10 June 2002 Mr. Michael Helm Director General Telecommunications Policy Branch Industry Canada 300 Slater Street Ottawa, Ontario Don Woodford K1A 0C8 Director - Government & Regulatory Affairs 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. DGTP-003-02, dated 10 May 2002 Introduction Bell Mobility, on behalf of the Bell Wireless Alliance (BWA), is pleased to offer the following comments in response to Canada Gazette Notice No. DGTP-003-02 concerning a request from TELUS 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 NorthwesTel Mobility. The BWA's members provide public switched and private mobile services throughout Canada in competition with both TELUS and other wireless carriers. 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 - Background TELUS, in its 27 November 2001 request to the Department, states that its ESMR service offerings face constraints in certain areas in Canada as a result of the current spectrum cap. Specifically, TELUS identifies that Vancouver and Toronto are very close to the current cap limit with less than 1 MHz remaining in each area. While also identified as areas for concern in TELUS' request, the Calgary and Montréal markets appear to have some ESMR spectrum capacity room, with 2.1 MHz and 3.2 MHz respectively remaining in each area. TELUS further notes that the anticipated timing of Industry Canada's general review of its spectrum cap policy is such that it will not accommodate TELUS' requirements in some or all of the above areas. In its request, TELUS identified a number of considerations that, in its view, warrant a revision of the treatment of ESMR spectrum under the spectrum cap policy. First, TELUS states that complex spectrum planning and engineering design processes apply to ESMR spectrum. TELUS further states that this results from the fact that ESMR spectrum is heavily encumbered relative to PCS/cellular spectrum. Second, by requiring TELUS to heavily rely on cell splitting technology to achieve the additional capacity required, TELUS argues that the spectrum cap effectively takes away capital that consequently "denies Canadians a further choice in wireless service offerings." Third, TELUS notes that in 1994 the U.S. regulatory authority, the Federal Communications Commission (FCC), adopted an attribution rule such that for the purposes of the U.S. spectrum cap, a maximum of 10 MHz of ESMR spectrum is attributed to an entity when determining its compliance under the U.S. cap. These considerations are such, TELUS argues, that its ESMR spectrum is only a "partial" substitute for cellular and PCS spectrum under the cap. BWA Response to Specific Notice Questions a) Is ESMR sufficiently different from cellular and PCS to warrant a special treatment of the spectrum use under the spectrum cap? The BWA strongly asserts 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 at this time. The BWA believes that the services offered by TELUS using this spectrum compete directly with the cellular and PCS services offered by its members. The BWA notes, for example, the Department's characterization of ESMR, at page 2 of the Notice, as systems which provide both the services which are offered by cellular systems further enhanced by additional specialized services which are not matched by cellular or PCS systems. As the Notice further identifies, ESMR systems are equipped with automatic soft hand-off capabilities between cells and are fully interconnected with the public switched telephone network (PSTN). Notably, TELUS' website for its Mike ESMR service characterizes the product as "…the all-in-one business communication powerhouse with Mike's Direct Connect, PCS phone, Internet capabilities and pager services." (emphasis added) Consequently, from a service application perspective, BWA strongly asserts that ESMR services are directly substitutable for its cellular and PCS services. Indeed, in certain applications, ESMR services are even more adequately configured to compete for niche - 3 - business segments than are cellular and PCS. In this regard, applications which use ESMR Direct Connect functionality, such as the construction industry, as well as any applications requiring a dispatch capability are instances where ESMR is highly competitive and substitutable for cellular and PCS. 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? As the Department's Notice states, the spectrum cap is a policy instrument designed and adopted in 1995 to support new entrants and foster increased competition in the wireless industry. Since that time the Canadian wireless market has evolved to be both intensely competitive and a challenging environment in which all service providers are struggling to meet their financial targets. The market has also witnessed structural change that materially affects the ownership of the specific spectrum in question in this Notice, i.e., the 2000 acquisition of Clearnet Communications and its ESMR holdings by TELUS. Unlike Clearnet Communications, the primary ESMR carrier at the time of the formulation of the policy in 1995, TELUS is not a new entrant. The BWA believes that, in the context of the current highly competitive market circumstances, 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 the market. The BWA further suggests that such a fundamental change in the policy would be premature and should not be entertained prior to Industry Canada's anticipated overall review of the spectrum cap policy. The BWA also believes that wireless carriers have a responsibility to plan their spectrum needs in accordance with the applicable spectrum management policies adopted by the Department. In this regard, the BWA notes that, despite full knowledge of the Department's spectrum cap policy as it has applied to ESMR spectrum since 1995, TELUS acquired PCS spectrum in the 2001 PCS spectrum auction in some of the very areas where it now purports to be constrained. BWA notes that absent these acquisitions, TELUS would not be in the predicament that it finds itself, hence a predicament substantially of its own making. 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? For the reasons outlined in this submission, the BWA is 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. As stated previously, the BWA believes that such action would place its members in a competitively disadvantageous position relative to TELUS. Moreover, as TELUS notes in its request, its immediate needs are limited to only a few specific areas in the country. The BWA sees no reason why any remedy, even temporary, should be applied in areas of the country where TELUS is not facing such capacity constraints. - 4 - The BWA notes, however, that the current situation is closely analogous to that existing when the Department announced its last review of the spectrum cap in October 1998. Recognizing that the timeframe for a decision in that review might be problematic for certain licensees, the Department stipulated that: "Should this schedule be problematic to any entity, it may submit an application requesting temporary relief for a particular geographical area, and for a certain amount of spectrum, pending the outcome of the review."1 (emphasis added) The BWA believes that such an approach lends itself very well to current situation. This approach, in the BWA's view, would be more reasonable than undertaking an across the board, nation-wide modification to the spectrum cap, especially when a major review of the cap will likely be conducted in the foreseeable future. Providing temporary relief, in geographical areas where a requirement has been substantiated, is an approach that would address TELUS' particular ESMR capacity issues. At the same time this approach would avoid the competitive inequity associated with providing special treatment for one wireless carrier under the cap, especially in the context of the current highly competitive and volatile market. In this regard, the BWA is also prepared to state that it would not oppose an application for temporary relief, in a particular geographic area, for a substantiated amount of additional spectrum. 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) The BWA does not support adopting the FCC's attribution rule as the appropriate approach in the current circumstances. The BWA notes that the FCC's decision to adopt an attribution rule was based on an extensive analysis of the circumstances existing in the U.S.