Gazette Notice DGRB-002-06

Department of Industry

Radiocommunication Act

Notice No. DGRB-002-06 — Spectrum Licence Fees for Broadband Public Safety in the Band 4940-4990 MHz

1. Intent

This notice announces Industry Canada's spectrum licence fee proposal for the frequency band 4940-4990 MHz, and requests further comment on the proposed fee and related service standards.

2. Background

The provision of public safety and national security services rely heavily on advanced communications and the need for new wireless technologies and radio applications has put significant pressure on government to allot spectrum for these requirements. Accordingly, the Department reserved spectrum in the band 4940-4990 MHz to ensure that public safety agencies are given access to dedicated spectrum in order to meet their needs, when it released the technical and licensing policy for this band, Spectrum Utilization Policy, Technical and Licensing Requirements for Broadband Public Safety in the Band 4940-4990 MHz (DGTP-005-06). That document deals with all licensing issues, except licence fees.

By way of this notice, and in accordance with subsection 4(1) of the User Fees Act¹ (the UFA), the Department is providing additional detail with respect to costs and revenues associated with the service, comparable fees, and a further opportunity for stakeholders to comment on the proposed fee for the band 4940-4990 MHz, as well as the related service standards.

3. Discussion

The Radiocommunication Act grants the Minister of Industry the power to prescribe and fix fees for the use of the radio frequency spectrum. Under this authority, the Department, on behalf of Canadians, manages the spectrum and collects licensing fees for the use of this resource. Unlike some other government fees, the establishment of spectrum licence fees is not on a cost recovery basis, but rather the recovery of the fair market value of the licence.

The Department initially proposed in the consultation document DGTP-005-05, Proposed Spectrum Utilization Policy, Technical and Licensing Requirements for Broadband Public Safety in the Band 4940-4990 MHz, that the fee for spectrum in the 4940-4990 MHz be $0.004166² per 50 MHz per population (50 MHz/pop) with a minimum fee of $250.00³ for a term of ten years, payable to the Department by March 31st of each year.

In response to the proposed fee, several stakeholders voiced concerns about charging licence fees to public safety agencies. They cited concern that the development and deployment of public safety services, and the interoperability between public safety agencies, may be hindered if licensees were unable to afford the fee. Some suggested that the Department treat this band as it does other public safety bands and implement a similar fee structure, whereas others suggested that the fees should not exceed the cost of managing the band.

Notwithstanding these suggestions, Industry Canada continues to believe that the proposed fee reflects fair market value for this spectrum and will encourage its efficient use. Further, under the Radiocommunication Act, all users, including governments, are required to pay licence fees on the same basis as other users of spectrum. This came into effect in March 1987 with the passing of Bill C-3, a bill to amend the Radio Act⁴, through which Parliament eliminated the preferential licence fees granted to users of the spectrum in the federal, provincial and municipal governments, including public safety entities.

3.1 Cost Elements

To determine the cost of implementing this service, Industry Canada has estimated the amount of time required to develop and implement this initiative over the first three years. Prior to launching any new service or issuing any licences, significant resources are expended to consult with stakeholders and to develop the utilization policy, technical and licensing requirements.

The initial costs are highlighted in Table 1, under Year 1. Like most policy processes, the time to develop and implement new services can be quite lengthy. However, as with most programs the operating costs are expected to decrease with time.

3.2 Revenue Elements

This frequency band and the anticipated associated equipment are still in development. As such, the Department anticipates a gradual roll-out of networks and systems. Applicants will only need a licence for the area where the network is deployed, and only for the jurisdictional area, or the portion of that area, where they anticipate operating. Licence fees will increase only as networks are expanded to provide services to an increased population. This approach to licensing will provide licensees with some control over their licensing costs while ensuring they only pay fees that reflect the area for which they are authorized.

As Table 2 demonstrates, over the initial three-year period, the Department anticipates that revenues will be low because this will be a new service and the equipment anticipated for use is not yet proven. As well, the price for new equipment is high because it has not yet benefited from economies of scale.

Stakeholders have indicated a clear interest in developing these frequencies for broadband public safety services. The Department anticipates that these parties will monitor the development of this band with a view to deploy services in time. Many public safety entities already have systems in place for public safety communications; however, as new equipment for this band is proven and existing systems are replaced, it is expected that public safety entities will make increasing use of the frequency band 4940-4990 MHz.

The following table provides examples of spectrum licence fees for different service areas:

4. Fee Comparisons

In developing the proposed fee and to establish the value of this spectrum, fees within Canada and three other countries were considered: the United States (U.S.); the United Kingdom (U.K.); and Australia. It is important to note that a direct comparison between the proposed fee for band
4940-4990 MHz, other Canadian fees and those of the other administrations is possible only in theory owing to differences in service applications and because of different principles in how the spectrum is managed and how fees are charged for its use.

4.1 United States

The U.S., like Canada, intends to issue shared-use spectrum licences in the frequency band 4940-4990 MHz for use by public safety entities. Unlike Canada, where spectrum fees reflect market value, in the U.S. fees for non-auctioned spectrum are limited to reflect only the cost recovery for the management of the spectrum. Furthermore, the U.S. does not charge application or regulatory fees to public safety entities⁷. As such, a comparison is only possible by examining the neighbouring spectrum at
3650-3700 MHz, where the U.S. charges approximately $200 USD per year to recover management costs. This is consistent with the Department's proposed minimum licence fee of $250 for low population areas.

4.2 United Kingdom

In the U.K., spectrum in the range of 4400-5000 MHz is licensed for exclusive use by the Ministry of Defence. The military pays for the spectrum at £3,900 per one national MHz based on administrative incentive pricing⁸, an amount similar to what the private sector would pay. In theory, for a U.K. 50 MHz national spectrum licence in this band, for a population of 60 million, the military would pay £0.00325 per 50 MHz/pop, or roughly £195,000 per year. Based on an exchange rate of $2.09 CDN per £1.00, a U.K. spectrum licence would cost $0.0067925 CDN per 50 MHz/pop, whereas in Canada the proposed fee is $0.004166 CDN per 50 MHz/pop.

4.3 Australia

Spectrum in the band 4940-4990 MHz is licensed to the Australian Department of Defence, which pays fees to access the spectrum as part of the general Defence Bill. More generally, state, territorial and Commonwealth public sector agencies pay spectrum licence fees comparable to those paid by commercial licensees. Only entities providing public safety services that are staffed principally by volunteers such as rural fire fighting, search and rescue, coastguard, surf life saving services and rural ambulance services, are exempt from fee payment.⁹

In Australia, a national 50 MHz spectrum licence, in similar spectrum, for a population of 20.3 million, would cost approximately $100,000 AUS per year, or $0.004926 AUS per 50 MHz/pop. It is important to note that Australian fees do not vary as the number of licensees rises. Based on an exchange rate of $0.85 CDN per $1.00 AUS, an Australian 50 MHz spectrum licence would cost $0.004187 CDN per 50 MHz/pop, which is similar to the proposed fee of $0.004166 CDN per 50 MHz/pop for this band in Canada.

4.4 Canada

As outlined in the consultation announced in Canada Gazette notice
DGTP-005-05, in establishing a value for licences in the band 4940-4990 MHz, the Department has considered fees charged for other frequency bands in Canada.

The Department charges annual fees for Personal Communications Services (PCS) and Cellular licences based on a fee of $0.03512361/MHz/pop. The PCS spectrum, like the band 4940-4990 MHz, has a variety of uses. PCS spectrum licensees have exclusive access to the spectrum and service area indicated on their licence. This spectrum has a significant value for commercial service offerings. Applying the PCS/Cellular annual fee for a 50 MHz national spectrum licence in the band 4940-4990 MHz would result in a fee of $52 million per year, per licence. However, spectrum in the band 4940-4990 MHz will be issued on a non-exclusive basis meaning that users will be required to share this spectrum and hence it does not have the same commercial value as the PCS/Cellular spectrum. As such, the Department believes that the fee for this spectrum should be significantly lower than the PCS/Cellular fee.

Currently the Multipoint Communications Systems (MCS) licence fee is $0.008 per household per 6 MHz for generally exclusive access to this spectrum. MCS licensees are limited to fixed applications, whereas the
4940-4990 MHz licensees will be permitted greater flexibility. The annual fee for an MCS 50 MHz national licence would cost $676,000.

Local Multipoint Communications Systems (LMCS) spectrum licences were awarded through a comparative review process in 1996. The annual fees established at that time were $0.50 per household for 500 MHz, which would result in a licence fee of $520,000 if applied to a 50 MHz national licence. Similar to MCS, these licensees are restricted to fixed services and generally have exclusive access to the spectrum.

More recently, the Department made spectrum available for licensing in the band 2300 MHz for Wireless Communication Services (WSC) and the band 3500 MHz for Fixed Wireless Access (FWA), through an auction process resulting in market-based fees, a good indicator of the value of similar spectrum. An analysis of the successful bids establishes that an average fee paid for these licences equates to approximately $2.0 million for a national 50 MHz licence.

As previously stated, the proposed fee is $0.004166 per 50 MHz for spectrum in the band 4940-4990 MHz, subject to a minimum fee of $250.00. While no fee or service exists for which a direct comparison can be made, the proposed fee is significantly less than the cost of spectrum in other frequency bands due largely to the non-exclusive nature of the licensing. As such, Industry Canada believes this fee reflects fair economic rent that will encourage efficient spectrum use.

5. Service Standards

In response to the consultation document DGTP-005-05, stakeholders concurred with the Department's proposed four-week service standard. As in the past, priority will be given to emergency services when necessary. The Department welcomes any ideas or proposals for ways to improve this service.

6. Submitting Comments

The release of this Canada Gazette notice provides a further opportunity for comment on the proposed fee and follows the publication of SP 4940, Spectrum Utilization Policy, Technical and Licensing Requirements for Broadband Public Safety in the Band 4940-4990 MHz (DGTP-005-06) document.

Stakeholders will have a period of 30 days following the publication of this licence fee proposal to bring any concerns, suggestions or proposals with regard to the proposed fee, and the related service standards, to the attention of the Department. Respondents are requested to submit their comments electronically to the attention of the Department, no later than 30 days following the publication date of this notice to: spectrum_pubs@ic.gc.ca.

Written submissions should be addressed to the:

Manager, Emerging Networks
Radiocommunications and Broadcasting
Regulatory Branch
300 Slater Street, 15th Floor
Ottawa, Ontario
K1A 0C8

All submissions should cite the Canada Gazette, Part I, publication date, the title, and the notice reference number (DGRB-002-06).

Obtaining Copies

Copies of this notice and documents referred to herein are available electronically on the Spectrum Management and Telecommunications website at: http://strategis.gc.ca/spectrum.

Official versions of Canada Gazette notices can be viewed on the Canada Gazette website at: http://canadagazette.gc.ca/publication-e.html. Printed copies of the notices can be ordered by calling the sales counter of Canadian Government Publishing at (819) 941-5995 or 1 800 635-7943.

October 13, 2006

___________________________
Jan Skora
Director General
Radiocommunications and
Broadcasting Regulatory Branch

1. The User Fees Act received Royal Assent March 31, 2004.

2. The proposed fee discussed in DGTP-005-05 consultation document was rounded from $0.004166 to $0.0042. For the purpose of this fee proposal, DGRB-002-06, the proposed fee of $0.004166 is used.

3. The Department has proposed a minimum licence fee of $250.00. This fee reflects the cost recovery of the general administrative costs for the Department to issue and renew spectrum licences in this band.

4. Published in the Canada Gazette Part II, Vol. 121. No. 8.

5. 2001 census population data can be found on the Statistics Canada website at http://www12.statcan.ca/english/census01/home/Index.cfm.

6. Based on the proposed fee level of $0.004166 per 50 MHz/pop, the minimum fee of $250.00 would apply to spectrum authorizations for service areas of 60,000 or less, such as Charlottetown, Cornwall, Granby, Medicine Hat and Vernon.

7. Communications Act of 1934 (amended 1996). United States of America. Section 8 [47 U.S.C. 158] Application Fee: Sub-section (d)(1)

8. Radiocommunications Authority (United Kingdom), Spectrum Pricing: Third Stage Update and Consultation, paragraph 4.13, December 2000.

9. Radiocommunications (Taxes Collection) Regulations, Regulation 5: Exemption from tax. Commonwealth of Australia.