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]

April 4, 2003

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

Dear Mr. Skora:

Subject: Reply Comments – Canada Gazette Notice 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

TELUS Mobility is pleased to provide the attached Reply Comments to the Department regarding the above captioned Gazette Notice. TELUS Mobility had previously submitted its initial comments, in accordance with the schedule outlined in DGRB-001-03, on March 14, 2003.

As noted in our Initial Comments and as contained in our attached Reply Comments TELUS Mobility feels that it is vital that the Department understand two main items. Namely that there is an industry consensus that the present license fees are too high and that the proposed license fee rates are even worse and further that both must be reduced.

As was the case with the initial comments submitted by the Canadian Wireless Telecommunications Association (CWTA), TELUS Mobility was a party in the development and fully supports the Reply Comments submitted by the CWTA in this consultation.

TELUS Mobility appreciates the opportunity to work with the Department in the development of an appropriate fee and licensing regime for Canada’s mobile wireless industry. Please do not hesitate to call to discuss our initial comments and these attached comments in greater detail.

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 (and as amended by DGRB-001-03)

Reply Comments of TELUS Mobility

Submitted to Industry Canada

April 4, 2003

- 1 -

Introduction

TELUS Mobility (TELUS) submitted initial comments regarding the Consultation outlined in Canada Gazette Notice 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) – the Consultation Document - in accordance with the outlined schedule on March 14, 2003.

TELUS has reviewed the comments submitted by the Bell Wireless Alliance (BWA), Citytel, the Information Technology Association of Canada (ITAC), the Government of Japan, Mr. Steve Lessard, KMTS Mobility, Microcell Telecommunications Inc. (Microcell), the Ontario Telecommunications Association (OTA) & Association des Compagnies de Telephone du Quebec (ACTQ), and Inc. (RWI).

TELUS notes that on the major issues raised in the consultation there is a striking unanimity among industry participants and associations. All agree, without exception, that both the current fee levels are too high and that the proposed fee levels are far too high and that fees need to be reduced. TELUS urges the Department to listen to these vital concerns carefully and take the appropriate action in an expeditious manner.

In our initial comments TELUS divided its response into three major areas with subheadings. In these reply comments TELUS will use the same format to review the initial comments received by the Department and posted on their web site. Failure by TELUS to address any specific point in any submission should not be taken as an indication that TELUS agrees with it.

INDUSTRY CANADA SHOULD BE REDUCING NOT INCREASING LICENCE FEES

Industry Canada can and should be reducing licence fees

TELUS, in its initial response, recommended that the Department immediately move to lower the current level of fees in order to ensure the health of the Canadian wireless industry. TELUS stated that in its view the current fee levels are too high. This was a position that was also supported by all of the industry participants and both associations submitting comments to this Consultation document.

The BWA commented “Moreover, while the rate of $0.037 would result in revenue neutrality for Industry Canada, the BWA strongly believes, however, taking the Treasury Board Policy guidelines concerning the establishment of user fees into consideration would lead to a significantly lower rate than even $0.037 per MHz.”1

Rogers commented “RWI urges the Department once more to undertake an assessment of the direct and indirect costs that are imposed on Cellular/PCS licensees by federal departments, and to reduce this burden to a more reasonable level.”2

1 Bell Wireless Alliance (BWA) comments to DGRB-004-02, March 14, 2003, paragraph 94 2 Rogers Wireless Inc. (RWI) comments to DGRB-004-02, March 14, 2003, paragraph 16 - 2 -

Microcell commented “Fees must be established so that they are a function of the value of the spectrum in question, within a framework that is “fair, efficient and competitive.” To achieve these goals, the true value of spectrum must be understood: the analyses we have commissioned demonstrate that spectrum values have already DECLINED significantly, and on a going forward basis are projected to continue to DECLINE.”3

CWTA commented “Several factors call into question the appropriateness of the current fee levels as a measure of economic value for cellular/PCS spectrum, including the lack of any supporting measures or formulae at the time the fees were established, and the fact that under the current regime, the industry has yet to be profitable.”4

ITAC commented “In the context of this consultation, ITAC believes that the current and proposed spectrum license fees are excessive and inequitable.”5

In their joint submission OTA and ACTQ commented “This request is based on the fact that while the dollar amount of fees paid by the member companies is not significant in the overall scheme when compared to the larger providers, it represents a significant expense amount to the member companies.”6

Citytel commented “We believe that installation, maintenance and ongoing license fees make these areas economically not feasible to service. If service to under populated areas is to be made feasible then any costs associated with these areas must be minimized.”7

Given the overwhelming consensus among all industry participants and further, noting that there was no dissenting opinion expressed, TELUS strongly repeats its recommendation regarding the current fee levels.

TELUS recommends that the Department immediately move to lower the current level of fees to ensure the health of the Canadian mobile wireless industry.

Current Industry Economic Outlook is fragile

In its initial submission TELUS had concluded that given the economic uncertainty both domestically and internationally that now was clearly not the time for the Department to be considering a license fee increase. In support of this assertion TELUS pointed to the high costs the mobile industry faces from all government agencies coupled with uncertain consumer demand. Industry analysts are currently reducing their expectations of mobile industry growth and financial well being. All commenting parties supported this position.

3 Microcell Telecommunications Inc. (Microcell), comments to DGRB-004-02, March 14, 2003, section 1.1, page 2 4 Canadian Wireless Telecommunications Association (CWTA), comments to DGRB-004-02, March 14, 2003, paragraph 26. 5 Information Technology Association of Canada (ITAC), comments to DGRB-004-02, March 14, 2003, page 1 6 Ontario Telecommunications Association (OTA) & Association des Compagnies de Telephone du Quebec (ACTQ), comments to DGRB---4-02, March 14, 2003, section 5.2, page 5 7 Citytel, comments to DGRB-004-2, March 3, 2003, page 1 - 3 -

BWA commented “The introduction to the Department’s Consultation noted the importance of “stability” in conducting business. The BWA notes that the circumstances surrounding global economies, in general, and the Canadian wireless market in particular do not auger well for such stability. As a result, it is important that this situation and uncertainty not be further exacerbated by unwarranted increases in wireless service provider’s operating costs. This is especially so when the control over that cost element is entirely within the hands of the federal government, such as is the case with spectrum license fees.”8

RWI commented “Another article discusses industry trends in the following terms: “I believe the resolution of [the Nextwave] case paves the way for the future structure of this industry, says Mark Lowenstein, Managing Director of Mobile Ecosystem and veteran industry analyst. The most immediate impact, according to our analysis, will be a clearer view of the value of spectrum in the wireless industry’s new reality, characterized by slowing subscriber growth, liquidity challenges among the operators, and uncertainty about the prospects for wireless data.””9

Microcell commented “Based on the conclusions of the Lemay-Yates paper, we believe it is reasonable, even conservative, for the Department to project that, on a going forward basis, the value of spectrum will be declining at a rate of 5 to 10% per year. Any revised fee regime needs to incorporate a similar reduction to align with Government policy and reflect true economic value of the spectrum resources.”10

CWTA commented “At a time when the government is making decisions to improve the cost and availability of telecommunications service to Canadians and attempting to create a supportive environment for competition, it is counter-intuitive to increase the cost of one of the most important inputs for cellular/PCS licensees – the most competitive segment of the entire telecommunications industry in terms of price, selection, and reach. Government policies should work in favour of the consumer and help lower the cost of providing wireless services. Under these circumstances the prudent decision is to at most maintain current fee levels. CWTA recommends that, in conjunction with spending programs, the Department should reduce the costs of service providers to help expand and extend services. For cellular/PCS operators, the most direct way the Department can achieve this is to reduce license fees.”11

TELUS notes that all commenting parties are unanimous that the economy and the industry are facing challenging times. Challenges can be met but the Department has to be very careful that it does not add to the challenges, does not hurt or impede the industry as it struggles in a difficult economic environment. As outlined all parties believe with TELUS that current fees should be reduced, not increased.

Immediate fix to PCS fees needed

TELUS noted in its initial comments that whether or not the Department proceeded to implement a new fee regime there was an issue that required redress immediately, that was fair, justifiable, administratively easy to implement and one that should be implemented at once, even while the

8 BWA, Op. Cit. , paragraph 46 9 RWI, Op. Cit., paragraph 96 10 Microcell, Op. Cit., page 14 11 CWTA, Op. Cit., paragraph 73 - 4 -

Department is contemplating a new fee and licensing regime. That is to remove the current inequity that exists with PCS fees. Currently 800 MHz cellular fees are applied as spectrum is utilized when each base station is brought into service. PCS fees differ in that holders of the “D” & “F” blocks are charged for the whole 10 MHz block even though they are typically only using the first 1.25 MHz of spectrum when they first bring a base station into service. Charging for the full 10 MHz even before it is being used is administratively easier for the Department. This can be understood to a degree. Where it stops being understood is when the same process is applied to holder of the “A” or “B” blocks of 30 MHz of spectrum. Simply put, the current policy places these latter two operators under an $18,000 per base station per year penalty for absolutely no reason. This needs to be stopped and stopped immediately while the Department is examining other licensing regimes. The solution is easy to implement, does not change the current rating structure and would result in much better equity in the way PCS spectrum is charged.

Predictably, the two competitors who currently enjoy a competitive advantage from this situation have sought to retain this advantage for a little while longer. In the BWA initial comments is found “The BWA notes that carriers with 30 MHz of spectrum pay more because they have more spectrum.”12 However, the BWA pays for its 800 MHz spectrum not on a 25 MHz basis but on a per channel used basis. We find it difficult to imagine that BWA would support a similar scheme whereby it would begin paying for the entire spectrum (i.e. 25 MHz) it has at each 800 MHz cellular base station.

The RWI comments at first glance seem even worse in supporting the current inequitable state but they also contain a contradiction. RWI actually calls for relief for carriers that are in fact discriminated against in the way fees are charged. “RWI submits that providing relief to only some licensees and not to others would create market distortions that would favour some competitors at the expense of others. This would be entirely unacceptable.”13 This concept is entirely in keeping with what TELUS has been saying about this base station charge. The current charging regime for PCS spectrum does create market distortions and does favour some competitors at the expense of others. TELUS thinks it is time to end this inequity by moving to end the current discriminatory pricing for PCS spectrum versus that of cellular.

TELUS repeats its recommendation 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.

12 BWA comments, Op. Cit., paragraph 108 13 RWI comments, Op. Cit., paragraph 113 - 5 -

PROBLEMS WITH PROPOSED FEE MODEL

Industry Canada’s suggested rate is too high

TELUS, in its initial comments, provided many reasons for stating that the current rates are too high and should be reduced and further that any proposed rate that represented a rate hike from the current rates was too much and should be lowered. It turns out that the industry, for good and solid reasons, unanimously agreed.

The BWA commented, “The BWA agrees that Canadians are entitled to a “fair economic rent” in return for the use of public spectrum. As discussed in these comments, and taking into account the private investment committed at considerable risk to provide this enabling infrastructure, the BWA strongly believes that Canadians are currently receiving what amounts to at least a fair economic rent for the use of their resource.”14 They went on to add “The BWA recommends in this regard, that in implementing its new fee and licensing regime, that Industry Canada should signal that it recognizes the enabling capability of wireless infrastructure and decrease the rate per MHz per person to an amount below $0.037. The BWA submits that a rate of $0.02 per MHz per person would be reasonable when one takes into consideration the other significant financial obligations imposed on the industry, by the Department as well as other federal government agencies.”15

RWI commented “In light of this flaw, RWI recommends that the model should be modified to include the incremental 10 MHz of PCS spectrum, and its associated spectrum fees, in the calculation of the new fee. This would reduce the benchmark price to approximately $0.0365/MHz/Population.”16 As TELUS and all other respondents on this point have pointed out elsewhere, even this status quo amount is too high.

Microcell commented on the apparent lack of any economic study to justify the proposed fee levels when it said “Despite it being longstanding Government policy to do so, the Licensing Consultation inexplicably makes no effort to meet the goal, “to the extent possible, to have fees that reflect the true economic value of the spectrum resource”. There is no indication in the Licensing Consultation as to how the Department confirmed that Rogers Wireless cellular fees in 2001 had any connection with true economic value, and that such an amount would continue to be a reflection of true economic value of the spectrum resource going forward.”17

CWTA commented “Using the total license fees currently paid and the total spectrum assigned for cellular/PCS, CWTA estimates that a fee of $0.037 per MHz per pop would generate the same amount of licence fee revenue for the Department as it currently collects. CWTA believes that the application of the proposed fee ($0.052) would result in an unreasonable and unwarranted increase in the fees paid by cellular/PCS licensees, and in the aggregate revenue collected by the Department.”18

14 BWA Comments, Op. Cit., paragraph 100 15 Ibid., paragraph 104 16 RWI Comments, Op. Cit., paragraph 90 17 Microcell Comments, Op. Cit., section 3.1, page 13 18 CWTA Comments, Op. Cit., paragraph 52 - 6 -

To reiterate ITAC’s concerns they said “ITAC believes that the current and proposed spectrum license fees are excessive and inequitable.”19

Citytel effectively reached the same conclusion when they asked for a revision to the way the Department proposes to apply the proposed fee. Citytel commented “With regard to the stated formula of $0.052 per 1 MHz of assigned spectrum per person in a defined geographical area. We feel this should be applied as a per used spectrum as we certainly do not use the full 25 MHz here.”20

In light of the unanimity of informed industry opinion that the rate proposed by the Department is too high TELUS repeats its initial recommendation that this rate be lowered.

It matters where the “POPs” live

In its initial comments TELUS recommended that the Department adopt a two-tier approach that recognizes that population distribution, i.e. density, matters greatly in supplying coverage for a wireless network. All other carriers that addressed this subject supported a similar approach, except one.

The BWA commented “As a specific example of this, compare the Consultation’s proposed rate of $0.052 per MHz per person to the $0.0089 (less than one fifth of the proposed rate) generated in the 2001 PCS Spectrum Auction for additional PCS spectrum acquired in Aliant Telecom’s serving area. Clearly, there is an enormous incongruity between the proposed rate, derived from using a national carrier’s network as the model for establishing fees, and the market realities facing the service providers serving the less densely populated areas of Canada. In this regard, the BWA would suggest if anything, and in light of the federal government’s Connectedness Agenda, a strong argument can be made that licence fees in these areas should be heavily discounted well below the current rate of $0.037 per MHz per person in order to foster the expansion of wireless service infrastructure as a regional development initiative.”21

The OTA/ACTQ commented “As a result, the OTA and ACTQ request an immediate reduction to the proposed levels since they will not experience the revenue neutrality of those carriers serving both urban and rural areas. In addition , such an approach would assist these companies in further and timelier implementation and development of their infrastructures.”22

Citytel said it very directly when it commented “If the government is serious about having less populated areas served then their fees should reflect this desire.”23

RWI commented, “RWI submits that, under the proposed fee structure, the fee formula includes a population factor. This means that spectrum fees in rural and outlying areas will be lower than in urban areas. Therefore, rural fees already include a significant discount. This proposed scheme is an improvement upon the existing apparatus-based methods of charging spectrum fees, since it reflects the relative value of spectrum in densely populated and sparsely populated

19 ITAC Comments, Op. Cit., page 1 20 Citytel Comments, Op. Cit., page 1 21 BWA comments, Op. Cit., paragraph 97 22 OTA/ACTQ Comments, Op. Cit., section 5.2, page 5 23 Citytel Comments, Op. Cit., page 1 - 7 -

areas.”24 What this comments ignores or misses is that because people living in sparsely populated areas live farther apart and because radio waves are subject to the laws of physics it therefore requires many more base stations to serve many fewer people in Canada’s rural areas than is the case in Canada’s urban areas. RWI offers no evidence in support of their assertion.

It is apparent that virtually all carriers in the industry agree that the present and proposed rates are too high, especially in the rural areas. TELUS repeats its earlier recommendation: 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.” In light of the comments received TELUS suggests that such a discount should be on the order of 50% of any figure applied to the urban areas of Canada for each of cellular & PCS spectrum.

Why Rogers network?

TELUS, in its initial comments also questioned the validity of the Department basing the fee structure for the entire mobile industry on what one carrier paid for its 800 MHz Spectrum in 2001. Most other industry participants, including Rogers, agreed.

RWI commented, “RWI submits that the model selected by the Department is flawed. Both 25 MHz of spectrum in the 800 MHz cellular band and 10 MHz of spectrum in the 1900 MHz PCS band are used to serve the population and areas identified by the Department in its example. RWI has invested significant capital and technical expertise to create a network that, using hybrid systems and multimode subscriber handsets, utilizes both bands to offer a contiguous and seamless service to its customers. Therefore, the notion that only RWI’s 800 MHz cellular frequencies are used to provide services to 93% of the Canadian population is incorrect.”25

BWA commented, “At the outset, the BWA questions the validity of using any single service provider’s network to model or design a fee regime that will be applied to the entire industry. The BWA notes that, in addition to RWI, the industry consists of three other service providers whose network and operating characteristics vary substantially from that of RWI. The BWA submits that inherent in such an approach is the transference of the attributes of the modeled service provider’s national cellular network design and operating characteristics, whether valid or not, into a fee regime that will apply to these other service providers.”26

Microcell commented, “The Licensing Consultation, while acknowledging Government policy, has not applied the policy in the proposed changes to the license fees. No methodology or evaluation has been used to determine the fair economic value attached to PCS and cellular spectrum. Instead, a figure that has no relation to an assessment of fair economic value – Rogers’ Wireless’ 2001 cellular fees – has been selected as the benchmark to be applied on a long term basis to ALL cellular and PCS spectrum. This is not appropriate.”27

CWTA commented, “CWTA submits that no single network is appropriate for use as a basis for spectrum licence fees. Spectrum utilization and network deployment is dependant on a number

24 RWI Comments, Op. Cit., paragraph 109 25 RWI Comments, Op. Cit., paragraph 89 26 BWA Comments, Op. Cit., paragraph 81 27 Microcell Comments, Op. Cit., section 2.1, page 5 - 8 -

of factors including technology choices, network loading, consumer demand, marketing considerations, network design philosophies, and availability of capital. Each of these factors is unique to each licensee, and indeed each network.”28

TELUS renews its recommendation that the Department, if it proceeds with such an approach at least use an industry-blended rate that takes into account the differing coverage strategies and technologies actually found in the industry. The Department should also be mindful of the difference between cellular and PCS spectrum.

All spectrum not created equal

In its initial comments TELUS pointed out the propagation differences between 800 MHz cellular spectrum and 1.9 GHz PCS spectrum. In our experience the difference between 800 MHz spectrum and 1.9 GHz spectrum resulted in a 3:1 coverage advantage for 800 MHz Spectrum based on the number of base stations required. Only two other parties addressed the question.

Microcell expressed an almost identical view, commenting “But as discussed at pages 20-21 of the YRH study, the relative geographic area covered by a GSM 850 interior site versus a GSM 1900 interior site can does tend closer to 2.0 than 1.5. Geometry is such that, as the geographic area of the territory being covered increases, the interior area coverage effect takes over from the peripheral coverage effect, with the end result that: “In the case of a larger coverage areas, [a GSM 1900 network] could take as much as 2 times the number of sites than what a GSM 850 network would require.” (YRH Report, page 20)”29

RWI, on the other hand, continued to take a self-serving view, disregarding the laws of physics and economics as it had earlier regarding population density when it commented, “In either case, it is not reasonable for these licensees to be granted relief from spectrum licence fees when they knowingly accepted the licensing terms and conditions that are associated with the spectrum licenses that they currently possess.”30 This statement ignores two things besides the obvious idea of equity. The first is that the Department struck PCS license fees after the licenses were awarded and secondly that it is reasonable for licensees to seek relief from inequitable fee administration. RWI is perhaps too 800 MHz centric to fully appreciate the situation in this particular case.

Canada’s two carriers without 800 MHz spectrum in most areas of the country have both pointed to the discrepancy in propagation carriage and coverage between 800 MHz and 1.9 GHz spectrum. As TELUS recommended in its initial comments “Any proposed fee model put forward by the Department should reflect this reality.” Based on our experience TELUS suggested a discount of 66% percent of the 800 MHz per MHz per PoP rate, based on their study of 800 MHz to 1.9 GHz digital to digital deployment Microcell suggests at least a 50% discount from this rate. Clearly if the Department is going to implement a per MHz charge/per PoP charge regime for Cellular and PCS spectrum it must implement this regime with a different and lower rate for 1.9 GHz PCS spectrum versus 800 MHz cellular spectrum. Based on the

28 CWTA Comments, Op. Cit., paragraph 33 29 Microcell Comments, Op. Cit., section 3.4.2, page 19 30 RWI Comments, Op. Cit., paragraph 114 - 9 -

submissions received during the consultation process this discount, at a minimum should be 50%.

Industry Canada’s Estimate of fee growth is erroneously high

The Department offered no economic study or other indication of the rational for choosing the rate for spectrum that it proposed in the Consultation document. This left parties to speculate on the Department’s rationale for proposing a rate increase at a time when the economy is weak and growth projections are being reduced. One of the few reasons that seemed to offer some justification for the Department’s proposal was that perhaps the Department was attempting to obtain the revenues it thought it would have obtained under the status quo regime as the carrier’s networks expanded through the period ending in 2011.

TELUS in its initial submission pointed out four reasons why this apparent assumption is faulty and there will be no 34% growth in license fees under a status quo scenario. Therefore for the Department to attempt to implement a fee regime with a built-in 34% increase is insupportable. TELUS was joined by other parties in saying this.

The BWA commented “The BWA notes that the Department’s Consultation does not offer any insight into the rationale behind proposing an increase in spectrum fees. The BWA notes however that the fiscal year 2000/2001 annual license fee for , cited in the Consultation, is significantly at variance with Bell’s anticipated annual fee in the current fiscal year and beyond.”31 The BWA then goes on to observe “The BWA submits that the preceding suggests that if anticipated licence fee payments were trended solely based on historical trends, the result would likely be at considerable variance with the actual fee payments currently being projected by service providers. Given the current fee and licensing regime, along with the mix of cellular as well as non-auctioned and auctioned PCS spectrum held by most carriers today, carriers are driven to seek any opportunity to optimize their overall spectrum use and reduce operating costs. Further, the BWA notes that not only will the variance apply to the 2011/2004 (proposed regime implementation timeframe) comparison, but will also apply when one computes the 2011 proposed regime/2011 current regime variance.”32

RWI makes the same points at paragraphs 76 through 81 of their initial comments and ends this point by commenting “In light of the above, the proposed 34% spectrum licence fee increase is excessive and must be eliminated. RWI strongly believes that, at most, there should be no net increase in the total fees collected under the proposed regime, above what will be collected from the industry under the existing regime as of 2003/2004. As suggested above, and outlined in greater detail below, RWI believes that a net reduction in the total spectrum fees collected by the Department is both warranted and urgently required.”33

Microcell commented “Given this, it is clear the new fee regime proposed in the Licensing Consultation has missed the mark. If implemented, it would actually lead to an increase in spectrum fees over the next seven years for PCS licensees, while the incumbent cellular operators would see their cellular fees either remain static or decline. There is no indication in

31 BWA Comments, Op. Cit., paragraph 84 32 Ibid., paragraph 88 33 RWI Comments, Op. Cit., paragraph 82 - 10 -

the Licensing Consultation that such a conclusion is supported by an assessment of the true economic value of the spectrum resources, as Government policy would require.”34

CWTA commented “While the notice does not present any impact analysis of the proposed regime, CWTA estimates that the proposed fees will result in an increase in cellular/PCS licence revenue to the Department of approximately 34% between today’s fees and the end of the transition. In real terms, this represents nearly $50 million annually when the proposed regime is in full effect. Through the proposed transition period, the aggregate annual fee increase is about 4.25%.”35 After examining some of the reasons why the fees would not, under a status quo fee regime grow to anywhere near 34% CWTA comments “Even in the event of organic growth of 1.5% annually, the proposed fee level is more than double any such growth. It is more likely however, that under the current regime, licensees would be successful at maintaining or reducing licence fees between 2003 and 2011. Under such a scenario, the total fee increase caused by the proposed fees would be greater than CWTA’s estimated 34%.”36

In summary, all industry participants fully agree that Industry Canada’s proposed rate is too high and must be reduced.

Alternative Real World Fee Models the Department should consider

TELUS made two main suggestions in this section of its initial comments. The first suggested that the Department test the reasonableness of its new fee proposals by looking to those charged by our largest trading partner and neighbour or to a country with a population and demographics much like ours. The second was to dismiss suggestions that such events as the 2001 PCS spectrum auction or the Clearnet acquisition might serve as useful indicators.

These comments were echoed and supported by BWA, RWI, and CWTA. Microcell took a different approach when they commented “To assist the Department in determining how spectrum values are evolving, Microcell commissioned Lemay-Yates Associates Inc. to prepare an analysis and discussion of the evolution of the value of spectrum licenses in the United States and other countries. The report, entitled “Evolution of Spectrum Valuations for Mobile Services in Other Countries”, is attached as Schedule C. It indicates that the value of mobile spectrum, including cellular and PCS has already DECLINED significantly, and is projected to DECLINE further.”37

TELUS repeats its recommendation that the Department examine other, relevant fee models that would provide a more realistic benchmark than the proposed fee regime outlined in the Consultation document.

The Department’s Proposals fail to follow Treasury Board Policy

In its initial comments TELUS suggested that the Consultation Document provided no evidence that the Department had completely followed Treasury Board Policy in the developing its present

34 Microcell Comments, Op. Cit., section 3.0, page 12 35 CWTA, Op. Cit., paragraph 41 36 Ibid., paragraph 48 37 Microcell Comments, Op. Cit., section 3.2, page 13 - 11 -

proposed fee level and regime. It is TELUS’ understanding that had these policies been followed the proposed fee levels would have been much more reasonable.

The TELUS concern regarding whether or not the Department had followed the Treasury Board guidelines in developing the proposed fees outlined in the Consultation Document were shared by many other parties submitting comments.

The BWA commented “Overall the BWA submits that the financial burdens imposed by the federal government, i.e., amounting to virtually $1 billion for the BWA since 2000, facing the Canadian wireless industry of late are indeed daunting. In addition, the time span over which these financial commitments are being imposed is very compressed, with the bulk occurring within the last three years. The BWA submits that, in line with the Treasury Board’s Policy, these significant financial obligations must be taken into consideration when considering any changes in current spectrum fee charges. The BWA respectfully submits, in this regard, that this factor alone strongly militates against any notion of an increase in spectrum fees suggesting instead that a reduction in fees should be considered.”38

In a similar vein, RWI commented “RWI strongly believes that the Treasury Board Policy dictates that cellular/PCS spectrum licence 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.”39

Microcell, although silent as to exact policy, expressed the same sentiments when it commented “Given all the effort expended by the Department over the years in an attempt to determine fair economic value of spectrum resources, Microcell is deeply disappointed and extremely concerned with the treatment of fees in the Licensing Consultation. There needs to be a clear application of established policy, including substantive economic analysis, to support any changes to the fee regime.”40

The CWTA summarized the industry position when it commented “CWTA notes that the notice contains no reference to these elements of the Treasury Board Policy, and the Association doubts that the proposed spectrum licence fee has been devised in accordance with these requirements. For this reason, CWTA believes that the proposed licence fee is unreasonable and must be re- calculated and significantly reduced.”41

TELUS joins all of these parties in calling on the Department to conduct the required impact analysis as called for under the Treasury Board Policy. We are confident that such a process will yield a reasonable, lower fee proposal from the Department.

38 BWA Comments, Op. Cit., paragraph 64 39 RWI Comments, Op. Cit., paragraph 53 40 Mircocell Comments, Op. Cit., page 3 41 CWTA Comments, Op. Cit., paragraph 57 - 12 -

OTHER SPECIFIC COMMENTS

TELUS notes that while there was unanimous opposition to the current level of spectrum licence fees and to the proposed level of spectrum licence fees there was also a consensus of opinion among parties responding to the Consultation Document on a number of other items raised in the discussion paper.

All parties that commented on them supported the Department’s move to align all cellular and PCS spectrum with respect to transferability and divisibility (other than the rather unusual submission by a foreign administration, the government of Japan). All parties that commented also supported the need for additional consultation on the method of re-allocating cellular and PCS spectrum returned to the Department rather than transferred in the secondary spectrum market. Likewise all parties commenting supported the Department’s limitation of Lawful Intercept requirements to circuit-switched voice telephony networks at the present time.

All parties that commented also were united in their opposition to the Department’s proposals around the System Access Fee wording and printing requirements. Most doubted that the proposal would withstand legal challenges. Parties too unanimously agreed that the Department erred when it suggested alternate wording for Radio System Installations and that the Department ought to await the outcome of the Consultation announced by Minister Rock. All parties commenting were also unanimous in suggesting that the present Policy for the provision of Cellular Services by New Parties should be eliminated in light of the proposed new licensing and fee regime, or at the very least, extensively revamped.

One party, Microcell, raised two suggestions in their initial comments that were new. These called for mandated antenna co-location and mandated digital (as well as analogue) cellular roaming. TELUS does not believe that an expanded mandated regarding resale and roaming is in the best interests of the industry as a whole, and would likely create competitive distortions between licensees. TELUS submits that mandated roaming and resale would effectively preclude competitive market forces from establishing rates for such access. This would create the need for even further regulatory intervention that is unacceptable to TELUS and we believe, to the rest of the mobile wireless industry. TELUS further submits that such a mandate could inhibit investments necessary to enhance and innovate networks and services. In light of this, TELUS is strongly opposed to an expanded requirement for roaming and resale. Further TELUS points to the TELUS Mobility/Bell Mobility resale and roaming agreement as a concrete example that commercial arrangements can work. Moreover TELUS is strongly opposed to any re-regulation of the industry regarding mandated antenna site sharing. Site-sharing has become common practice on a voluntary basis within the industry and this is only expected to continue and to increase in the future. In any event, this issue would be more properly addressed under the recently announced Tower Site consultation and should not be dealt with in the present Consultation.

Finally, TELUS notes that both RWI42 and BWA43 have chosen to ignore the Department’s very clear statement that “Enhanced specialized mobile radio (ESMR) licensees are not part of this consultation.”44 In what can only be seen as a direct and flagrant defiance of the

42 RWI Comments, Op. Cit., paragraphs 63-72 43 BWA Comments, Op. Cit., paragraphs 114-116 44 Consultation Document, section 2.3, page 4 - 13 -

Department’s explicit instructions, these parties have argued that ESMR should be included in the present proceeding.

As the Department is well aware, there is a well-documented history45 of our competitors attempting, for the purpose of gaining competitive advantage, to either have inappropriate regulatory burdens imposed on ESMR services or to retain any such constraints that might be shown to exist. These entities have also displayed a considerable lack of understanding of the realities of ESMR systems in the past. Fortunately, these have not unduly influenced the Department due to its much deeper and clearer understanding of the realities of ESMR systems and the unique characteristics surrounding the ESMR spectrum and its utilization46.

We also note that the Department has stated further that “while ESMR is excluded from this proposal, it remains a potential candidate for spectrum licensing” and TELUS fully supports this statement.

45 See the record of initial comments and reply comments for DGTP-003-02, Consultation Request to Modify the Treatment of Enhanced Specialized Mobile Radio Systems under the Mobile Spectrum Cap Policy 46 Unlike cellular and PCS, there is “no spectrum allocation dedicated solely to ESMR”, and “ESMR licensees must contend for spectrum with these other services, not with cellular and PCS”, quotes from the Discussion paper, section 2.3, page 4 - 14 -

CONCLUSION

As TELUS noted at the beginning of these Reply Comments this Consultation is quite different than the usual consultations involving a Reply Comment Phase. In this Consultation there is no controversy on the main items and issues under discussion. All of the industry participants and associations are violently agreeing and just as violently disagreeing with the level of the Departments’ current and proposed fees for cellular and PCS spectrum. The Department should take note and act accordingly.

TELUS suggests that for all of the reasons outlined in our comments and reply comments that the Department should institute a 2-tier by 2-tier rate plan if it wishes to charge on a per MHz per PoP basis for cellular and PCS spectrum. In our suggested model all PCS spectrum would be discounted from the rate set for cellular spectrum and rural spectrum would be discounted from that set for both cellular and PCS urban spectrum. The other carrier holding predominately PCS spectrum has joined us in this call for the Department to recognize the real physical difference in spectrum propogation and economic impact. We differ in the quantum of discount but not the direction - downwards. Likewise all industry participants have tabled suggested approaches and rate levels but all are united in opposing the present level of fees as being too high. Likewise all industry participants are united in opposing the Department’s proposed rate as being much too high and calling for its reduction.

TELUS urges the Department to give careful consideration to the suggestions that the industry has submitted in this process. There may be a need for further consultation on this important matter and TELUS stands ready to assist the Department in its endeavours. However, TELUS also urges the Department to implement the “quick fix” regarding the present charging algorithm for PCS base stations immediately and end the current and unjustified inequity.