25 June 2002

Mr. Michael Helm Director general Telecommunications Policy Branch Industry Canada 300 Slater Street Ottawa, Ontario K1A 0C8

Dear Mr. Helm: Subject: Consultation on a Request to Modify the Treatment of Enhanced Specialized Mobile Radio Systems under the Mobile Spectrum Cap Policy, Canada Gazette – Part 1, Notice No. Don Woodford Director - DGTP-003-02, Dated 10 May 2002 Government & Regulatory Affairs Introduction , on behalf of the Bell Alliance (BWA), is pleased to offer the following reply comments pursuant to the procedure outlined in Canada Gazette Notice No. DGTP-003-02 concerning a request from Mobility (TELUS) to modify the treatment of Enhanced Specialized Mobile Radio (ESMR) spectrum under the provisions of the spectrum cap policy (the Notice). The members of the BWA include the following companies: Aliant Mobility, Bell Mobility Inc., MTT Mobility Inc., MTS Communications Inc., SaskTel Mobility and Mobility. The BWA's members provide public switched and private mobile services throughout Canada in competition with both TELUS and other wireless carriers. Pursuant to the procedure outlined in the Notice, the BWA filed its comments in response to TELUS' request on 10 June 2002. The BWA has reviewed the comments of other interested parties that were filed in response to the Notice and posted on the Department's website. In addition to the BWA's comments, submissions from the following parties were posted to the website: Microcell Telecommunications Inc. (Microcell), Inc. (RWI), Techcom Inc., TELUS Mobility and W2N Inc. (W2N).

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] - 2 -

BWA Reply Comments in Response to Issues Raised in the Notice a) Is ESMR sufficiently different from cellular and PCS to warrant a special treatment of the spectrum use under the spectrum cap? In its comments, the BWA strongly asserted that the services offered by TELUS, with its ESMR spectrum, are not sufficiently different from cellular and PCS to warrant special treatment under the cap. The BWA noted that it believed that TELUS' ESMR services compete with and were directly substitutable for the cellular and PCS services offered by its members. The BWA notes that the preponderance of parties expressed similarly strong views to the effect that TELUS' ESMR services compete directly with their cellular and PCS service offerings. RWI, for example, noted in its comments, at paragraph 8, that: "ESMR and PCS are clear substitutes that vigorously compete for the same subscribers." At paragraph 9, RWI added further that: "Telus' ESMR service is a two - way high mobility radio service that offers clearly similar services to PCS and is marketed to the same consumer and business segments." W2N, for its part, noted at page 5 of its comments, that: "Cellular, PCS and ESMR are all high-mobility radiotelephony services and should continue to be subject to the spectrum cap in the same manner." Similarly, in its response to the Department's question, "Is ESMR sufficiently different from cellular and PCS service to warrant a special treatment of the spectrum use under the spectrum cap?" Microcell responds at page 4 of its comments with an emphatic, "Absolutely not." As a result, the BWA again strongly asserts that the services offered by TELUS, with its ESMR spectrum, are not sufficiently different from cellular and PCS service to warrant special treatment under the cap. Furthermore, it is apparent that, with the exception of TELUS who clearly have a biased interest in the matter, this view is uniformly shared among the remaining major wireless service providers. b) Would modifying the treatment of the ESMR spectrum cap undermine the role and competition objectives of the spectrum cap which are to ensure Canadians have a range of services and a choice of service providers? In its comments in response to this question, the BWA noted that it believed that, in the context of the current highly competitive Canadian wireless market, the approval of selective and special treatment of ESMR spectrum would place one of Canada's largest incumbent wireless players in an extremely advantageous competitive position, relative to its competitors in that market. The BWA further noted its view that such a fundamental change in the policy would be premature, in light of Industry Canada's forthcoming overall review of the spectrum cap policy, and that the requested modification should not be entertained prior to that review. The BWA notes that, in addition to its members, Microcell, RWI and W2N were uniformly of the view that, not only was special treatment for ESMR spectrum not warranted, but that special treatment would indeed introduce inequitable and unfair distortions into a highly competitive marketplace. For its part, Microcell noted at page 2 of its comments, that in the event of approval of the TELUS request for special treatment under the cap: "...Telus would be conferred an enormous benefit unavailable to competitors, specifically the ability to acquire spectrum in excess of the 55 MHz cap, which spectrum can be used for advanced mobile systems. ...Special treatment vis-à-vis spectrum cap would have a negative and unfair impact on Telus' competitors, including Microcell." Similarly RWI, at paragraph 4 of its comments, noted that: "...Telus' request, if granted, would introduce asymmetric obligations between competing providers and distort the market by artificially benefiting the underlying cost structure of one provider while stranding others." The BWA believes that RWI sums it up well, at paragraph 23 of its comments, when it notes that: "Fairness and equal regulatory treatment are essential in a competitive market. To permit Telus certain privileges in order that it may avoid costs and technical solutions imposed on others would grant Telus an unwarranted competitive advantage at the expense of other carriers in an intensely ...competitive market." - 3 -

W2N responds to the Department's question stating, at page 6 of its comments, that: "Yes, the Telus proposal would undermine the spectrum cap policy and others. It would not increase the range of services available to Canadians and would likely result in a reduction in the choice of SMR service providers. In practice, Telus alone would be allowed to exceed the spectrum cap." (Emphasis added) The BWA's comments also expressed the view that wireless carriers have a responsibility to plan their spectrum needs in accordance with the applicable spectrum management policies adopted by the Department. Policies which the Department develops through careful public consultation involving all interested parties and in this case, the BWA notes, as recently as its 1999 decision to raise the cap to 55 MHz. The BWA noted, in this regard, that despite full knowledge of the Department's spectrum cap policy, TELUS acquired PCS spectrum in the 2001 PCS spectrum auction in some of the very areas where it now purports to be constrained. Hence, the BWA concluded that TELUS' predicament, in certain areas, was one substantially of its own making. We were not alone in making that observation. W2N, a new entrant in the 2001 PCS Spectrum Auction, similarly noted for example: "That TELUS is now at or near the spectrum cap in major markets is a matter of its own choosing. As noted, when the cap was increased in 1999 the Department stated in RP-021 "that a Spectrum Cap of 55 MHz is sufficiently large to allow incumbent PCS operators the certainty to plan the aggregation of spectrum for the continued growth of their ...services." Rather than plan for its growth in accordance with the published policy, TELUS appears to have ignored it." (Emphasis in W2N quote) The BWA submits therefore that modifying the treatment of the ESMR spectrum cap would undermine the role and competition objectives of the spectrum cap policy and, as requested by TELUS, would be premature given the forthcoming overall policy review. Moreover, other licensees are taking the Department's spectrum cap seriously and plan their spectrum requirements and acquisitions accordingly. TELUS should not be rewarded, through approval of its request, for shirking its responsibility in this regard. c) Would the public interest be served by permitting more spectrum flexibility for the ESMR service to expand and continue to provide high quality service to its users? The BWA submitted that it was not in agreement with TELUS' proposal to selectively modify the treatment of ESMR spectrum under the mobile spectrum cap policy on an across the board basis. Noting that such action would place its members in a competitively disadvantageous position relative to TELUS, the BWA saw no reason why any remedy should be applied in areas of the country, for example, where TELUS is not even facing ESMR capacity constraint. Hence, the BWA does not see how one could rationalize such special treatment of one competitor, out of many operating in a highly competitive market, on the basis of public interest considerations. Again, the BWA notes a remarkable similarity of views in response to this question. Microcell, at page 11, responds that: "The public interest would be served – and proper public policy followed – only if all carriers are treated equally vis-à-vis spectrum caps. The TELUS proposal, as filed, does not allow for this." BWA agrees with this statement. RWI notes, at paragraph 12 of its comments, that, "...it would be unsound public policy to tilt the playing field in an unquestionably competitive marketplace by favouring the underlying cost structure of one provider to the detriment of others." BWA agrees with this statement and submits that in such circumstances the public interest would not be served. The BWA does recognize however that the public interest may require addressing TELUS' capacity dilemma in the event that existing TELUS ESMR customers might experience service deterioration resulting from their carrier's lack of planning and due diligence, with regard to applicable Department policy, in acquiring spectrum. The BWA's comments noted that a more reasonable approach, which was adopted by the Department when it initiated its last review of the spectrum cap in October 1998, was to indicate its willingness to consider an application from a licensee requesting temporary relief for a particular geographical area and for a certain amount of spectrum. In the BWA's view, such an approach strikes a fair balance between the interests of TELUS' existing ESMR users, on the one hand, and its competitors on the other without upsetting the delicate equilibrium of an intensely competitive market. The BWA submits that such an approach, by addressing the problem where its exists, rather than on a nation-wide basis, would be both more reasonable as well as being mindful of the interest of current ESMR users. As noted in its 10 June 2002 comments, the BWA reiterates that it would not oppose an application for temporary relief, in a particular geographic area, for a substantiated amount of additional spectrum. - 4 - d) Would limiting the amount of ESMR spectrum calculated under the cap, or eliminating it altogether from the cap, provide a reasonable balance for the public interest? If limiting the amount of spectrum calculated under the cap is the preferred outcome, what approach among the following should be used and for what reason? i) Include ESMR spectrum to a maximum of 10 MHz. ii) Include ESMR spectrum at a discounted rate of X% (e.g. at a 25% discount rate, 12 MHz of ESMR spectrum results in 9 MHz being discounted); what would be a reasonable discount rate? i) and ii) In its comments, the BWA did not support adopting the FCC's attribution rule as being an appropriate approach in the current circumstances. In this regard, the BWA noted that the FCC's decision to adopt an attribution rule was based on that agency's extensive analysis of the circumstances existing in the U.S. wireless market some eight years ago. The BWA concluded that then, as now, there were significant structural and regulatory differences between the Canadian and U.S. wireless industries. Microcell noted a similar concern when it stated, at page 3, that: "When setting public policy for Canada, it is neither wise nor appropriate for Industry Canada to hone in on one or two aspects of U.S. spectrum cap policy – as the Telus request would have the Department do – and ignore the rest of the policy and the context in which it was made." In its 27 November 2001 letter TELUS relies heavily on its interpretation of the FCC's 2000 Biennial Regulatory Review (2000 Review) proceeding. In its comments the BWA noted that a complete reading of the FCC's 2000 Review lead it to substantially different conclusions than that arrived at by TELUS. Indeed, rather than reaffirming its 1994 attribution rule, the BWA noted that the FCC was actually querying whether the rationale for the 10 MHz limit was still valid in today's U.S. wireless marketplace, as well questioning other key assumptions underlying the adoption of the attribution rule in 1994. RWI concurred in this view noting, at paragraph 18 of its comments, that: "...the quotation cited … does not stand for the proposition that the FCC today agrees in any way with its "original justification" in 1994. In fact, if Telus had reproduced the entire paragraph rather than selectively citing from it, it is clear that the FCC has revised its view as to the veracity of its original justification for adopting attribution rules for ESMR spectrum at all." The BWA submits that it would be bad public policy to predicate Canadian spectrum policy on the basis of U.S. market circumstances and especially so when the U.S. was clearly rethinking the continued applicability of that very policy. The BWA reiterates its recommendation that the Department must be careful not to predicate Canadian spectrum policy on the basis of U.S. market circumstances and policies which have been overtaken by time and events and are no longer applicable in any event. TELUS also noted, in its request, that it was prepared to accept complete elimination of ESMR spectrum from under the cap. As noted in its comments, the BWA continues to strongly oppose eliminating ESMR spectrum from the spectrum cap prior to completion of the Department's overall review of its spectrum cap policy. The BWA believes that consideration of the treatment of ESMR, and all other high mobility spectrum, within the context of the upcoming review will result in a comprehensive and rationale analysis by the Department. The BWA's comments noted that such an analysis, rather than a piecemeal modification, was the best approach to ensure that competitive inequities are not accidentally created in an intensely competitive market. iii) Other approach? As stated in its comments, the BWA continues to believe that a more reasonable approach would be to grant TELUS temporary relief for a particular geographical area and for a certain amount of spectrum, pending the outcome of the forthcoming spectrum cap review. BWA noted that this avoids the situation whereby TELUS is granted special, selective treatment under the spectrum cap policy throughout Canada, especially when its actual needs are focused on a very limited number of specific geographical areas. BWA continues to believe that this approach will ensure competitive equity under the cap for all players until such time as the Department completes its overall review of its spectrum cap policy. - 5 - e) What other matters are relevant to the request? In its 27 November 2001 letter to the Department, requesting special treatment for ESMR spectrum, TELUS also relied heavily on the argument that ESMR spectrum is subject to a complex spectrum planning and engineering design process. TELUS argued that this was primarily due to the fact that ESMR spectrum is highly encumbered and non-contiguous relative to PCS/cellular spectrum. The BWA submits that this is an oversimplification of the issue and notes the similar views of the majority of respondents in this regard. In particular, W2N sums it up well when it observes that: "The biggest difference between ESMR and cellular or PCS is not the need for "complex spectrum planning" but rather ESMR's easier and quicker spectrum licensing because of its FCFS [First Come First Served]. It's a package deal. ESMR gets individual channels with FCFS licensing while cellular and PCS get block licensing with lengthy, uncertain and costly competitive submissions and auctions. The licensing procedure does not change the fact that all three are high mobility radiotelephony services that require frequency planning." As W2N notes, all three categories of high mobility spectrum currently subject to the cap have their own inherent advantages and disadvantages. As noted in the comments of the BWA and other parties, given evolving market developments, even the FCC was questioning the continued applicability of its 1994 conclusion that ESMR spectrum was really all that hard to configure. In any event, when one weights the relative considerations as pointed out by W2N, one really has to question whether the balance would weigh in favour of treating ESMR preferentially, as compared to PCS and cellular, as proposed by TELUS? With all due respect, the BWA submits that the record of this proceeding does not suggest that such would be the case. Other Matters Arising in Comments of Parties In its comments RWI suggests that, given the negative effects that would flow from approval of TELUS' request, an appropriate remedy would be to remove the cap for all providers, thus avoiding the dangers inherent in granting one party special treatment. To this end, RWI recommends that the Department immediately initiate a review of the spectrum cap as it applies to all players with a view to its removal. The BWA notes that the Department's overall review of the spectrum cap is linked to its allocation process for spectrum. While the BWA agrees that the spectrum cap will have to be reviewed in the light of that allocation process, we are not convinced that this review process must be accelerated beyond what the Department is currently planning. For its part, Microcell notes that it would not oppose a complete lifting of the cap for all players. Microcell, states however, that while the TELUS' request necessitates a review of the principle and role of the spectrum cap policy as a whole, it submits that more pressing matters should be dealt with first. Microcell states that these more pressing matters include spectrum licence fees, cellular and PCS licence conditions, including spectrum aggregation and foreign ownership restrictions. The BWA notes that while these may be issues for further consideration in the public realm, other than the issue of spectrum aggregation, the remaining issues identified by Microcell are well beyond the scope of this Notice and hence are not relevant to the current consultation. Conclusion As evidenced by the comments of virtually all parties, this issue is extremely important in the context of the current intensely competitive Canadian wireless market. The BWA strongly suggests that the Department not be deluded into considering TELUS' request as one comprising a minor modification or tweaking of the spectrum cap policy. It is not. In BWA's respectful submission, it is a change that could seriously disrupt the competitive equilibrium of this market at a critical juncture. While it may be in TELUS' competitive interest to seek such change, it is clearly not in interest of the wireless industry as a whole or the public interest. At the same time the BWA has proposed an alternative which recognizes that the interest of existing ESMR customers can be addressed and in a manner consistent with the actual ESMR spectrum capacity constraints identified by TELUS. Yours truly,

Don Woodford - 6 -

Director - Government & Regulatory Affairs

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