1. Through the release of this paper, Industry Canada hereby announces the decisions resulting from the consultation processes undertaken in Canada Gazette notice SMSE-018-10 — Consultation on a Policy and Technical Framework for the 700 MHz Band and Aspects Related to Commercial Mobile Spectrum, and Canada Gazette notice SMSE-005-11 — Decisions on a Band Plan for Broadband Radio Service (BRS) and Consultation on a Policy and Technical Framework to License Spectrum in the Band 2500-2690 MHz.
3. The following document sets out Industry Canada’s decisions in four parts. Part A outlines the general policy decisions on both the band 698-806 MHz (known as the 700 MHz band) and band 2500-2690 MHz (known as the 2500 MHz). Parts B and C set out specific decisions regarding the 700 MHz and 2500 MHz bands. Part D outlines Industry Canada’s determination with respect to auction timing for both of the bands.
4. The Government of Canada is committed, through Canada’s Digital Economy Strategy, to ensuring that consumers, businesses and public institutions benefit from the availability of advanced, competitively priced telecommunications services in all regions of the country. Having a world-class digital infrastructure is a key pillar of the Strategy. A strong telecommunications sector supports the use of digital technologies across the Canadian economy, which is essential to maintaining our global competitiveness and economic prosperity.
5. The Minister of Industry, through the Department of Industry Act, the Radiocommunication Act and the Radiocommunication Regulations, with due regard to the objectives of the Telecommunications Act, is responsible for spectrum management in Canada. This responsibility includes developing national policies and goals for spectrum utilization, and ensuring effective management of the radio frequency spectrum resource.
6. Industry Canada has been guided by both the policy objectives of the Telecommunications Act and the policy objective of the Spectrum Policy Framework for Canada, which is to maximize the economic and social benefits that Canadians derive from the use of the spectrum. Consequently, Industry Canada's main objectives for the decisions outlined in this paper are as follows:
- sustained competition in the wireless telecommunications services market so that consumers and businesses benefit from competitive pricing and choice in service offerings;
- robust investment and innovation by wireless telecommunications carriers so that Canadians benefit from world-class networks and the latest technologies; and,
- availability of these benefits to Canadians across the country, including those in rural areas, in a timely fashion.
In support of these objectives, Industry Canada is releasing spectrum in the 700 MHz and 2500 MHz bands and has made the decisions outlined in this paper, with the intent that this spectrum be deployed by telecommunications service providers in a timely manner for the benefit of Canadians.
7. In pursuing these objectives, Industry Canada’s guiding principle for telecommunications policy, including spectrum management, is to rely on market forces to the maximum extent feasible, but to take minimally intrusive measures when necessary to achieve objectives. Furthermore, Industry Canada’s policies should be developed in an open, transparent and reasoned manner. To this end, Industry Canada carefully considered input from the public consultations on the spectrum in the 700 MHz and 2500 MHz bands in formulating its policy measures, as reflected in this document.
8. The Canadian wireless telecommunications market. The wireless sector plays an increasingly important role in Canadian telecommunications, now constituting 43% of telecommunications revenue, up from 28% in 2004. In 2010, Canada added 1.7 million wireless subscriptions and wireless telecommunications revenue grew at a rate of 6.6% compared with a decline of 1.6% in wireline telecommunications revenue.Footnote 1
9. This growth reflects the real benefits accruing to Canadian consumers and businesses. Today, 99% of Canadians have access to wireless services, and more than 98% have access to high-speed wireless networks.Footnote 2 Providing newer, innovative services to more people would not have been possible without significant investments in infrastructure by the private sector. The continual need for significant investments in infrastructure is a key characteristic of the telecommunications sector.
10. Developments since 2008. The growth in the use of smart phones, tablets and other data-intensive devices is putting unprecedented demands on mobile networks, increasing the need for greater network capacity, and the spectrum that enables it. More than eight million Canadians now use a smart phone, a number that has more than doubled in less than two years. Global mobile data use has tripled each year since 2008, and is expected to experience a compound annual growth rate of more than 90% to 2015.Footnote 3 As the demand for these new wireless devices and services grows, so must the capacity and the speed of the networks that enable them.
11. The competitive landscape in the Canadian mobile services sector has changed significantly since 2008. This is a function of factors such as strong private sector investment, as well as the Government of Canada’s actions in the last spectrum auction in 2008. To open the doors to new competition in the wireless market, in the 2008 Advanced Wireless Services (AWS) auction, the government set aside spectrum for companies having less than 10% of the national wireless market based on revenue; and mandated tower sharing and roaming. These measures enabled additional companies to enter the Canadian wireless services market and quickly start providing wireless services. These additional companies are hereinafter referred to as AWS entrants.
12. AWS entrants have since launched services and made inroads in the market, investing over three billion dollars and attracting more than one million customers.Footnote 4 During the same time, incumbents (Bell, MTS Allstream, Rogers, TELUS, SaskTel) have made large investments to roll out new technologies.
13. Offerings from AWS entrants and incumbent providers since 2008 have resulted in lower prices and more options in wireless packages for consumers and businesses. Average Canadian mobile wireless prices have fallen by more than 10% since 2008.Footnote 5 As of 2011, AWS entrant data and voice packages were priced 30% lower than comparable service packages by incumbents. AWS entrants’ mobile Internet service rates were, on average, priced 27% lower than the incumbents’ and allow for higher “unlimited” data usage levels.Footnote 6
14. The mobile services market is still dominated by Rogers Communications Inc. (Rogers), Bell Mobility Inc. (Bell) and TELUS Communications Company (TELUS), which have a total of more than 23 million wireless subscribersFootnote 7 and a combined national subscriber market share of 93%. The two main regional providers, SaskTel and MTS Allstream, hold market shares of 78% and 57% in their respective territories.Footnote 8 The AWS entrants have a combined national subscriber market share of 3%.Footnote 9
15. In its consultations, Industry Canada sought views on the current state of competition and its expected evolution in the wireless marketplace. Consultation respondents generally felt that the state of wireless competition in Canada had strengthened since 2008, and that the level of competition is now more comparable to that found in international jurisdictions. Respondents generally either attributed the gains to increased competition between Rogers, Bell and TELUS, or to the recent competitive pressures (on price, consumer options and services) introduced by AWS entrants.
16. Other countries have adopted measures in spectrum auctions to support competition and service availability, including auction rules that ensure that multiple companies acquire spectrum, primarily through the use of caps that limit the amount of spectrum licences that any one company can acquire. Through the use of spectrum caps, the responsible agencies in other countries aim to address the risk of one or more dominant providers obtaining all of the spectrum licences available for auction, resulting in a reduction of competition in the marketplace. Countries that have recently applied spectrum caps in some of their auctions include the United Kingdom, Italy, France and Germany.
17. Additional measures taken by foreign governments to promote competition in the wireless market include roaming requirements. To promote rural deployment, many countries also require the winners of spectrum to deploy to rural areas within a specified period of time.
Industry Canada has concluded that:
- competition in the wireless sector has increased significantly since the government set aside spectrum for new entrants in the 2008 auction;
- this increase in competition has been driven by both the entry of new service providers and intensified competition by incumbents; and
- competition from AWS entrants is emerging.
18. The need for spectrum. Industry Canada consulted with stakeholders on their expectations of current and future demands for spectrum. Respondents overwhelmingly identified the rapid increase in mobile broadband usage among end users as a key driver of increased spectrum requirements in the near term. Although some noted that efficiencies may arise through spectrum management, most respondents indicated the need for more spectrum to be reallocated to commercial wireless usage going forward.
19. AWS entrants also cited difficulty in sustaining competition if they were unable to obtain new spectrum licences. These companies cited challenges resulting from having access to spectrum in only one band in terms of their ability to access equipment and devices for their customers. Bell, Rogers and TELUS noted that, although they have access to more spectrum (85% of all wireless spectrum commercially available across a variety of bands),Footnote 10 they also serve the majority of the wireless customers.
20. The spectrum to be licensed in the 700 MHz and 2500 MHz bands possesses unique characteristics. Respondents highlighted the benefits of 700 MHz spectrum: excellent propagation and in-building penetration, making it highly applicable for both urban and rural deployment at a lower cost than higher frequency spectrum. Many respondents also noted the importance of the 700 MHz band in meeting the needs of rural users. Furthermore, the band was cited as important to all wireless service providers to meet increasing demand and ease growing network congestion in urban areas.
21. Respondents also noted the scarcity of spectrum below 1 GHz. The only similar spectrum to the 700 MHz band that is currently licensed for commercial mobile use is in the Cellular band (800 MHz), of which 99% is held by Rogers, Bell, TELUS, SaskTel and MTS Allstream. Only two service providers hold licences for this spectrum in most licensing regions.Footnote 11 AWS entrants highlighted their lack of access to spectrum below 1 GHz as one important disadvantage in their ability to compete with incumbents.
22. Respondents also indicated the importance of the economies of scale provided by U.S. equipment ecosystems in the 700 MHz band, which are expected to include several high demand handsets, tablets and other broadband devices.
23. In response to the 700 MHz consultation, the public safety community also indicated a need for spectrum. Public safety agencies use spectrum in their wireless communication on a day-to-day basis, in emergency situations and for disaster relief. Stakeholders providing views on the need for public safety broadband spectrum pointed to a growing need for reliable, secure mobile broadband applications that can improve the safety of first responders and enable faster response to emergencies. In particular, the public safety community highlighted how spectrum in the 700 MHz band could meet its unique requirements for reliability and coverage deep into buildings.
24. Spectrum in the 2500 MHz band is also expected to be in high demand to help service providers address future capacity constraints. Although the propagation properties of the spectrum are not ideal for mobile systems covering large rural and remote areas, the spectrum is expected to be highly useful in expanding the wireless capacity of mobile systems in urban areas and may also be deployed for fixed wireless systems in rural areas.
25. Industry Canada recognizes the value of the 700 MHz and 2500 MHz bands for all wireless service providers to help to meet capacity demands, to offer the latest technologies, to improve coverage and service quality, and to effectively compete in the market. Industry Canada also recognizes the need for spectrum to support public safety and security.
26. Whether measures are required by Industry Canada to support competition, investment and benefits for all Canadians, including those in rural areas. Industry Canada consulted stakeholders on the need for measures in the 700 MHz and 2500 MHz auctions to promote competition in the wireless market and deployment to rural areas. Stakeholders were also asked to comment on what sort of measures would be appropriate (if action was warranted), and for their views on the actions taken in the 2008 AWS auction.
27. Respondents were polarized in their assessment of the impact of the measures taken in the 2008 AWS auction to increase competition. Some respondents, including AWS entrants, felt that the measures in the AWS auction were necessary to allow new entrants into the marketplace and improve competition. Incumbent service providers generally felt that the interventions distorted the market, inflated the price of non-set-aside spectrum, and that the current number of competitors in the market was unsustainable.
28. Views also differed on whether measures to promote competition should be taken in the 700 MHz and 2500 MHz spectrum licence auctions to support competition in the current Canadian marketplace. Some incumbents indicated that Industry Canada should take no measures in the auctions and allow the spectrum to be secured by the highest bidders. The respondents opposing measures argued that there is currently a high level of competition in the marketplace, and that open auctions are efficient in allocating scarce resources, while interventions are ineffective and distorting.
29. Other respondents, including AWS entrants, called for some or all spectrum to be reserved for AWS entrants and future new entrants through the use of set-asides or caps in the spectrum auction. These stakeholders stated that without further support, the marketplace was likely to revert to a lower level of competition. Many argued that large service providers would purchase all available spectrum if not prevented from doing so, resulting in lower competition. With regard to the 2500 MHz spectrum, most respondents, including TELUS and MTS Allstream, noted that Bell and Rogers already control a large amount of spectrum in this band, and called for measures to limit or prevent them from acquiring additional spectrum in this band.
30. Some AWS entrants also called for other measures to meet their infrastructure needs and support their ability to provide effective competition. These measures include improvements to the tower sharing and roaming policies introduced following the AWS auction. Some AWS entrants suggested significant changes, including the regulation of wholesale roaming rates and tower sharing fees to replace the current company-to-company negotiated agreement process. Incumbents generally saw no need to change existing tower sharing and roaming policies.
31. With respect to requirements for rural deployment, some incumbents specified that they would deploy 700 MHz spectrum and bring next-generation wireless services to rural areas in the short term; and that onerous conditions were not required. Some respondents suggested direct subsidies to promote rural deployment, whereas others suggested auctioning spectrum licences for urban and rural areas separately to support rural deployment.
32. Using their existing spectrum holdings, including spectrum below 1 GHz, Bell, Rogers and TELUS have deployed high-speed mobile services to areas covering 97% of Canadians. The upcoming auction of 700 MHz spectrum will be only the second time that such spectrum below 1 GHz has been made available for commercial mobile services in Canada, and represents an important opportunity to deepen network capacity in rural Canada.
Industry Canada recognizes that:
- access to spectrum represents a critical barrier to entry in this industry and that without rules preventing excessive concentration of spectrum holdings, competition could suffer; and,
- spectrum in the 700 MHz band presents an opportunity to further improve mobile services in rural Canada.
33. In view of the above considerations, Industry Canada has concluded that targeted measures related to the 700 MHz and 2500 MHz auctions are required to support the objectives of sustained competition, robust investment, and improve mobile services in rural areas, as well as provide public safety and security benefits. In keeping with the guiding principle outlined in Section A2, Industry Canada has designed these measures to be minimally intrusive.
34. Spectrum caps in the 700 MHz and 2500 MHz auctions. To support the objectives of sustained competition and robust investment in a minimally intrusive manner, Industry Canada is applying spectrum caps in the 700 MHz and 2500 MHz auctions to limit the amount of spectrum that each company can obtain.
35. These spectrum caps will give four or more service providers in most regions, including AWS entrants or future new entrants, the opportunity to access prime spectrum in both the 700 MHz and 2500 MHz bands. The caps will also support competition by preventing a further concentration of holdings in the 2500 MHz band, allowing many service providers to improve their networks and the experiences of their customers.
36. Spectrum caps are more appropriate than set-asides for the auctioning of 700 MHz and 2500 MHz spectrum because of the limited quantity of 700 MHz spectrum available; the different values that providers may place on the specific blocks of 700 MHz; and the fact that certain companies already hold licences for large amounts of 2500 MHz spectrum. The use of caps will not require Industry Canada to identify specific blocks of spectrum for a set-aside, but will allow companies to choose blocks based on equipment ecosystem preferences and business plans. For these reasons, the use of caps will support the objective of sustained competition in a less intrusive manner than the use of a set-aside. Further details on the measures to support competition through spectrum caps in the 700 MHz and 2500 MHz auction can be found in sections B3 and C2 respectively.
37. 700 MHz rural development requirement. The Government of Canada, in support of Canada’s Digital Economy Strategy, is committed to facilitating access by Canadians in all regions of the country to advanced, competitively priced telecommunications services. Given the rare opportunity to improve rural services by making more spectrum available below 1 GHz, and that the timely deployment of next-generation services in rural areas is not guaranteed through market forces alone, Industry Canada is requiring rural rollout conditions for auctioned licences in the 700 MHz band. In each licence area, companies that have access to two or more blocks of 700 MHz spectrum, through licences obtained in the auction or through spectrum sharing, will be required to deploy services to 90% of their existing broadband mobile coverage area within five years, and 97% within seven years of licensing. In order to facilitate access to multiple blocks of spectrum, Industry Canada will consult on the rules related to associated entities to consider changes that would permit certain business arrangements between competitors, as outlined in section B3. Details on how Industry Canada’s spectrum policies on the 700 MHz and 2500 MHz auctions will benefit rural Canadians can be found in sections B4 and C3 of this document.
38. Extending and improving tower sharing and roaming policies. In order to further support competition in a minimally intrusive manner, Industry Canada intends to extend and improve the existing tower sharing and roaming policies instituted in 2008. These policies promote competition by requiring wireless service providers to provide other companies with access to roaming and towers on commercial terms. The proposed changes include an extension of in-territory roaming for all service providers indefinitely, accelerated timelines for both triggering arbitration and the arbitration process, and improved transparency with respect to the tower information necessary to facilitate sharing. Industry Canada will seek stakeholder views on these changes in a separate process.
39. Allocating 700 MHz spectrum for public safety broadband. In order to support the safety and security of Canadians, Industry Canada is immediately designating spectrum (5+5 MHz) in the 700 MHz band for public safety broadband use. This will allow the public safety community to develop an interoperable network to address the growing mobile broadband needs of public safety first responders, enhancing the safety and security of Canadians. Industry Canada also consulted on the possible use of another paired block for public safety broadband use, referred to as the “D block” in the Upper 700 MHz band. The U.S. recently decided to designate the D block in the Upper 700 MHz band for public safety broadband use. Industry Canada will further consult on the use of this additional 10 MHz of spectrum in light of this decision. Further details on public safety designations can be found in Section B2 of this document.
40. Industry Canada consulted on the advantages and disadvantages of proceeding with a combined auction for the 700 MHz and 2500 MHz bands, or holding the auctions separately and, if so, which band should be auctioned first. Industry Canada will proceed with the 700 MHz auction in the first half of 2013, followed by the 2500 MHz auction in early 2014. Further details on this decision can be found in Part D of this document.