Cellular carriers demand relief from spectrum fees

Tired of shipping hundreds of millions of dollars in annual licence fees to Ottawa, the cellphone industry is mounting a concerted effort to slash the money Industry Canada makes them pay.

The department asked the wireless industry for comment as it decides what fees should be charged and conditions attached for renewing PCS licences, originally awarded in 1996, that will expire at the end of March, 2011.

What it got are complaints from the biggest carriers that the government is using them a siphon for money, and calls for a radical overhaul in the way fees are assessed and licences extended.

However, telecommunications consultant Iain Grant says carriers have a lot of gall asking for relief from paying fees on a public resource they make a profit on.

According to the Canadian Wireless Telecommunications Association, which represents the nation’s wireless providers and equipment makers, in 2008/2009, cellular/PCS licensees paid just under $130 million in spectrum licence fees. That’s 57 per cent of all the licence fee revenue collected by Industry Canada, it says, a sum doesn’t include the $5.7 billion Ottawa swallowed from last summer’s PCS and AWS spectrum auction.

In an interview, Grant was outraged. “$130 million divided by three companies [Bell Mobility, Rogers Communications and Telus] is really not a huge part of their revenues,” said the managing director of the Montreal-based SeaBoard Group consultancy. Those fees make “a significant dent” in the money Ottawa has to raise for social programs.

Carriers don’t see it that way.

In its submission to Industry Canada, Bell Mobility called a “spectrum fee holiday … to assist wireless carriers to weather the current economic storm.” Alternatively, Bell recommends that Industry Canada follow the U.S. and set cellular licence fees on a cost-recovery basis.

Similarly, in its submission Rogers Communications maintained that “it is clear that the department is receiving more than a ‘fair return’ for the use of the spectrum resource” and said spectrum licence fees should be limited to recovering the government’s administrative cost of managing the spectrum. “This action would eliminate a significant financial drag on the wireless industry and would result in more affordable services and greater investment in advanced wireless networks and services.”

Telus argued in its submission that Industry Canada spends some $225 million for expanding wireless service to rural and remote areas of Canada. The $130 million it takes from the carriers could be going for that, it said. While Industry Canada policy requires it to set licence fees to “maximize the economic and social benefits that Canadians derive from the use of the radio frequency spectrum resource,” Telus says the government should work with industry to set them at a “fair and reasonable level.”

In addition, the leading carriers call on the government to go beyond renewing licences for 10 years, with some suggesting a minimum 15 year period. Telus wants 20. Bell suggest an indefinite term.

Grant has no sympathy for the carriers’ pleas for financial relief, saying in 1996 they were given exclusive use of a limited publicly-owed resource – spectrum – he calls the “birthright” of citizens. Carries “have a protected asset,” he argued, “which we have allocated to their use exclusively.”

The $130 million a year in fees carriers complain about is “mouse nuts” compared to their revenues, Grant said. “Why should we not, as the people of Canada, extract a little vigorish along the way for the use of our resource?” he asked. “When last I checked, the three major companies that operate in the PCS spectrum have done quite well. Over the last decade they have earned in excess of $100 billion from that resource, for which they paid nothing” in 1996. Those licences were awarded to Bell, Rogers, Telus, Clearnet and Microcell (Fido) by the government strictly on the basis of who had the best plans. Clearnet was later bought by Telus and Microcell by Rogers. The licences were extended in 2001.

By contrast, auctions in 2001 and 2008 awarded spectrum to the highest bidder. However, the carriers object to paying auction fees and annual licence fees. But some of the carriers’ other arguments have merit, Grant said. He agrees that a 10 year extension of spectrum licences isn’t enough for long-term planning. He also agrees any ambiguity about the renewal of licences should be removed, and perhaps, remove the obligation of licence holders to spend on research and development.