4 April 2003

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

Don Woodford Director - Government & Dear Mr. Skora: Regulatory Affairs Subject: Bell Wireless Alliance Comments in response to - Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees, Canada Gazette - Part 1, Notice No. DGRB-004-02, dated 21 December 2002.

1. , on behalf of the Bell Wireless Alliance (BWA), is pleased to submit the following comments in response to Industry Canada's Consultation on a new fee and licensing regime for cellular and incumbent PCS licensees.

2. The Bell Wireless Alliance consists of Aliant Telecom Inc. (Aliant), Bell Mobility Inc. (Bell Mobility), MTS Communications Inc. (MTS), MTT Mobility Inc., Mobility Inc. and Saskatchewan Telecommunications (SaskTel) and, for the purposes of these reply comments, the Corporation of the City of Thunder Bay.

3. If you have any questions concerning the attached please feel free to contact me at (819) 773-5575.

Yours truly,

Attachment

Bell Mobility 105, rue Hôtel-de-Ville 5e étage Hull (Québec) J8X 4H7 Tel: (819) 773-5575 Fax: (819) 773-4346 Internet ID: [email protected]

Canada Gazette Notice No. DGRB-004-02

Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees

Published in the Canada Gazette, Part 1 dated 21 December 2002

Bell Wireless Alliance Reply Comments on behalf of

Aliant Telecom Inc., Bell Mobility Inc., MTS Communications Inc., MTT Mobility Inc. Northwestel Mobility Inc. Saskatchewan Telecommunications and The Corporation of the City of Thunder Bay

4 April 2003

Table of Contents

Page

EXECUTIVE SUMMARY ...... 1

1.0 INTRODUCTION...... 2

2.0 THE PROPOSED LICENSING REGIME ...... 3

3.0 THE PROPOSED FEE...... 4

4.0 OTHER ISSUES...... 6 4.1 Proposal to Re-Regulate the Wireless Industry...... 6 4.2 Request for Mandated Site Sharing ...... 7 4.3 Request for a "quick fix" for PCS Fees...... 7 4.4 System Access Fee...... 8 4.5 Radio Station Installations...... 9

5.0 CONCLUSION ...... 9

EXECUTIVE SUMMARY

1. In its Comments in response to Industry Canada's Consultation the BWA noted that, while it was in general agreement with the proposed harmonized licensing regime, the proposed rate of $0.052 per MHz per person is excessively high. The BWA further noted that implementation of the new regime at this rate would not be in the best interests of Canadian wireless consumers or the industry overall. The proposed rate would be particularly hard on those wireless service providers (WSPs) attempting to extend service in areas characterized by smaller population concentrations.

2. The BWA notes that it found wide spread agreement with that view in the majority of filed comments. Moreover the supporting rationale for the view, delineated by those parties, was very similar to that put forward in the BWA's Comments. These reasons primarily relate to: the developing negative economic climate; the economic circumstances facing the Canadian wireless telecommunications industry specifically; and enunciated federal government policy governing the application of user fees, which requires that all federally imposed financial obligations be taken into consideration. The federal government policy also requires that the impact of any fee changes, on the sector in question, be thoroughly assessed before they are implemented.

3. The BWA also notes the comments of Information Technology Association of Canada (ITAC) to the effect that it believes that Industry Canada, by reducing cellular and Personal Communications Services (PCS) fees, should endeavour to stimulate an environment that is conducive to innovation and one which facilitates the rapid deployment of productivity-enhancing technologies, such as the wireless infrastructure, across all sectors of the Canadian economy. The BWA submits that its proposed fee of $0.02 per MHz per person would achieve such an effect and still provide Canadians with a fair return for the use of their resource.

4. The BWA reiterates its view that this Consultation represents the Department's sincere effort to determine the validity of the assumptions used in its modelling exercise so as to arrive at a rate that is both fair and equitable and one that encourages the development of this strategically enabling infrastructure.

5. As indicated in its Comments, the BWA is prepared to provide any additional information the Department deems useful to arrive at this result.

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1.0 INTRODUCTION

6. Bell Mobility, on behalf of the Bell Wireless Alliance (BWA), is pleased to submit the following reply comments in response to Notice No. DGRB-004-02 – Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees, as published in the Canada Gazette, Part 1, dated 21 December 2002 (the Consultation) and as modified by Canada Gazette Notice DGRB-001-03, dated 21 February 2003.

7. The BWA submitted comments in response to the Consultation on 14 March 2003 (the BWA Comments or its Comments).

8. The BWA consists of Aliant Telecom Inc. (Aliant), Bell Mobility Inc. (Bell Mobility), MTS Communications Inc. (MTS), MTT Mobility Inc., Northwestel Mobility Inc. and Saskatchewan Telecommunications (SaskTel) and, for the purposes of these reply comments, the Corporation of the City of Thunder Bay.

9. In its Comments the BWA noted that, while it was in general agreement with the proposed harmonized licensing regime, the proposed rate of $0.052 per MHz per person is excessively high and that implementation of the new fee regime at this rate would not be in the best interests of Canadian wireless consumers or the industry overall.

10. The BWA notes that, in addition to the Canadian Wireless Telecommunications Association (CWTA), the submissions of all four of Canada's primary cellular and Personal Communications Services (PCS) licensees, including that of Microcell Telecommunications Inc. (Microcell) which is not currently a CWTA member, were of essentially the same view.

11. In the following reply comments, the BWA will address the essential issues that in its view have arisen in the comments posted on Industry Canada's Strategis website in response to the Consultation. In the BWA's view these include issues related to the shift to a proposed spectrum licensing regime and the proposed harmonized licence fee. Finally, the BWA will address certain specific issues raised in the comments of other parties.

12. The absence of BWA reply in response to any specific comment, which is contrary to the interests of the BWA, should not be construed as agreement with such comment. - 3 -

2.0 THE PROPOSED LICENSING REGIME

13. In its Consultation, Industry Canada (Industry Canada or the Department) proposes to harmonize the licensing regime applicable to all incumbent cellular and PCS licensees, many of whose current spectrum holdings include radio or apparatus-based licences, to one of spectrum-based licensing on a geographic basis. In addition to eliminating the requirement for licensing on a radio station basis, spectrum licensing would also provide licensees with enhanced licence rights including extended license terms and the ability to divide and transfer spectrum in the secondary market.

14. The BWA notes that virtually all parties agreed with the proposed move to a spectrum-based licensing regime.

15. The BWA noted, that "...it is generally supportive of the proposal to harmonize the disparate fee and licensing regimes applicable to cellular and PCS spectrum."1 Inc. (RWI) noted that "RWI is in favour of the timing of the proposed new fee and licensing regime."2 (TELUS) states that it "...supports the Department's proposal to align all cellular and PCS spectrum with respect to transferability and divisibility."3 Microcell notes that it "...is in agreement with the Licensing Consultation proposal to replace the current system of site-by-site radio station licences with a spectrum licence regime."4

16. Based on its review of the comments submitted to Industry Canada, the BWA concludes that the majority of cellular and PCS licensees, including the four entities operating as national carriers, agree with the proposed change from an apparatus-based licensing regime to a spectrum licensing regime.

1 BWA comments in response to Canada Gazette Notice DGRB-004-02, Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees, 14 March 2003, page 5. 2 RWI comments in response to Canada Gazette Notice DGRB-004-02, Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees, 14 March 2003, page 5. 3 TELUS comments in response to Canada Gazette Notice DGRB-004-02, Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees, 14 March 2003, page 11. 4 Microcell comments in response to Canada Gazette Notice DGRB-004-02, Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees, 14 March 2003, page 2. - 4 -

3.0 THE PROPOSED FEE

17. The Department's Consultation also sought comment on a proposed harmonized licence fee that would apply to all cellular and PCS spectrum. Using only the spectrum associated with RWI's cellular network, the Department developed a proposed fee of $0.052 per MHz per person. While developed solely on the basis of a national licensee's network, this fee would apply to all WSPs including those operating in markets consisting of smaller population concentrations with predominantly rural characteristics.

18. The key point of contention which has arisen in the Consultation is the proposed harmonized fee of $0.052 per MHz per person. As a point of reference, in its Comments the BWA computed its rate per MHz for spectrum fees paid to Industry Canada today and determined that number to be $0.037 per MHz per person.5

19. The BWA notes that the submissions are overwhelmingly of the view that the proposed fee is excessive in the circumstances. The majority of submissions, i.e., CWTA, RWI, TELUS and BWA, further noted that application of the public policy principles outlined in the Treasury Board of Canada Secretariat's Cost Recovery and Charging Guidelines (Treasury Board Guidelines), would advocate for a lowering of licence fees, given the tremendous enabling effects of the wireless sector on the Canadian economy and society as a whole.

20. The submissions of several parties note that Treasury Board Guidelines require that no user fees be imposed or changed without a thorough assessment of the impact of the proposed fee changes on the sector in question, including the impact of all other obligations levied by federal agencies.6 A number of parties noted, in this regard, the uncertain prospects for the Canadian economy, in general, and the wireless telecommunications sector in particular. Also noted was the lack of overall industry profitability, after almost twenty years of operation, complicated more recently by declining Average Revenue per User (ARPU) coupled with declining subscriber growth. 7

21. In light of the Treasury Board Guidelines and the above circumstances, RWI notes that it "...strongly believes that the Treasury Board Policy dictates that cellular/PCS spectrum licence

5 BWA comments in response to Canada Gazette Notice DGRB-004-02, Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees, 14 March 2003, page 21. 6 See BWA at Section 2, RWI at pages 6-7 and TELUS at pages 9-10. 7 See BWA at Sections 3 and 4, TELUS at pages 2-3 and RWI at pages 18-20. - 5 -

fees be reduced to reflect the relatively significant extent to which public benefits are created as a result of the use of the radio spectrum resource."8 Microcell states that "[u]nfortunately, the proposed fee regime does not properly reflect or apply established Government policy. ... As a consequence, licence fees have been proposed that are too high..."9 TELUS, for its part, submits that "...the Department has failed to [follow] Treasury Board Policy and has similarly failed to demonstrate that its proposed fee level or fee structure is appropriate or in the public interest."10

22. The BWA expressed the view in its Comments that:

"The BWA believes that this Consultation represents a key step toward Industry Canada's fulfillment of the Treasury Board's requirement to seek the input and participation, of the Canadian wireless industry, in the process of designing a new fee and licensing regime for the sector. The BWA believes that a collaborative effort between the Department and the industry, such as that represented by this Consultation, will result in a final fee and licensing regime that is fair, appropriate and one that is in the best interests of all Canadians."11

23. The BWA remains firmly of this view and, subsequent to reviewing the comments of other parties, strongly submits that a reconsideration of the proposed fee of $0.052 per MHz per person is warranted in the circumstances. The BWA reiterates that a fee of $0.037 per MHz per person would result in licence fee revenue neutrality for the Department.

24. The BWA also notes Microcell's proposal to implement a fee structure that would see PCS spectrum assessed at approximately one half of the rate of cellular spectrum.12 In this regard, the BWA supports the rationale behind the Department's initiative to harmonize both the Fee and Licensing Regimes and therefore does not support Microcell's proposal. The BWA notes, however, that the $0.02 per MHz per person fee proposed in its Comments would be fair to incumbent cellular and PCS carriers as well as to those carriers operating in smaller markets.

8 RWI comments in response to Canada Gazette Notice DGRB-004-02, Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees, 14 March 2003, page 11. 9 Microcell comments in response to Canada Gazette Notice DGRB-004-02, Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees, 14 March 2003, Cover Letter page 2. 10 TELUS comments in response to Canada Gazette Notice DGRB-004-02, Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees, 14 March 2003, page 10. 11 BWA comments in response to Canada Gazette Notice DGRB-004-02, Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees, 14 March 2003, Executive Summary page 1. 12 Microcell comments in response to Canada Gazette Notice DGRB-004-02, Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees, 14 March 2003, page 2. - 6 -

25. Finally, the BWA notes and agrees with the assessment of Lemay-Yates Associates, contracted by Microcell to model the impact of the proposed rate on the business cases of all wireless operators, in noting that "[t]he impact of these fees on the business cases of all of the modelled operators is substantial..."13 (emphasis added)

4.0 OTHER ISSUES

26. In the following section, the BWA will address certain other issues which are either raised in the comments of other parties or Consultation issues that warrant reply comment.

4.1 Proposal to Re-Regulate the Wireless Industry

27. Microcell, in its cover letter to its submission, suggests, despite the widely acknowledged competitiveness of the Canadian wireless industry, that "regulatory fiat" will be required to ensure that appropriate digital roaming arrangements will be put in place.14 Microcell also alludes to "inter-incumbent sharing of spectral advantages" and a lack of desire, on the part of cellular/PCS service providers, to do business with smaller players as examples of anti-competitive behaviour.15

28. The BWA notes that there is absolutely no requirement today on Canadian WSPs to enter into digital roaming arrangements either among themselves or with others. The BWA submits therefore that Microcell's proposal, in this regard, amounts to a request to re-regulate the intensely competitive wireless industry. Such action would be completely counter to the objective contained in the Telecommunications Act to let market forces govern where appropriate. The BWA notes that the Commission, on two separate occasions and subsequent to public consultation, has found that market forces in the wireless sector are sufficiently present to protect the interests of users. Hence, the call to re-regulate the Canadian wireless industry is not only disingenuous, it is also without any merit whatsoever.

13 Microcell comments in response to Canada Gazette Notice DGRB-004-02, Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees, 14 March 2003, in Schedule D, The Relative Value of a Pure-Play PCS Operator Compared to an Incumbent Mobile Carrier in Canada, Lemay-Yates Associates Inc., March 2003. 14 Microcell comments in response to Canada Gazette Notice DGRB-004-02, Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees, 14 March 2003, Cover Letter page 5. 15 Microcell comments in response to Canada Gazette Notice DGRB-004-02, Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees, 14 March 2003, page 23. - 7 -

29. Concerning "inter-incumbent sharing of spectral advantages", the BWA assumes that Microcell is referring to the Bell Mobility/Aliant Mobility – TELUS enhanced roaming agreement. The BWA notes that a fundamental element of this agreement is technological compatibility between the carriers who are party to that agreement. The BWA also notes that such arrangements are entirely open to any WSPs who have technologically compatible wireless platforms. In this regard, the BWA notes that one other WSP shares Microcell's Global System for Mobile Communications (GSM) technology platform, should that party be interested in pursuing such an arrangement.

4.2 Request for Mandated Site Sharing

30. In section 6.1 of its comments, Microcell also requests that the Department mandate site co-locations as part of this Consultation.16 Microcell noted that the Department has announced that its national antennae tower review will consider such issues but, as of the time of filing its comments, the review was not yet fully underway.

31. As a general rule, the BWA does not believe that regulatory mandates are either warranted or appropriate in fully functioning competitive markets. As the comments in response to the Department's Consultation demonstrate, by any measure the Canadian wireless industry is an intensely competitive industry providing documented benefits to both Canadian businesses and consumers. Specifically with regard to Microcell's request, the BWA notes the recommendation is clearly outside the scope of the current Consultation. As Microcell notes, issues related to whether or not the current level of site sharing is adequate will be addressed in the announced national tower review. Further, the BWA notes that on 28 March 2003, subsequent to the filing of Microcell's comments, the Department announced the appointment of the chair and advisory committee to initiate the review process.

4.3 Request for a "quick fix" for PCS Fees

32. In its comments, TELUS submits that:

"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

16 Microcell comments in response to Canada Gazette Notice DGRB-004-02, Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees, 14 March 2003, page 26. - 8 -

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."17

33. The BWA notes that, in the illustrative example provided by TELUS, the reason for the difference in rates is both simple and obvious. WSPs who have 30 MHz of PCS spectrum pay more than do WSPs who only have 10 MHz of PCS spectrum. The BWA also notes that, barring the return of spectrum to the Department, that the proposed spectrum licensing regime will have exactly the same effect in that licence fees will apply to total assigned spectrum. Hence, even under the proposed regime, WSPs who have 30 MHz allocations will continue to pay more than those who only have 10 MHz allocations.

34. The BWA also believes that this situation should come as no surprise to TELUS since it acquired its 30 MHz, resulting in the "problem", through its acquisition of Clearnet Communications Inc. (Clearnet). The BWA can only assume that TELUS, having full knowledge of the applicable PCS licence fees and as part of its due diligence and business acquisition assessment, would have factored the PCS fee into its calculation and decided that it was still in its interest to proceed with the acquisition of Clearnet. As a result, the BWA submits that there is no requirement for a "quick fix".

4.4 System Access Fee

35. The BWA notes that all parties submitted that the proposed condition of licence with respect to wireless carriers' system access fee (SAF) is inappropriate and unwarranted. RWI notes that the Department may not have the authority to impose such a condition as it would impair licensees' right to commercial speech that is guaranteed under the Charter of Rights and Freedoms.18 The BWA reiterates its view, expressed in its Comments, that if the Department has concerns with a specific WSP's SAF messaging, the concern should be taken up with that entity and not translated into increased costs and administrative burden for the entire industry.

17 TELUS comments in response to Canada Gazette Notice DGRB-004-02, Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees, 14 March 2003, pages 3-4. 18 RWI comments in response to Canada Gazette Notice DGRB-004-02, Consultation on a New Fee and Licensing Regime for Cellular and Incumbent Personal Communications Services (PCS) Licensees, 14 March 2003, page 11. - 9 -

4.5 Radio Station Installations

36. The BWA also agrees with those parties who submitted that it is both premature and inappropriate to introduce any changes to the condition of licence surrounding radio station installations coincident with the Department's announcement of a national tower policy review.19

5.0 CONCLUSION

37. The BWA submits that the comments in response to the Consultation conclusively demonstrate that the proposed harmonized fee of $0.052 per MHz for non-auctioned cellular and PCS spectrum is not supported by either the current economic climate in general, the economic circumstances of the wireless industry specifically or indeed by enunciated federal government policy governing the application of user fees by federal Departments and agencies.

38. The BWA also notes the submission of the ITAC to the effect that:

"ITAC believes that Industry Canada should endeavour to stimulate an environment that is conducive to innovation and encourages the rapid deployment of productivity-enhancing technologies across all sectors of the Canadian economy. In the context of this consultation, ITAC believes that the current and proposed spectrum licence fees are excessive and inequitable.

ITAC recommends that Industry Canada reduce these fees, or at least examine the manner in which any proposed fees will impair the achievement of the goals of innovation and connectedness."20

39. The BWA supports ITAC's views and reiterates its willingness to work with the Department to develop a licence fee regime that is in the best interest of Canada and all its citizens.

*** End of Document ***

19 See RWI at pages 23-25, TELUS at page 13 and the CWTA at pages 19-20. 20 Information Technology Association of Canada, Submission to Industry Canada re: New Fee and Licensing Regime for Cellular and Incumbent PCS Licensees, 14 March 2003, page 1.