Annual fees now apply to renewed licences from 2001 auction

Annual fees will now apply to personal communications services (PCS) spectrum licences bought during the 2001 auction, Industry Canada said Monday. “Incentive fees that reflect a measure of market value of the spectrum encourage licensees to consider the cost of holding additional spectrum in balance with alternative available inputs ... and their operating costs to meet their objectives, while dissuading the over-use and anti-competitive behaviour that often accompany free or under-priced goods,” the department wrote in a notice on the renewal process for the spectrum. Some of the PCS licences, which operate in the 824-849 MHz and 1850-1910 MHz bands, were issued in a 2001 wireless auction. But others were awarded in a first-come, first-served process. Companies that acquired PCS spectrum on a first-come, first-served basis in 2001 have been paying annual licence fees since, but companies that were awarded spectrum in the 2001 auction have not. The new annual fees will now apply to those that acquired spectrum through the auction. The 2001 licences were given 10-year terms, and the first batch will expire March 31. Most of the licences in the band will expire between 2011 and 2013. Spectrum licences bought through auctions are traditionally not subject to annual licence fees because bidders are deemed to have paid enough during the auction to ensure competitive use of the resource. The industry has been debating for years whether licensees that purchased auctioned spectrum in 2001 would have to pay annual licence fees after the licence terms expired. The department has suggested it could raise the fees to market value, but the wireless industry opposed the idea. Bell Canada, Bragg Communications Inc., the Canadian Wireless Telecommunications Association (CWTA), MTS Allstream Inc., Rogers Communications Inc., SaskTel, Telus Corp. and other players have argued that licence fees should not be applied. But most companies say that if fees are applied, they should be based solely on cost recovery for managing the spectrum. They say they are concerned that higher licence fees could hamper network investments and that they would ultimately be passed onto consumers. In November, Industry Minister Tony Clement announced that all licence fees would be frozen at the current rate of $0.03512361 per MHz per population, and the department confirmed in its renewal policy Monday that the freeze will be maintained until further notice. “The Minister may review and amend the fees during the licence terms after consulting with licensees,” the department said. Industry Canada said the fee would apply to renewed licences awarded in the 2001 auction. In a separate release containing decisions about revisions to the department’s framework for spectrum auctions, Industry Canada said Monday that fees encourage licensees to put their spectrum to use and will be applied consistently irrespective of the process in which the licences were obtained. The department noted that other jurisdictions, including New Zealand, the United Kingdom and Australia, support renewal fees based on market value. But Keith McIntosh, the CWTA's director of regulatory affairs, pointed out in an email that the fees imposed by New Zealand are about $0.0158 per MHz per population, roughly half the Canadian rate. McIntosh said the association is pleased that the rates did not increase, but the existing fees are among the highest in the world and highest in the G7. “We continue to believe that a cost-recovery model is a legitimate option that the Department should consider and would be consistent with approaches taken in other countries, including the United States,” he wrote in the email. “If auction purchase prices include all the economic rents associated with the licence, any renewal fees should be based strictly on recovering the Department’s costs in managing the spectrum.” Legislation in the United States prohibits the Federal Communications Commission (FCC) from charging more than cost recovery after renewing a licence awarded in an auction, but proposals have been made in previous presidential budgets to raise the fees to market value. Michelle Englot, a spokeswoman for SaskTel, said by email that charging licence fees is a way to ensure carriers use the spectrum efficiently, failing an implementation requirement. “Charging the licence holders a higher renewal fee would make them think about the cost versus their plans for using the spectrum and whether it is worth it,” she said. Ian Munro, an independent consultant, said by phone that it's unclear how long the freeze on the fees will last. “My point all along has been that there should be clarity at the time of the auction about what any future renewal fees will be. Which is the mistake that was made 10 to 20 years ago, because the government didn't want to make a decision,” he said. “The risk of uncertainty isn't good for investors or for the wireless carriers themselves.” Munro said the annual fees up until now haven't caused any serious damage to the carriers' finances. “It provides a sizeable return to the public treasury. It doesn't seem to have crippled the businesses that have paid them all these years. It seems to be a pretty reasonable compromise to continue that over time,” he said. Adrian Foster, a partner with McLean Foster and Co., agreed in a phone interview that licence fees are a good way to ensure efficient use of spectrum. “How much of the PCS spectrum do they require? If you don't need it, don't buy it,” he said. Foster noted that prices are likely to go up as spectrum becomes increasingly scarce. Most of the PCS licences are expected to be renewed because carriers have invested in the spectrum extensively. Only non-compliant licences are likely to encounter difficulties in renewal. One of the conditions of licence for the spectrum is that a carrier must offer service at least 50 per cent of the population in the licensed area. The department also announced that the licences would be renewed for 20-year terms as opposed to the originally suggested 10 years. “Many countries, such as Australia, the United Kingdom and the United States, are moving away from a prescriptive style of spectrum management to one that embraces more flexibility and less regulatory intervention, while retaining necessary regulatory powers to manage spectrum effectively when required,” the department said. The department added that it granted the PCS licences for 20-year renewal terms in part because longer licence terms will provide greater incentive for investment and innovation. But the industry minister reserves the right to amend the terms and conditions of the licences. The department's notice for the PCS spectrum is the result of a consultation launched in March 2009. The department is also expected to release details on a condition of licence to invest a percentage of gross revenues on research and development. kfournier@thewirereport.ca

Annual fees now apply to renewed licences from 2001 auction

News | March 16, 2011

Unlock all the Canadian telecom, broadcasting and digital media news you need.

FREE TRIAL

SUBSCRIBE

Inside The Wire Report

Information

Hill Times Publishing

Get in Touch With Us