’s proposals do not follow Treasury Board requirements

TELUS urges the Department to work 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. Also to immediately address the current inequities in the PCS licence fee regime.

TELUS also urges the Department to address some of the deficiencies with its proposed fee model. These include a per MHz rate that is much too high, not addressing the economics of rural versus urban or the effect of differing propagation has on wireless networks economics and the apparent lack of attention paid to alternative, real world fees or the public benefits of wireless networks in Canada.

Apart from licence fees, the Department also suggests a number of other changes. TELUS views the Department’s proposals to offer transferability and divisibility of spectrum as positive steps forward and supports these aspects of the Gazette. TELUS has significant concerns, however, with the Department’s suggestions regarding the treatment of System Access Fees, the Policy for the Provision of Cellular Services by New Parties (RP-019), and Radio Station Installation licence conditions. TELUS supports the Department’s position on lawful access requirements.

1

INDUSTRY CANADA SHOULD BE REDUCING NOT INCREASING LICENCE FEES

Industry Canada can and should be reducing licence fees

In its Consultation Document the Department outlines four “aims” or goals that the proposed framework is to operate under1. TELUS suggests that the Department should have included a fifth “aim” or goal for its proposed framework in Section 5 and one definitely ranking ahead of administrative efficiency. That aim/goal would ensure that licence fees should be high enough to ensure that spectrum management costs are recovered, but should be low enough to ensure and encourage continuing investment and innovation in Canada’s important wireless service sector. In so doing, the Department would ensure that its costs were recovered, some reasonable economic rent was recovered on behalf of the people of Canada and the wireless Operators would be able to survive, build out their networks and offer new and innovative services on an economically sustainable basis.

In fact, the federal government’s own guidelines2 for determining the levels of fees charged by federal departments to their clients suggest this very course of action. The policy contains a continuum between purely public goods through to and ending with purely private goods. In this policy access to the radio frequency spectrum is set out in the middle, if anything closer to the public end of goods on the continuum between purely public and purely private goods. It is therefore government policy to ensure that Canadians have access to those goods that have many public attributes at reasonable terms and prices. Indeed two criteria of this policy include “the extent to which charging will influence demand for a good or service3" and “the relative importance of policy objectives associated with the activity4”. Beyond these calls for economic reasonableness within this same policy there is also the statement that “When there is a mix of public and private benefits, fees should be lower than full cost.”5 TELUS is not advocating for license fees to be less than the cost of covering the cost of managing the spectrum, nor that there should not be some level of economic rent recovered for the Canadian people.

TELUS is suggesting that the Cellular/PCS carriers through their networks provide many public benefits to the Canadian people. These include increased public safety, business efficiency and personal convenience as well as direct and indirect employment and R&D expenditures and the resulting innovations. Canada’s mobile wireless carriers are an important economic enabler for all other sectors of the economy and a major part of the government’s connectedness initiative. It does not appear that the Department fully factored these public benefits into its proposed fee model.

It is therefore evident that the Department could use an additional aim/goal in their proposed framework that reminded them that government must take a holistic and studied approach to ensure that regulatory measures do not hinder or impede the industry needlessly. This goal could remind the Department of the public attributes attached to the cellular and PCS networks and adjust their models and pricing accordingly. There is no apparent justification for any licence fee

1 Consultation Document, Section 5, page 7 2 Treasury Board of Canada Secretariat, Cost Recovery and Charging Policy, April 8, 1997, note 1, page 6 3 Ibid. 4 Ibid. 5 Ibid., page 3 2 increase and many reasons, especially related to the public good, for the Department, having recovered its costs, to look to the continued economic health of Canada’s wireless industry by lowering current license fees. The Treasury Board’s policies point to this course of action.

TELUS recommends that the Department immediately move to lower the current level of fees to ensure the health of the Canadian wireless industry in the present economically uncertain financial climate.

Current Industry Economic Outlook is fragile

Canada’s wireless industry as a whole has yet to be profitable. Three of the four national carriers (counting the BWA as one national carrier) received cellular spectrum assignments in 1985. Ten years later the PCS spectrum was assigned to all four carriers in 1995 (in spectrum blocks of two different sizes). After all this time i.e. eighteen years, Canada’s wireless firms have yet, even as a high growth - in demand industry, collectively attained profitability. This extended timeline to industry profitability demonstrates the capital-intensive nature of the wireless industry and points to the fragility of the industry’s financial health. Increasing license fees at a time of great economic uncertainty is not an “increased reliance on market forces” but rather the creation of a government imposed cost hurdle to the wireless industry’s continued financial health.

TELUS believes that the proposed fee level is unjustified, unjustifiable and unreasonable. It should not be forced upon an industry facing a tough financial environment and a shaky economy. The Canadian telecom industry, including the wireless industry is in the very early stages of recovery from a significant economic downturn. Internationally, and sure to impact the economy of Canada, there is great uncertainty in the financial markets, and looming chaos and supply interruptions in the energy sector. Within the Canadian wireless sector itself some companies are struggling to survive a net loss of customers while profitability continues to elude the sector as a whole. Additionally the industry is facing greater costs from other federal government sectors. For example, recent decisions by the CRTC regarding long distance contribution have taken an estimated $185 million out of the industry in 2001 and $75 million in 2002 (up from an approximately $16 million in 2000). This regulatory initiative alone took an extra $228 million out of the wireless industry in the last two years and the level of this new tax is expected to remain at the 2002 level (approximately $75 - $80 million) for the foreseeable future. At a time of economic uncertainty and when other government departments are extracting ever-increasing amounts out of the Canadian wireless industry, TELUS reiterates that the Department should be reducing licence fees, not increasing them.

John Grandy in covering the Canadian Wireless Industry has subtitled his February report’s front page “Negative Trends in the Wireless Industry”6 and his five bullet points read as follows; • Several recent events are expected to reduce investor confidence (weak Q4/02 results from U.S. cellular companies, rogue pricing plans from Microcell and a slowdown in subscriber growth will all hurt.) • Wireless local number portability is a real threat to this industry. • Industry consolidation delayed again in both Canada and the U.S. • Churn rates and subscriber acquisition cost trends are not good. • Valuations will likely remain under pressure.7

6 John Grandy, Yorkton Securities, Canadian Wireless Industry, February 28, 2003 3

In his report he goes on to state within the Implications for Canada section that “subscriber and revenue growth are slowing down rapidly.8 He then goes on to cut his growth estimate for the Canadian wireless industry for 2003.

Glen D. Campbell in his comment report on “Canadian Wireless Services”9 which he has subtitled “Heavy Microcell Sub Losses Underscore Weak Sector Growth”10 also cuts both his estimated subscriber growth rates for 2003 and his estimated revenue growth rates for 2003 for Canada’s wireless industry.

It is very apparent that the Canadian economy is fragile and exacerbating the fragility is the very real threat that the international economy could suffer a severe down turn due to current geopolitical events. Even without these international considerations knowledgeable industry analysts are revising their growth estimates for Canada’s wireless sector downwards. This is clearly not the time for the Department to be proposing to raise cellular and PCS licence fees. It is rather, clearly the time for the Department to lower cellular and PCS licence fees.

Immediate fix to PCS fees needed

Whether or not the Department chooses to move forward with its present proposed fee regime, there is one problem within the current fee regime that cries out for immediate redress. This is a significant inequity that exists in the PCS license fee structure. 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 been fully utilized or not. In and of itself, although a departure from the cellular fee methodology, this might be fine if all of the PCS spectrum blocks were the same size. However that is not the case.

The current fee regime for holders of the “D” and “F” block of 10 MHz of PCS spectrum see them charged $9,000 per annum per base station. However if a carrier holds PCS spectrum in the 30 MHz “A” or “B” blocks, they are charged $27,000 per annum per base station, although they too, just as the “D” & “F” block holders, have only implemented service on less than 10 MHz of the block. Therefore, until the 30 MHz licensees grow to the point where they require more than 10 MHz of the block to be put into use, the two 10 MHz carriers have enjoyed a $14,000 per base station per year cost advantage for nothing and with no justification. Until the Department changes from its current regime of charging for spectrum when use begins, but not until then, it can hardly discriminate against Operators that have an additional 20 MHz to be used at some point in the future but are currently not using anymore than the first 10 MHz. To do so is indefensible. To continue to charge in this fashion is exactly the same as if the Department charged each cellular Operator for the full 25 MHz of cellular spectrum they have at their disposal but are not yet using every time they bring a base station into service. The Department clearly has not and does not do this. They should not continue to do so for those that bring a PCS base station into service in the “A” or “ B” PCS spectrum blocks.

The Department must redress this inequitable and uncompetitive situation immediately. This can be done and done quickly. There is no justifiable reason that certain carriers should have usage

7 Ibid 8 Ibid, page 5 9 Glen D. Campbell, Merrill Lynch, Canadian Wireless Services, February 24, 2003 10 Ibid 4 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. 5

PROBLEMS WITH PROPOSED FEE MODEL

Industry Canada’s suggested rate is too high

TELUS has a number of problems with the fee regime model proposed by the Department in the Consultation Document. TELUS’s chief concern is the actual rate or per MHz per PoP charge chosen by the Department. The proposed price of $0.052 that is to take effect in 2011 represents an increase of approximately 30% or more over what TELUS currently pays in fees. The first hike in 2004 and every subsequent transition step on the Department’s transition model represent spectrum fee increases from what TELUS currently pays today.

The fee proposal contained in the Consultation Document also represents a similar, approximately 30% increase over what we estimate we will pay in fees under the status quo build-out method in 2011. This is too much.

There are those that would argue that the proposed 30%+ increase is what is to be levied in 2011, not immediately. This is disingenuous. Under the Department’s proposal in the Consultation Document, carriers would begin in 2004 paying increased fees and every year thereafter with the fee increase reaching a crescendo in 2011. The annual fee increase from 2004 to 2011 will extract many millions of dollars from the wireless industry each of those years – it just gets worse in 2011.

The Department’s Consultation document is labeled as a “New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees” not a huge fee hike and therefore huge revenue grab – but that is what it appears to be - without any justification offered for the fee hike or revenue grab! Nowhere in the Consultation Document does the Department offer any detail or rational for its fee proposal or why this level of fee hike (approximately 30%) was even considered justified. As the CWTA submission points out a fee of $0.037 would generate the same amount of licence fee revenue for the department as it currently extracts from the industry. As previously outlined TELUS believes even this present rate should be lowered.

It matters where the “POPs” live

The second initiative outlined by the Department in Section 5 of the Consultation Document “to create a framework that is more fair, efficient and competitive”11 would see a single rate on a per MHz per pop basis everywhere in Canada. On first blush this approach may appear to achieve the aims outlined in the Consultation Document of changing the current, inequitable, framework. In TELUS’s opinion it most certainly does not. Suggesting that a MHz is a MHz is a MHz without any consideration of its propogation characteristics or geographic location is not (using the Department’s draft criteria outlined above) fair, or competitive and inhibits flexibility to be innovative plus it is contrary to increased reliance on market forces. Indeed, the only aim it appears to fully achieve is that of administrative efficiency and maximization of government

11 Consultation Document, Section 5, page 8 6 revenues. In a country with the size, geography and population distribution of Canada, when it comes to MHz, one size does not fit all.

Forcing carriers to pay the same rate for spectrum in rural and remote areas as in densely populated urban areas is in direct contradiction to the Government’s stated policy objective of encouraging service to the rural and remote areas of Canada. The Government of Canada has established Connectedness as one of its key policy objectives in telecommunications. What the proposal ignores is that, for radio coverage, what matters is not only the absolute number of people there are but, as importantly, where they are. The more spread out they are the more expensive it will be to provide them service and capacity. A base station is essentially a fixed cost and therefore a base station costs more on a per pop basis in a less populated area. Given this reality, to attempt to charge the same price for a MHz of 1.9 GHz spectrum as for 800 MHz spectrum makes little sense, is not fair, and is clearly not consistent with a reliance on market forces, particularly in a rural or remote area of Canada. The proposal handicaps the user of 1.9 GHz spectrum for no apparent reason. Surely this is not a result the Department intended.

TELUS recommends that the Department instead adopt a two-tier approach that recognizes that population distribution, i.e. density, matters greatly in supplying coverage for a wireless network. The Department already has adopted this concept for rural areas in its 3.4 GHz Licensing Policy12. Using rural areas in an approach akin to those defined under this policy and 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. Such recognition and action by the Department would enable operators to build out their networks in such areas to a greater degree than under the Department’s proposed fee model.

Why Rogers network?

In its Consultation Document the Department announces that to “determine what this rate should be, the Department used as its model the of Inc.13”. The rate is derived by dividing the fees paid by Rogers Wireless Inc. (Rogers) in the fiscal year 2000/2001by 25 MHz and then by the population of Canada in 1996 (28,846,761). Thus is produced the per MHz per pop proposal of $0.052. What is left answered are a number of good, logical but unanswered questions and unsubstantiated decisions:

• Why was $0.037 not used beginning right away (which would generate the same amount of licence fee revenue for the department as it currently extracts from the industry)? It would have inflicted no harm on the industry. • Why were the 2000/2001 fees used for the calculation? • Why was the 1996 census chosen? • Why should the fees rise as population increases in the future anyway (or why use per MHz per pop at all)? • Why were Rogers cellular fees chosen as the model? • Having used a national cellular network to derive the proposed fee why did the Department not adjust this proposed rate for PCS spectrum?

12 SP 3400-3700 MHz, Spectrum Policy and Licensing Provisions for Fixed Wireless Access Systems in Rural Areas in the Frequency Range 3400-3700 MHz, July 1998 13 Consultation Document, Section 5.2, page 12 7

By choosing a specific carrier instead of a blended industry rate the Department has chosen to charge all carriers based on one carrier’s network design philosophy and network implementation at an arbitrary moment in time. Except for analogue cellular, Rogers uses completely different technologies than TELUS. Since the 2000/2001 fees were based on the number of cellular channels in use by Rogers that year this was strictly reflective of Rogers corporate priorities and goals. Competitors will be penalized in direct proportion that they deviate, in a competitive marketplace, from Rogers’ design and coverage strategies. This is clearly inappropriate and unfair. Using an industry-blended rate would have taken into account the differing coverage strategies and technologies actually found in the industry.

All spectrum not created equal

Another very important question arising from the Department’s derivation of its proposed rate is why did it choose to use only cellular fees? The Canadian wireless industry is composed of four carriers, two of whom have the majority of their spectrum in the Cellular bands and the other two of whom are mostly (or completely) situated in the PCS band. It is well known the coverage advantage that Cellular spectrum enjoys over PCS spectrum due to propagation. The adverse impact of this particular proposal, to use only cellular spectrum as the model, is exacerbated when one considers propagation impacts. The costs for a carrier using predominately 1.9 GHz PCS spectrum are dramatically higher versus the costs the carrier would incur if it was able to use lower 800 MHz Cellular spectrum to build out its network. Most estimates place the coverage reach advantage of 800 MHz Cellular spectrum versus 1.9 GHz spectrum at approximately 3:1. Given this, it is again evident that a MHz is not a MHz as certain bands are more economical to use and build-out a network with.

Any proposed fee model put forward by the Department should reflect this reality. A spectrum charge should not be indiscriminately applied at the same rate. TELUS feels that there should be a discount on the order of 66% for PCS spectrum from the cellular per MHz per pop rate under the proposed regime to account for the relative coverage advantage of cellular spectrum versus PCS spectrum.

Industry Canada’s Estimate of fee growth is erroneously high

As outlined above, TELUS believes that the Department's proposed fee calculation is fundamentally flawed. TELUS estimates that, under the proposed spectrum fee regime, the total wireless industry annual fees paid for cellular and non-auction PCS spectrum would rise from approximately $137 Million in 2003 to approximately $184 Million in 2011. This represents an increase of approximately $47 Million, or 34%. TELUS strongly believes that this proposed increase is unwarranted and unreasonable. Indeed, as previously noted fees ought to be being reduced rather than increased.

Since the Consultation Document does not attempt to explain or justify this increase, readers are forced t o speculate. TELUS believes that the Department must have assumed, erroneously, that total fees under the current spectrum fee regime will rise over the 2003 to 2011 timeframe by an amount that is higher than the 34% being proposed. On the basis of this assumption, the 8

Department must be attempting to ensure that the proposed new regime will capture a portion of the fee revenue growth that it would have seen from 2003 through to 2011 should the status quo have been maintained.

For the following reasons, TELUS strongly believes that total cellular and PCS spectrum fees under the current spectrum fee regime would grow substantially less than the projected 34% over the 2003 to 2011 period:

First, the historical growth of spectrum licence fees is attributable to the use of non- auctioned spectrum. However, going forward, most licensees will make increasing use of the spectrum that they acquired in the 2001 PCS spectrum auction. By doing so, these licensees will have the ability to deploy additional coverage and capacity without having to pay additional spectrum licence fees. This is especially true in TELUS’s case given the current inequity regarding PCS licence fees. Therefore, past growth in the amount of spectrum licence fees collected by the Department absolutely cannot be used to project the future growth of these fees.

Secondly, technological improvements will increase the spectral efficiency and 'reach' of wireless networks. These improvements include: transceiver vocoder technology, data compression technology, frequency hopping techniques, "smart" antenna design, signal processing, noise and interference elimination and higher-order modulation techniques. All of these technological improvements will allow cellular/PCS licensees to expand and improve coverage, without the need to implement additional radio channels and base station sites, or to pay additional spectrum licence fees.

Thirdly, as demand for digital services grows, and demand for analogue services declines, cellular licensees will replace analogue technology with higher capacity digital technology. The net effect of this trend over time will be an overall reduction in the number of radio channels, in turn lowering cellular licence fees.

Fourthly, penetration growth has been slowing, and as time goes on, new users are less and less likely to be as heavy users of capacity as earlier adopters. Again, base station build out will proceed at a slower rate than historically has been the case as less capacity pre subscriber may be needed.

All of these factors will offset the effects of continued network expansion, subscriber growth, and the provision of higher bandwidth services that have, historically, resulted in an increase in the total spectrum fees paid by licensees. In light of the above, the proposed 34% spectrum licence fee increase is erroneously high. It must be reduced, not increased. Under the current status quo fee regime, if TELUS is successful in its efforts to pare the growth of the currently too high license fees the projected increase of 34% could, in fact, reasonably be much higher.

Alternative Real World Fee Models the Department should consider

TELUS suggests that the Department examine other fee models with a view to establishing the reasonableness of its existing and proposed fees. Often used in comparisons, the United States, Canada’s largest trading partner and neighbour, and Australia, a country with many similarities to Canada, spring immediately to mind. With respect to Cellular fees in the United States, the 9

spectrum regulator there has chosen to charge Cellular carriers on a cost recovery only model. CMRS Operators pay approximately $0.24 (U.S.) per subscriber per year for a comparable 25 MHz block of non-auction spectrum or less than a cent a year. Given a penetration rate of 30%, in Canada this would work out to less than a third of a cent per PoP and much lower and much more reasonable than the Department’s current proposal. In Australia, for 1800 MHz PCS spectrum the Australian spectrum regulator has levied a fee of only AUS$0.01/MHz/pop. Thus, a very wide gulf exists between the Department’s proposed (and existing) fee levels and these real world benchmarks. There is nothing in the Consultation Document that justifies the discrepancy for either the current or proposed fee levels in Canada.

Some members of the Department have suggested that perhaps an alternative fee model could be based on the rates obtained in the 2001 PCS spectrum auction or else on the price paid by TELUS in the Clearnet acquisition. Both these proposals have even less justification than does the Department’s current proposal. The PCS spectrum auction was an extreme example of inflated prices being extracted from Canada’s wireless industry through the use of artificial scarcity and at a time when valuations generally were significantly higher than they are today. The Department withheld 30 MHz of spectrum in the “C” band and 10 MHz in the “E” band until the spectrum auction after the initial allocation in 1995. These blocks represent 33% of the 120 MHz allocated to PCS spectrum in Canada. The withholding of this spectrum represented an artificial scarcity created by the Department and occurred at the height of the “high tech bubble.” Such an approach would be scarcely a credible platform on which to base fees and one that the Department wisely rejected.

The Clearnet purchase price included not only spectrum (some of which had to be returned for no compensation), but many other assets and attributes as well, including nationwide PCS and iDEN network facilities, a significant customer base, management expertise, tax losses, market presence (TELUS advertising today uses many of the themes, look and feel of the award winning Clearnet advertising), market coverage, etc. This clearly was no mere spectrum purchase and can not be represented as such by the Department.

Instead of looking at the PCS Spectrum Auction or the TELUS acquisition of Clearnet, TELUS recommends that the Department focus on the real-world models outlined above. TELUS is confident that such an examination would lead the Department to reduce the level of current or proposed fees.

The Department’s Proposals fail to follow Treasury Board Policy

The Department sets its charges and rates pursuant to Treasury Board of Canada directions and policies. Within the latest “Cost Recovery and Charging Policy”14, the Introduction states that this policy has been updated “to clearly set out the guiding principles for cost recovery and charging activities of departments and agencies. It emphasizes the need for participatory consultation between departments and agencies and their clients before introducing or amending user charges, and on a continuing basis thereafter.”

Having established the requirement for participatory consultation the policy then goes on to address Implementation Requirements. These requirements outline, among other things, that

14 Cost Recovery and Charging Policy, Treasury Board of Canada Secretariat, April 8, 1997 10

“the focus is on ensuring that those who pay for the service have an effective voice in the design and delivery of that service.” It also states that Departments “must (emphasis added)

• conduct impact assessments to identify all significant effects, positive and negative”, • “work with clients to assess the cumulative impact of multiple fees from all federal sources and assess proposed fees in that context”, • “identify and explain clearly to clients why services are being delivered in the manner in which they are, how charges are determined and how costs are being controlled.”

Within the context of these requirements, the Consultation Document contains no impact statement either on the effect of the current level of fees upon the industry or on the new increased fees being proposed. Nor does the Document refer to any impact assessments having been carried out. 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. There is no evidence included in the Consultation Document that demonstrates that the Department has examined alternative fee structures that result in lower but real world fees or has analyzed discrepancies in these fee levels. TELUS submits that the Department has failed to followed Treasury Board Policy and has similarly failed to demonstrate that its proposed fee level or fee structure is appropriate or in the public interest. 11

OTHER SPECIFIC COMMENTS

Further consultation required for spectrum returned to the Department

TELUS expects that, if the Department does set up a fee regime based on the proposed approach outlined in the Consultation Document that from time to time, spectrum may be returned to the Department even given the existence of a secondary market. This may be so because there is simply no demand at the time and the spectrum holder does not wish to continue to pay for spectrum they do not plan to use. TELUS recommends that in such cases that the Department hold a public consultation to determine the best way of re-licensing this spectrum, should there eventually be a demand for it.

The prospect of returning the spectrum due to no plans to use it may seem, at first, an efficient outcome in the spectrum market. But it may also be a very real economic signal that the Department’s license fees, especially in rural and remote areas are too high. Carriers will not continue to pay licence fees, especially at the rates currently proposed by the Department for spectrum in areas of Canada they see no business case to deploy service in. This being the case, if Operators can’t make an effective business case without the benefit of incremental costing perhaps the Department in relying on market forces would heed the TELUS recommendation to reduce any proposed per MHz, per PoP charge in Canada’s rural and remote areas.

Transferability and Divisibility

TELUS supports the Department’s proposal to align all cellular and PCS spectrum with respect to transferability and divisibility. This move is in line with the stance taken by the Department to encourage flexibility of use of this spectrum.

System Access Fee

In the Consultation document the Department proposes a new Condition of Licence along with wording for the carriers to include “in their customer contract and in their information materials explaining such charges15”. TELUS strongly opposes this proposal on the basis that it represents inappropriate meddling in the private sector relationship between a service provider and its clients. It is not clear that the power under the Radiocommunication Act or the regulations can be stretched far enough to countenance this blatant attempt by the Department to overstep its role and responsibilities.

Further, to propose a spectrum fee based on the number of people living in an area in 1996 and then to suggest this fee “has no correlation between the licence fees for the radio frequency spectrum and the number of subscribers to whom the service is provided16” is clearly erroneous. The final sentence of this proposed statement “Industry Canada encourages consumers to seek the best value from among…”17most properly belongs in the Department’s consumer advertising not foisted on Canadian carriers in what is demonstrably the most competitive

15 Consultation Document, section 12, page 18 16 Ibid. 17 Ibid. 12

telecommunications market in Canada. Given its almost purely advertising-like nature and the cost associated with changing, for no other good or economic reason, all customer contracts, billing systems and other customer information, if the Department was to retain this requirement in whole or in part, perhaps the Department should divert a portion of its advertising budget to the Carriers to help compensate them for the increased costs of changing all these materials.

At least in 1987 the Department had a clear-headed understanding of the economics of the industry in their letter to consumers on this matter. The relevant portion read “… the Department will compensate for this loss of mobile station revenues by increasing its radio licence fees paid by the providers of cellular services. Your cellular service provider will be reflecting this increase in their cost in their invoicing of you.”18 TELUS recommends that the Department eliminate from consideration any plan to attempt to thrust this unwarranted intrusion upon the carriers in the guise of a condition of license.

Given the magnitude of the proposed rate hike outlined in the Consultation Document the requirement to print such statements could be seen to amount to an attempt to hide or disguise any explanation of such a hike from the operator’s customers. TELUS does not believe this was the intended result by the Department and repeats its recommendation that this proposed requirement be eliminated at once.

Policy for the provision of Cellular Services by New Parties

In its Consultation Document the Department, at section 3.4 in discussing the Policy for the Provision of Cellular Services by New Parties (RP-019), has stated that “Actions taken as a result of this consultation do not obviate this policy.19” It goes on, in the same section, to state that the “Department will continue to accept applications from potential new cellular service providers for authorization to offer cellular mobile voice services in areas where competitive cellular service provision is not being offered at the time the application is made20.”

Policy RP-019’s focus on voice telephony services, as outlined in the quote above, is directly at odds with the Department’s assurance that Licensees will have the maximum possible flexibility in determining the services they will offer and the technologies they will employ.”21 The Department can not advocate voice telephony over any other form of service once it has touted the benefits of flexibility of spectrum use.

The Department, by retaining this policy, might assume that other parties, with a better business plan will come forward to provide service to these areas using the returned spectrum. This is highly unlikely to be the case. It must be remembered, that there has never been an implementation of the Policy for the Provision of Cellular Services by New Parties (RP-019) without an uneconomic government subsidy. Any government willing to subsidize wireless service in a rural or remote area would do better providing the incumbent carrier with its marginal and incremental cost structure the subsidy.

18 Department of Communications letter from R.W. Jones, Director General, Radio Regulatory Branch, to cellular customers, February 9, 1987. 19 Consultation Document, section 3.4, page 6 20 Ibid. 21 Consultation Document, Section 5.1.4, Flexibility of Use, page 10 13

Section 3.4 of the Consultation Document represents a complete misunderstanding of the differences between an apparatus-based licensing regime and a spectrum-based licensing regime. In the spectrum-based licensing regime the “amended spectrum licences would authorize the use of specific frequencies or a frequency block within a defined geographic area under certain minimal constraints”.22 An operator, having paid for exclusivity in a geographical area for a number of years would, under this proposal, be subject to losing some of the geographical area. This loss would not be voluntarily under commercial arrangements in the secondary market but rather under a policy that amounts to expropriation yet provides no provision for compensation. To further exacerbate the situation, the operator might well have been charged steadily increasing license fees year after year for the expropriated spectrum (the Department’s current proposal) that would greatly increase the loss involved due to a misapplied policy.

TELUS believes that RP-019 as it stands is inconsistent with the proposed new fee regime and if such a proposed fee regime is adopted, this policy must be rescinded.

Lawful Intercept

TELUS commends the Department in recognizing the impossibility, at the present time, of providing fully comprehensive lawful access for law enforcement agencies from router-based networks. TELUS remains supportive of providing lawful access services to law enforcement agencies for its circuit-switched voice telephony networks.

Radio Station Installations

TELUS has noticed that the Department, in the Consultation Document, took it upon itself to change the wording of the current Condition of Licence regarding Radio Station Installations. There are two wording changes that concern TELUS. The first is the new requirement to consult on “all” rather than the present “significant” installations. The second is the new requirement to consult with all local municipalities or land use authorities rather than the appropriate land use authority.

Taken 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.23 Either the Department has pre-judged the outcome of this future consultation or it has inappropriately suggested policy changes in the present Consultation Document. If it is the latter then TELUS respectfully suggests that the Department revert to the current wording pending the outcome of the National Antenna Policy Review.

TELUS would also like to take this opportunity to remind the Department that TELUS and the other cellular/PCS licensees already consult with the appropriate authorities as required by local bylaws. There is no evidence offered that this process is not working well.

22 Ibid, Section 5.0, Proposed Framework, page 8 23 Allan Rock Announces National Antenna Tower Policy Review, Industry Canada press release, October 31, 2002. 14

CONCLUSION

In its response to the Department’s Consultation Document TELUS has made a number of recommendations to the Department.

TELUS submits that the current level of licence fees is too high and should be reduced. Also that the way the Department is currently charging for PCS base stations is inequitable and must be addressed immediately.

Further that the proposed fee regime model is deficient in a number of respects that must be addressed by the Department before any implementation can take place. These deficiencies include; a much too high per MHz charge, no allowance for the differences in the economics of building in the rural areas of Canada, no allowance made for the difference in propagation and therefore economics between Cellular and PCS spectrum. Additionally there is no evidence that other, real world fee regimes were considered nor that the required considerations to the public aspects of wireless networks under Treasury Board policy were given due weighting by the Department.

For all the reasons outlined above, and those contained in the CWTA submission to this consultation, TELUS urges the Department to move forward on the recommendations in an expeditious fashion.