By Ahmad Hathout
Industry Canada’s new fee structure for spectrum below the 10 GHz band is contrary to the challenges facing the Canadian economy, the trajectory of mobile wireless prices, and out of touch in relation to peer countries, the largest wireless service providers are arguing.
Earlier this month, the department changed how it would charge for those spectrum fees in certain low and mid bands. Instead of the existing annual base rate with a multiplier based on MHz held and population served, the department has opted instead for a three-rate fee system that applies discounts to an annual base rate of $0.022 per MHz, per population. The department set June 15 every year to calculate holdings in the following in-scope bands: Cellular, AWS-1, AWS-4, PCS A-F blocks, and non-auctioned blocks of PCS G, WCS 2300 MHz, BRS 2500 MHz, and 3500 MHz.
The discount applies to carriers’ spectrum holdings, which is calculated by multiplying the number of held MHz by the population that spectrum serves (e.g. X million MHz-pop). For carriers holding up to 900 million MHz-pop, carriers will be charged the lowest rate of $0.0005 per MHz, per population (rate one) – a nearly 98 per cent discount to the base rate. This rate is intended to reduce barriers for new entrants and smaller players, especially those in rural and remote areas. For carriers holding between 900 and 1800 million MHz-pop, a 50 per cent reduction is applied at $0.011 (rate two). The final rate is for carriers – basically, the incumbents – who hold above 1800 million MHz-pop, which will cost the full $0.022 (rate three), which is the top end of the range the department was looking at.
“ISED expects that a rate at the top of this range could be sufficient to incentivize efficient spectrum use and obtain a fair return to Canadians for the use of spectrum,” it said, noting that cost recovery is not an objective of its spectrum policy. “It also provides a significant reduction from the rate of $0.04212822/MHz/population currently applied to Cellular and PCS spectrum and reflects the observed downward trend in licence fees and the price of spectrum over time.”
But the large wireless service providers are not seeing it that way.
“As the telecom sector and the Canadian economy face unprecedented challenges, the new fee framework increases the wireless industry’s operational costs at the wrong time and will negatively impact consumers,” a Bell spokesperson told Cartt.
Bell recommended a lower cost for tiers two and three: $0.0065 for the former and $0.013 for the latter, nearly half of the final adjustment. “Our proposed rates ensure that Canadians obtain a fair return for the use of this spectrum, accounts for values in larger population areas, accounts for differences in lower-band and higher-band spectrum, accounts for inflation and accounts for the lower revenue opportunities in rural and remote areas,” Bell said in its submission.
Rogers, like its incumbent peers, has argued that Canada already has some of the highest spectrum costs in the world, and this new framework will depress investment in infrastructure and will inflate consumer wireless bills.
The cable giant also argued that the presumptive fourth carrier Videotron, which has previously benefited from cheaper spectrum purchases through the department’s set-aside policy, will now get a discount based on its spectrum holdings even as it competes in the operating territories of the Big 3.
“By charging different fee rates based upon gross spectrum holdings, the government is imposing different cost structures on carriers despite competing in the exact same markets,” Rogers said in its submission. “A spectrum fees framework should not pick winners and losers and dictate market dynamics.”
Rogers proposed a fee structure that differentiated based on frequency and geographic location.
When asked for comment, Telus deferred to its submission, which noted the economic risk and impact on the carriers will vary “greatly” depending on the amount of spectrum and in which bands. “In the short term these risks fall disproportionately to the national MNOs but these risks will eventually impact regional MNOs as the mounting fees scale with every future eligible renewal band between 2034 to 2043,” Telus said in its submission.
The Vancouver-based telecom called the $0.022 base rate “well above international benchmark rates” for the low band and proposed that Industry create a two-band model — $0.015 for low-band and $0.009 for mid-band. If a single fee framework were mandated, which the department declined to do, it recommended the weighted average of the international benchmark averages for both bands at $0.0096.
Eastlink also suggested that the department reduce the rates within the three-rate system or else consumer prices are likely to increase.
The department reasoned that, while there are differences in the in-scope bands, they are all “in high demand and provide significant value to all licensees.” To support that argument, the department said the difference in value between the different spectrum bands has narrowed with the transition from 4G to 5G and carrier aggregation, which allows for faster network speed and capacity by combining radio frequencies.
The decision is also one expression for the way the department is taking seriously the concept of “use it or lose it” for spectrum, which it has raised previously as a driving force behind its policy decisions.
CanWISP, which represents fixed-wireless players who use spectrum for home internet, Xplore, Terrestar, Electricity Canada, and Quebecor, which owns Videotron, all saw the value in the three-rate fee system in part as a mechanism to support small- and medium-sized players and those that operate in sparsely populated rural and remote areas. Quebecor further suggested that the department raise the thresholds with additional spectrum holdings.
The department had considered but opted not to go for a single-rate framework, which would have applied the $0.022 fee across the board. “While a single-rate fee framework is highly predictable for licensees,” the decision said, “a rate that is set too low may not support efficient use while a rate which incents larger licensees to deploy could pose a barrier to investment for smaller licensees.”
Photo via Rogers
