Terrestar takes CRTC spectrum revenue decision to Federal Court of Appeal

Terrestar Solutions Inc. is bringing the CRTC to the Federal Court of Appeal over its decision that spectrum sublicensing revenues must be included in telecom companies’ financial contribution requirements. Since 2022, the satellite communications company has been fighting with the commission over whether companies can deduct revenues made through the sale or subordination of spectrum licences from the calculations used to assess how much they owe the National Contribution Fund, which supports CRTC initiatives including the Broadband Fund and video relay service, which helps people with hearing or speech disabilities communicate. Terrestar filed its appeal with the court on Nov. 8. Under the revenue-based contribution regime, telecom service providers (TSPs) making over $10 million in annual Canadian telecommunications services revenues are required to contribute a percentage of those revenues to the National Contribution Fund. The fund “is critical to ensuring that all Canadians have access to reliable, affordable, and high-quality telecommunications services,” according to the CRTC. The dispute stems from an annual revenue report filed by Terrestar in March 2022, in which the company tried to deduct spectrum sale and subordination revenues from its Canadian telecom service revenues, which would have lowered its contribution obligations. Spectrum subordination is when a company with a spectrum licence, issued by Innovation, Science and Economic Development Canada (ISED), leases the right to use all or a portion of that licensed spectrum to another wireless carrier. The deductions Terrestar was looking for were rejected by the CRTC. Disagreeing with the rejection, Terrestar filed a Part 1 application with the regulator arguing that the sale and subordination of spectrum does not fall under the definition of a “telecommunications service” as laid out in the Telecommunications Act and requested a declaration of the “correct characterization.” The CRTC denied the request, effectively blocking the company’s attempts to deduct spectrum revenues from their contribution requirements. The CRTC stated that Terrestar’s interpretation failed to account for the fact that “any service that is incidental to the business of providing telecommunications services” also counts as a telecommunications service. “Spectrum is a scarce resource, diligently allocated for specific purposes,” said the CRTC, adding that revenues derived from its sale must “at least be incidental to the business of providing telecommunications services.” “Prior to this, no other company had attempted to deduct revenues from the sale or lease of spectrum, despite these being common industry services,” said the CRTC at the time. Terrestar then filed a review and vary application to the regulator in August 2023 challenging its decision. The company argued that there were no previous CRTC decisions or guidance indicating that spectrum sale and subordination revenues are considered incidental services and must be included in the revenue calculations. Terrestar also argued there was no evidence on the record that other TSPs treat subordination revenues as Canadian telecom service revenues. Terrestar additionally requested a stay of the decision until the commission ruled on its review and vary application. Both the stay request and the review and vary application were rejected in February and June of this year, respectively. Terrestar’s arguments in its notice of appeal are similar to those made in the earlier proceedings, while accusing the CRTC of committing “extricable errors of law and jurisdiction.” “Terrestar is the holder of a number of spectrum licences,” the company states. “For a fee, Terrestar has subordinated the use of some of its unused licensed spectrum to third parties for a fixed term, thereby deriving revenues from these subordination arrangements.” “Terrestar provides no equipment, facilities or connectivity of any kind to the subordinate licensee; only a bare contractual right… to use part of the publicly-owned electromagnetic spectrum,” the company adds, emphasizing the fact that it does not use the spectrum that it sublicenses in these agreements. “This subordinate use is to the exclusion of Terrestar’s own terrestrial use of the spectrum,” it states. The company alleges that the CRTC made “several conclusions of law without any supporting analysis” in its decision that spectrum sale and subordination are “telecommunications services.” The CRTC has found “a range of activities and facilities” over the years to be “telecommunications services” or “incidental” services, says Terrestar. It argues, however, that “none of these decisions have dealt with the sale subordination of spectrum licences." The company is calling on the Federal Court of Appeal to set aside the CRTC’s decision and issue an order “declaring that the sale and subordination of electromagnetic spectrum are neither ‘telecommunications services’ nor services that are ‘incidental to the business of providing telecommunications services.’” The Wire Report has reached out to the CRTC for comment. None of the allegations have been tested in court. phalentm@thewirereport.ca

Terrestar takes CRTC spectrum revenue decision to Federal Court of Appeal

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By Phalen Tynes-MacDonald
| November 19, 2024

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