Telesat Already Has Operating Satellites at Six of These Orbital Positions

ATTACHMENT 1 - BENEFITS OF SPECTRUM AGGREGATION INTRODUCTION AND SUMMARY In the Call for Applications to License Satellite Orbital Positions (“Call”), Notice No. DGRB-001-06 dated July 7, 2006, Industry Canada is offering 29 licences for satellite spectrum covering four frequency bands (extended Ku-band FSS, Ka-band FSS, 12 GHz BSS and 17 GHz BSS) spread over 16 orbital positions. Telesat already has operating satellites at six of these orbital positions. Telesat is applying for 10 of the 29 licences to expand its satellite fleet and to build a platform for continued growth and innovation through the next decade and beyond. Nine of the 10 licences for which Telesat is applying are for satellites at orbital locations at which Telesat already operates. Telesat’s business rationale for each application is based on detailed discussions with its customer and user groups in Canada, each of which has identified needs and growth plans of their own. Moreover, Telesat is seeking to maintain the ability to compete effectively in both Canadian and North American satellite service markets and to compete for critical investment funds in an increasingly satellite-sophisticated financial community. In this context, Telesat would like to raise a fundamental issue for consideration by Industry Canada, one that is critical to the Canadian satellite industry as a whole, and to the customers of Canadian satellite services. As discussed below, Telesat urges Industry Canada to maximize that number of frequency bands that are assigned to an operator at any given orbital location. This approach is consistent with the orbital/frequency assignment policies of the U.S. and European countries. To have a different orbital assignment policy would, in Telesat’s view, disadvantage Canadian-licensed satellite systems vis-à-vis satellite systems licensed in the U.S. and Europe, for example. Moreover, permitting Canadian satellite operators to aggregate frequencies at assigned orbital locations will facilitate the development of new satellite “neighbourhoods” and the expansion of existing ones, for the benefit of Canadian consumers and Canadian industry. Thus, Telesat urges Industry Canada to adopt as a guiding principle the notion that licences subject to this Call be awarded to applicants in a manner that allows spectrum aggregation ( i.e ., the use of multiple frequency bands) at the assigned orbital positions, if so requested by applicants. This orbital assignment principle is well-recognized by regulators in the United States and Europe. Applying it in Canada will: • facilitate the use of hybrid satellites, thus lowering the cost of satellite services and generating multiple efficiencies, thereby enhancing competition; 1-1 • provide incentives to create innovative services and proliferate two- way broadband service for all Canadians, particularly those in rural areas; • increase satellite backup and redundancy to increase the stability and survivability of satellite-based services; • permit Canadian satellite operators to maximize flexibility in satellite design and fleet deployment/replacement strategies; • minimize the risk of interference to those dependent on satellite services; • avoid costly and complex inter-satellite coordination with other satellite operators and government administrations; • preserve and enhance Canadian spectrum and orbital resources by making it easier to bring frequency assignments into use expeditiously; and • harmonize Canada’s orbital assignment policies with those of other countries, thereby levelling the playing field between Canadian satellite operators and those licensed elsewhere. In short, adoption of this orbital assignment principle will enable Industry Canada to achieve the objectives outlined in Section 6.1.1 of the Call, of “fostering the future introduction of new and innovative … services,“ “enhanc[ing] competitiveness … of Canadian telecommunications,” enabling “Canadian satellite operators and satellite service providers to advance their service offerings in the domestic market … and … compete in the larger market for the Americas,” “recognizing the importance of delivering reliable and affordable telecommunications and broadcasting services,” “achiev[ing] greater economies and operational flexibility,” and ensuring that “satellites authorized as a result of this licensing process … [are] deployed in a timely manner.” Finally, adoption of such a policy will disadvantage no applicant, since there are sufficient frequencies and orbital positions available to permit other satellite operators to aggregate frequencies and derive the benefits discussed in this paper, if they so choose. DISCUSSION Spectrum Aggregation Fosters Efficiencies and Leads to Lower Cost Services Maximizing the number of frequency bands that are assigned to the same satellite operator at any given orbital location permits operators to use hybrid – or multi-band – satellites, which are more efficient and cost effective than individual satellites each using 1-2 one frequency band and, often, a smaller amount of spectrum. If a satellite operator can employ hybrid satellites, it will unlock these efficiencies and lower costs. In a competitive market, consumers benefit when service providers’ costs are reduced. Lower costs generate downward pressure on prices and enhance benefits to the consumer. The cost of placing satellite capacity in orbit has a fixed component (satellite frame or bus, launch, insurance, etc.) and a component that varies with the amount of capacity (transponders, power, etc.). As Table 1 illustrates, the cost per unit of capacity decreases as fixed costs are shared across more frequency bands. Satellite A B C D E Transponders 24 24 36 24 Frequency Band X Transponders 32 32 48 32 Frequency Band Y Transponders 80 Frequency Band Z Total Transponders 24 32 56 84 136 Relative satellite Cost 1 1.15 1.43 1.67 2.16 Relative cost per 0.042 0.036 0.026 0.020 0.016 Transponder Table 1 - Satellite and Transponder Costs Since any satellite operator will need to recover its costs plus margin in pricing services, the lower the cost of a unit of capacity in orbit, the lower the prices a satellite operator is able to charge while earning a fair return. As satellite, launch, and insurance costs continue to climb, Canadian satellite operators need the ability to adjust their satellite designs by adding frequencies and building large satellites in order to offer attractive rates to customers and, indeed, to ensure that they remain competitive. Making available the efficiencies of multi-band satellites also will enable Canadian satellite operators to compete in increasingly sophisticated capital markets for the debt and equity funding needed to support satellite construction and operation. The capital markets are global in scope and sources of capital look for the highest return they can find. Investors obviously are more attracted to satellite companies with lower per unit costs and with more opportunity to offer “one-stop-shopping” to satellite customers. Higher capacity satellites are possible only if there is enough RF spectrum to make use of at each orbital position. As shown in Table 1, if different operators were licensed for 1-3 frequency bands X and Y, 56 transponders could be made available in these bands on satellites A and B at a total cost of 2.15 units. However, if one operator were licensed for both bands X and Y, that operator could use satellite C at a total cost of 1.43 units – a one-third reduction in cost per transponder. Even greater economies can be achieved for triple-band satellites. The relationship between capacity and cost has been understood for many years. The evolution of the Canadian satellite fleet provides only one example. The Anik C (16 transponders) and Anik D (24 transponders) generations operated in only one frequency band. Introducing the Anik E satellites (40 transponders) with hybrid C-band and Ku- band capability reduced the cost per unit of capacity. Similarly, the Anik F generation saw capacity grow relative to the Anik E generation through the introduction of additional coverage areas, in the case of Anik F1 (84 transponders), and the addition of additional payloads in other bands, in the case of Anik F1R and Anik F2 (94 transponders). By responding to Industry Canada’s Call, Telesat is hoping to improve upon these efficiencies. Five of Telesat’s six applications are for satellites at orbital locations that already have frequency bands assigned to Telesat. If these applications are granted, over time Telesat will be able to deploy satellites incorporating additional frequency bands, thereby generating further economies of scale. Multiple frequency band satellites also create efficiencies for consumers. When frequency bands are assigned to different satellite operators at the same orbital location, the satellite operators must separate their spacecraft to facilitate station-keeping. As a result, customers may have to use multiple, or more technically complex and costly, dishes to access multiple frequency bands at the orbital location. If the frequency bands are assigned to a single operator that can launch a hybrid satellite, on the other hand, then the customers can use a single dish to access the frequency bands. In the case of consumer services such as direct-to-home services involving wide scale deployment of ground stations, the satellite customer cost savings that are generated by hybrid satellite efficiencies can be substantial. Spectrum Aggregation Preserves and Enhances Canadian Orbital

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