Wireless industry says Industry Canada poised to increase spectrum licence fees

The Canadian wireless industry says it is concerned that Industry Canada will recommend raising spectrum licence fees to market rates when it releases an expert report on the issue this year. Spectrum licensing in Canada has been under debate for more than a decade, with the nature of fees collected by the government varying depending on the licence type. Licences bought through auctions are not subject to annual licence fee collection for a 10-year period, but non-auctioned licences incur fees depending on the band in use, the service offered, economic value of the licence, and previous benchmark rates. In March 2009, Industry Canada launched a consultation on spectrum licence renewals, suggesting that mobile spectrum be priced at market value. The theory behind using market rates to establish licence fees is that higher prices would make more efficient use of spectrum. But raising licence fees to market values is a contentious issue because it would increase spectrum prices for the wireless industry. According to industry sources, Industry Canada is planning to release an expert report on spectrum licence fees this year, followed by a call for comments. “We understand there will be a process this year to review those fees, but our understanding is they are going to be looking at raising those fees,” Ken Engelhart, Rogers Communications’ senior vice-president of regulatory affairs, told The Wire Report. Michael Hennessy, Telus Corp. senior vice-president of government and regulatory affairs, said British firm Plum Consulting is preparing the report. “My sense is already the study, it’s just the timing, because it’s a very contentious issue at this point,” he said. “Having just gone through an auction process that cost the industry $4.3 billion in new fees, it’s troubling this idea, and I should emphasize that at this point it’s just an idea.” Canadian Wireless Telecommunications Association (CWTA) president and CEO Bernard Lord told The Wire Report that increasing spectrum fees is supported by the department, but not by politicians. “There is a difference between the policy makers, the elected officials and some of the people inside the government that are proposing different things,” he said. “And that’s where this idea of jacking fees is coming from. I have not heard it from the elected officials, but I have heard from people inside the government who might want to propose an agenda of raising fees.” Industry officials argue that the fees collected by the government are too high. They say the government should switch to a cost-recovery model, in which fees are collected only to cover administrative costs. But if Canada moved to a cost-recovery model similar to the United States', it would have significant implications for government revenues at a time of austerity budgets and long-term deficits. Under a cost-recovery model, the government would collect about $4 million in fees per year from spectrum licencees—much lower than the $132 million it collected in 2009, according to figures provided by Bell Canada. “Right now we buy the spectrum in an auction. You’ve already paid for it in the auction. Therefore the only fees you should pay in addition to that are the fees to cover the department’s administrative costs. That is what they do in the United States,” Engelhart said. “We’d still be paying a fortune for auctions. We just wouldn’t pay the fees year after year. That’s the right model.” Hennessy said that Canada’s fees shouldn’t be higher than the fees levied by the U.S. Federal Communications Commission. Lord said he is concerned that an increase in fees would apply only to the wireless industry. Others, like broadcasters, could be excluded. “If market rates are applied to all spectrum, that is one thing, but if they’re only applying market rates to a small segment of users, for instance the wireless carriers, then you will be inflating the pricing,” he said. “Currently wireless carriers in Canada have about two per cent of the licenced spectrum in Canada, but they pay close to 60 per cent of all spectrum licence fees collected by the government. Clearly someone is getting a better deal than the wireless carriers,” he said. However some say broadcasting should be protected from spectrum market rates to ensure access to the airwaves for organizations offering public services. Bell Canada spokeswoman Jacqueline Michelis told The Wire Report in an email that Canada’s current licence fee rates amount to $5.74 per subscriber, but the rate is $0.17 per subscriber in the United States. The government’s consultation paper toward a digital strategy, released last week, said it is looking to increase spectrum access. Industry Canada spokeswoman Lauren Ehrenworth told The Wire Report by email that the government is “looking at options to develop a fee structure that would be a more efficient use of spectrum.” On April 22, Industry Canada, in collaboration with the Radio Advisory Board of Canada (RABC), organized a roundtable on spectrum issues such as incentive pricing, spectrum trading and usage rights, and legislation. Ehrenworth said the department began planning the roundtable last year in advance of the digital strategy consultation, but that the two are not directly linked. But Ian Munro, an independent consultant, said Canada would be better served by assigning market values to non-auctioned spectrum. He said the key is to find the right price—one high enough to encourage efficient use, but low enough that it remains affordable. “Most economists would argue that users should pay the market value of a resource or any asset because that will induce efficient behaviour and will ensure that the resource or the asset in question retains the highest value,” he said in an interview. “When you’re talking about any business entity that has to pay a government fee, they will always find a way to say that it’s too high. That is understandable. They want to keep their fees as low as possible.” kfournier@thewirereport.ca

Wireless industry says Industry Canada poised to increase spectrum licence fees

News | May 18, 2010

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