Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 3 - Evidence - October 3, 2006
OTTAWA, Tuesday, October, 3, 2006
The Standing Senate Committee on Transport and Communications met today at 9:30 a.m. in order in order to study new Fees for Services Provided by Industry Canada Relating to Telecommunications and Radio Apparatus, pursuant to the User Fees Act, S.C. 2004, c. 6, sbs. 4(2).
Senator Lise Bacon (Chairman) in the chair.
[Translation]
The Chairman: I call the meeting to order. On our agenda, we have new Fees for Services Provided by Capital Industry Canada Relating to Telecommunications and Radio Apparatus, pursuant to the User Fees Act, S.C. 2004, c. 6, sbs. 4(2).
Our witnesses from Industry Canada, are Mr. Claude Beaudoin, Lab Director, Certification and Engineering Bureau. Mr. Efrain Guevara, Manager, Interconnection Standards, Telecom Engineering and Certification. Mr. Glenn Sheskay, Counsel, Department of Justice Canada.
[English]
Before we hear from our witnesses, I would like to take a few minutes to provide background to honourable senators. This area is fairly new to us.
In 2004, Parliament enacted the User Fees Act. This act established a process requiring the government to take certain steps in order to fix increases, expand the application or increase the duration of a user fee.
In addition to a lengthy consultative process, the government is required to table the proposal in both the House of Commons and the Senate, along with an explanation of how certain elements of the consultative process were conducted. The act requires this proposal to be referred to a committee for review and allows up to 20 sitting days for that review to take place.
In June 2006, the Rules of the Senate of Canada were amended to provide a process in which to determine what committee the user fees applied to. Rule 28 (3.1) now provides that when the leader of the government in the Senate or the deputy leader of the government in the Senate tables a document having to do with a user fee proposal, the proposal is deemed referred to the committee indicated by the leader without vote or debate after consultation with the leader or deputy leader of the opposition.
In accordance with rule 28(3.1), on Tuesday, September 26, 2006, Senator Comeau tabled a proposal from Industry Canada recommending changes to two user fees with respect to terminal equipment and radio equipment, and designated this committee for their referral.
In accordance with the act and the rules, this committee has 20 sitting days in which to consider the proposals and report to the Senate, after which we will have been named to report an approval.
Should the Senate continue its regular sitting schedule, this will allow us until November 23 to consider the proposals. This is the first time that a Senate committee has considered a user fee proposal under the new rules.
To help us understand the implications of the fee proposal, we are joined today by the officials I previously introduced to you. We invite our witnesses to begin their presentations, after which I am sure members of the committee will have questions.
Claude Beaudoin, Lab Director, Certification, Engineering Bureau, Industry Canada: Ladies and gentlemen, honourable senators, for many years Industry Canada and, previously, the Department of Communications has charged fees for cost recovery of its testing, certification and market surveillance activities. That practice conforms to regulatory requirements of telecommunications equipment and radio apparatus.
Recently, regulatory streamlining, globalization of the industry and increasing product volumes have driven the change for which we seek your approval. Thank you for giving us this opportunity to explain our fee proposal entitled: New Fees for Services Provided by Industry Canada Relating to Telecommunications and Radio Apparatus.
I am happy to propose fees that will reduce costs to the industry. For example, the registration fee will reduce revenues collected by the department from approximately $1.9 million in 2004-05 to $450,000 per year thereafter.
The proposed fees will allow us to streamline regulatory processes in line with the smart regulation initiative and make maximum use of government on-line facilities. The industry was consulted through the Terminal Attachment Program Advisory Committee, the Radio Advisory Board of Canada and the Telecommunication Industry Association. The industry anxiously awaits our new fee structure.
My colleagues and I represent the spectrum, information technologies and telecommunications sector within Industry Canada. Our sector is responsible for the administration of the Telecommunications Act and Radiocommunication Act. This responsibility includes regulating telecommunication equipment for the purposes of preventing interference or degradation of service to others.
In short, the proposal in front of you is a new fee structure for the registration of approved telecommunications equipment as well as a listing of on-line certified radio equipment in a database.
One of our departmental strategic objectives is to maintain a fair, efficient and competitive marketplace. These services are key to allowing us to meet that objective. The lists are also a valuable tool for market surveillance and audit.
These fees are part of a new fee structure proposal that is composed of four fees. Only two of these fees are pertinent to the User Fees Act and will be presented here today.
I will now provide details of the proposal. The fees are charged by the Certification and Engineering Bureau within our department, an organization providing direct services to clients. Among other things, we manage and review the registration and certification notification, we certify radio apparatus ourselves and we perform market surveillance and enforcement based on these lists.
The lists are contained in a database, and the database contains equipment compliant with our regulations. The database contains information about the models that are proposed for the market, and they contain a unique certification or registration number that must be marked on the equipment. These lists are available on the Internet free of charge to industry and the Canadian public.
The first of the two fees we are here to discuss is the registration fee. That fee is to include approved telecommunications equipment in the database. When I say telecommunications equipment, I refer more to a wire line product, such as a telephone or a fax machine.
The proposal is to establish that fee at $750 as a one-time fee to be applied per product type and model. This fee recovers the costs of the program. This fee replaces the labelling fee. For example, at 11 cents per unit — and that fee applied on a per-unit basis — times the amount produced, to take a typical production of 100,000 units, which is not uncommon in this global market, the label costs alone are $11,000. Therefore this new fee is a significant improvement for the industry. The industry is interested in implementing this fee as soon as possible.
The second fee we want to propose today is a listing fee. That fee is to add certified radio apparatus to a similar database. The proposal is to charge $50 per model number. This fee recovers the costs of relating to the service and maintenance of the database itself. This fee replaces the certification fee, which was set at $45 in 1993. This process change is caused by the entry of Canada into mutual recognition agreements in 2004, where private certification bodies recognized by Industry Canada can also certify in the same way Industry Canada has done it for 20 years.
In order to appear in front of you, we followed the process under the User Fees Act, which was introduced at the same time that we were going through this exercise. We had to learn the process and we are still learning.
Of course, one big component of the User Fees Act is a consultation requirement. We have completed extensive consultations through consultative committees such as the Terminal Attachment Program Advisory Committee. That consultation was undertaken both on the terminal equipment, which is required under the Telecommunications act, and the radio apparatus, which is required under the Radiocommunications Act. We had an official consultation, in addition, through Canada Gazette in 2004. There were no negative comments. Industry wanted this new fee to be implemented as soon as possible.
You will have received by now additional information on our fees as required under the act, which was provided when we tabled the proposal in both Houses of Parliament. Two documents you should have are a paper on our proposal itself, as well as a template produced by our colleagues at the Treasury Board to help us provide relevant information.
That is the essence of our proposal.
Senator Tkachuk: Welcome, gentlemen. I have long been a supporter of user fees and have spoken on user fees many times in the Senate because of the way they were implemented as well as the fact that in many cases — I do not know about these cases — they do not necessarily go into the Consolidated Revenue Fund, but money goes directly to the agency, the department or the organization that charges them. Therefore it is interesting that our first case is one where the fees are going down and everybody is happy and can barely wait. I am sure industry is happy.
I want to ask some general questions before I ask a specific question. The fees themselves, the money charged for registering a product such as a telephone: is that fee for a new telephone that comes into the market? Do companies need permission for the product and to register the product with the agency? Is that how the fee works?
Mr. Beaudoin: Yes: This registration is the condition of introducing a new product on the market.
Senator Tkachuk: Do all Western countries, or most countries in the world, do this? Is registration required only for products made here or is it required for products that come from somewhere else?
Mr. Beaudoin: This registration is required for every product coming from wherever, Canada or abroad.
Senator Tkachuk: Do most countries have this kind of system?
Mr. Beaudoin: Yes: They have either a certification requirement or a registration requirement of some sort. For example, the U.S. also has a database of the information they register. Some countries may have a list as well but they may not publish it. In many cases, the regulatory authority maintains lists of equipment that they have certified or that have been certified within their country.
Senator Tkachuk: Where does that fee go?
Mr. Beaudoin: The fee collected, as it is collected, goes to the Consolidated Revenue Fund.
Senator Tkachuk: Is that in both cases?
Mr. Beaudoin: Yes.
Senator Tkachuk: You mentioned two other cases. There are actually four fees, right? Two apply here and two do not. What are the other two fees?
Mr. Beaudoin: One is an assessment fee. An assessment is done so we can provide certification. In our duty to certify the equipment, we perform an assessment of a product. Therefore, we charge for the time we spend doing the assessment.
The other fee is what we call a technical expertise fee. This fee is used not really for providing a service to the industry as much as providing a service to other government departments to help test equipment for the Canadian regulations. For example, if someone asks us to certify equipment and they make a small change and want us to have another look at it and make sure it still complies, it is used to re-evaluate. We call that a reassessment. Reassessment can take much less time than a full assessment. It is charged on an hourly rate.
Senator Tkachuk: I am shocked and surprised that governments of any kind would reduce a fee unless they are driven to it. What brought on the reduction of the registration fee from 11 cents a product piece to $850? As you say, if you make 100,000 telephones, the decrease in the amount you charge is substantial. Why is that?
Mr. Beaudoin: This reduction is to align the revenue with our costs. Way back in 1993 when those fees were revised and put forward, we never expected in the following years that the type of equipment would become a common good, such as a modem in a laptop. We did not expect that so many different types of equipment would show up and we ended up collecting much more than we should have. This reduction is to realign the costs with the revenue.
Senator Tkachuk: Over the years, the agencies made money on this fee, so to speak, inadvertently?
Mr. Beaudoin: There was over-cost recovery, yes.
Senator Tkachuk: That fee reduction is a big deal for a government agency. Maybe you should write about that.
Senator Eyton: Picking up on the same point, I am a member of the Standing Joint Committee for the Scrutiny of Regulations for both Houses, where there has been a history of correspondence dealing with licence fees. I will read the text of material I have in front of me that gives some history and background that may have relevance to what you propose to do.
I am reading from material circulated by the Standing Joint Committee for the Scrutiny of Regulations to be tabled in the Senate chamber today. It says:
In its Report No. 73, Broadcasting Licence Fees of October 23, 2003, the Joint Committee considered the licence fees imposed by the Broadcasting Licence Fee Regulations, 1997. The Joint Committee pointed out that licence fees collected by the Canadian Radio-Television and Telecommunications Commission (CRTC) are well in excess of costs incurred by the Commission. As concerned the fees known as Part II licence fees, for fiscal year 2002-2003, the Joint Committee noted the following: of the $92 million that was collected as Part II licence fees, some $10.3 million were stated to represent the costs to the Department of Industry of managing the radio frequency spectrum, leaving a total of $81.7 million in general revenues that went into the Consolidated Revenue Fund. In light of the factors enunciated by the Supreme Court of Canada in Eurig Estate (Re)3 for determining whether a fee constitutes a tax, the Joint Committee wrote that ``viewed from the perspective of the taxpayer...this fee regime might prove vulnerable to legal challenge.''
In fact, that fee has been challenged. There have been proceedings before the Federal Courts, and there, certainly, is another issue. Essentially, there seems to be a contest as to what is the appropriate level of fees. The allegation, of course, is that it is not a fee but a tax. The question is, what constitutes a tax?
Does some of that history have a lot to do with the fees you now propose?
Mr. Beaudoin: First, the licencing aspect of fees is a totally different issue from the fee we propose. Our fees relate directly to specific services. In a sense, these fees are the cost of maintaining a database, as opposed to a licence, which is the cost of a resource. We are dealing with something more concrete than a licence.
Senator Eyton: I understand that. Essentially, this is one area of broadcast where, in fact, the allegation is that it is a tax and not a fee. Do these challenges have something to do with the action you are now taking to reduce the fees significantly?
Mr. Beaudoin: Again, the idea for the change was that we realized we were overcharging, and we realized that some people may perceive that overcharging as a tax. This is why we are driven to realign, because we do not want this fee to be a tax but a tool required to perform proper market surveillance. Those costs fees are really aligned with —
Senator Tkachuk: Can I ask a supplementary question? How much over your costs were the fees you were charging, either in dollar terms or percentage terms, and how long has this overcharging been going on?
Mr. Beaudoin: I cannot give you an accurate figure. I can give you an idea of how bad the situation was at one point in time. At the end of the 1990s probably, the laboratory could collect probably in the area of $6 million for labels, to perform this program. We realized at this point that all equipment, including terminal equipment, had to be certified. We were not the only certifiers, so we were more involved. Still, at that time, $6 million compared to maybe $2-million or $2.5-million operation was probably a good approximation of what the situation was.
[Translation]
The Chairman: Mr. Beaudoin, in a document that we received from Michael binder, the assistant deputy minister, and which is entitled New Fees for Services Provided by Industry Canada Relating to Telecommunications and Radio Apparatus, and on page 2, it says that the comments received from industry were all positive. It also says that ``Industry eagerly awaits the introduction of these new fees.''
I would like you to give us more details about the consultations with industry, because it says that industry was consulted through the Terminal Attachment Program Advisory Committee and the Radio Advisory Board of Canada.
Who are the members of these groups that you consulted? What kind of balance is there among the various groups of stakeholders, namely manufacturers, telecommunications companies and users within this context?
Mr. Beaudoin: Committees like the Terminal Attachment Program Advisory Committee will, by participating, ensure a fair balance for telecommunications; network operators like Bell and Telus will be included; we will make sure that the nation is properly represented.
We also include manufacturers and other such stakeholders in the industry. We will be dealing with manufacturers, and entities or organizations involved in evaluating product compliance. We are also including consumer representatives. We are really trying to get an idea of public opinion by using this committee in a dynamic way so as to adapt our regulations to the fast pace of technological change.
This committee could have about 20 members and it will meet as needed. Currently, we meet with industry twice a year. This is an ongoing consultation process. Our regulations are constantly evolving — these are mainly technical regulations — so as to stay abreast of new technologies and to help put these new technologies on the market in a way that is secure both for users and operators.
Regarding radio, we have more or less the same kind of committee. The entire industry is represented. Our very close collaboration with these advisory committees may be something unique to our sector. Therefore it is not surprising that when official consultations have been carried out, the findings published in the Canada Gazette almost never draw any negative comments.
People have been informed beforehand and the industry knows what to expect. We inform industry of upcoming official consultations through these committees. Each time regulations change — concerning compliance standards — the changes are debated by the advisory committee so that the official publication does not come as a surprise to anyone. This has serves us well over the years.
[English]
Senator Phalen: I want to clarify. In the case of phone equipment in the past, manufacturers, in order to be compliant with industry and Canadian regulations, what were manufacturers required to do? Purchase a label for the phone?
Mr. Beaudoin: Yes: For the process for terminal equipment — for example, the telephone — the manufacturers, distributors or suppliers would first obtained a model or one sample or two samples of the equipment, tested by an accredited testing laboratory recognized by Industry Canada. Based on the report provided to them, we had a declaration of conformity process where the manufacturer or supplier said, ``Based on that report, my equipment complies with the Canadian requirements.'' They notify us through an on-line system in terms of the particular information associated with this equipment so we know what we are dealing with. From that point on, the equipment can be distributed to the market.
Senator Phalen: The new proposal is to eliminate the label system, and manufacturers submit a product for certification. Is that the idea?
Mr. Beaudoin: Staying in the telecommunications area, the first part of the product will not change. It must be tested still by a recognized testing laboratory. Manufacturers and distributors still submit the declaration of conformity. Then they can market it in Canada. When they send their notification for registration purpose, they receive a number. They can pick most of that number themselves, and they imprint it on the equipment. The notification lets us know that this product is out there and this number is affixed on it.
Senator Phalen: Is there a fixed fee for that?
Mr. Beaudoin: We propose a fixed fee for when they register, and that after they do not need to come to us when they need so many labels, or when they need to print so many. The other aspect is that the labelling is not a one-time thing. They do a first run, perhaps 10,000 or 100,000. If they need more they come back again. For the industry it means a significant tracking system.
Senator Phalen: Is it about a 50 per cent saving for the industry?
Mr. Beaudoin: If we took the example of the 100,000 production run at $11,000, that is about 10 times less in cost for that manufacturer, but we cannot neglect the costs that are inherent within the organization itself where, for example, obviously we have to mark those things. Therefore we want to make sure that only those products going to Canada are marked because manufacturers do not want to pay for products going to China or Europe. Manufacturers needed to segregate inventories: initially they had to mark them on a separate label. However, that was improved.
Senator Phalen: The savings seem to be obvious. Is it important for Canada to be in line with other countries on labelling, certification, or however you do it?
Mr. Beaudoin: It is important to have a marking on equipment. It is an important piece of tracking information to make sure that products on the shelves are known to us and compliant. Many countries use it for that purpose. Countries have different schemes. Some have a number and some ask for a mark or drawing of some sort, but most countries ask for some form of a mark.
Senator Phalen: It seems to me that for years the government made money on this fee. Is there a trigger point somewhere that when revenue and costs get out of whack, someone says something is wrong with the system?
Mr. Beaudoin: As far as I know, especially with the User Fees Act now, I believe a lot of processes are put in place where the department reports every year as to their costs and revenue. There is a lot of opportunity, especially now with this new process, to catch areas where an important divergence is starting whereas in the past it was done through cabinet.
I believe now with the User Fees Act there are many mechanisms to catch that divergence.
Senator Phalen: This seems to make a whole lot of sense.
Senator Zimmer: Thank you for your presentation gentlemen. I have two questions. Senator Tkachuk and Senator Phalen touched on both.
There are two important events that have influenced the new fee structure. One is the new international agreements in the form of mutual recognition agreements, MRAs, to which Canada is a signatory. What other countries are involved in these mutual recognition agreements? I believe you indicated the United States. What other countries are involved in these agreements?
Mr. Beaudoin: I believe we have five MRAs. We have one with the Asia-Pacific Economic Cooperation, APEC, countries, the United States, South America, North America and Europe. We have one with the countries in Europe that are not part of the union: Liechtenstein, Norway, Iceland and Switzerland. Altogether, about 70 countries are involved, including all our major trading partners.
In many ways these agreements have improved the way we conduct our relationships with other countries, and our capability to exchange information in a line to each other, and our programs are influenced by these exchanges. We try to see the benefit of another approach used by another country and we try to streamline our program using expertise that we learn.
Senator Zimmer: Does that approach lead to conformity amongst the countries?
Mr. Beaudoin: Yes.
Senator Zimmer: The declaration of conformity regime and registration schemes have been implemented for terminal equipment, replacing the former certification regime. How does the declaration of the conformity regime differ with the former certification regime?
Efrain Guevara, Manager, Interconnection Standards, Telecom Engineering and Certification, Industry Canada: In the past we had the same registration system for both terminal equipment and radio equipment. First, the supplier took a prototype to a lab to have it tested and have the lab prepare a test report. That test report was sent to Industry Canada and we reviewed it. If everything was correct, then issued a certificate and that product could enter the market.
At one point, we realized that the risk with telecom equipment, which is equipment that connects to services such as telephones, fax machines or modems, is less than the risk with radio equipment. Therefore we decided to continue with certification for radio equipment but for terminal equipment to relax things a little bit. We still require suppliers to have the equipment tested and a test report prepared. If the test report says that the equipment complies with the requirements then, instead of the supplier sending the equipment to us to review and to issue a certificate, we simply ask them to send us a piece of paper, a declaration of conformity saying, I declare that my product complies with the relevant regulations of Industry Canada. That is how they differ. The new proces is less stringent. The step of sending equipment to us, and then we issue a certificate, is replaced by a simple letter to us saying they comply.
Senator Adams: My question is a little different. User fees will go down by more than 50 per cent. Any company selling telephone or radio equipment usually includes what it will cost to distribute to other companies. If I want to buy something and I am living up in Nunavut, that cost will be more. Now that the fees are going down, will the company cut the price down on some of those products?
People are always concerned about costs.
Mr. Beaudoin: We hope to see some benefit passed on to the consumer, but they may be passed on in different forms. I mentioned a fee of 11 cents, but more costs than that are involved — maybe retention and keeping different inventory. We have been told by the industry that those costs are significant.
The real benefit, which is why you may see benefits in different forms, comes from trying to maintain a competitive market. We hope that this competitive market will put pressure on prices, as a company starts saving money, having fewer costs for their product, so that they will pass on some benefit.
The streamlining that we are doing may make it easy for all kinds of products to be introduced: diversity in products and earlier introduction of new products. Altogether, we certainly hope some benefit will be passed on to consumers.
Senator Adams: In respect to the final approval for radio and telephone, has anything been approved by the CRTC? You are talking about new equipment coming to the market, and it must be approved before anyone else can apply.
There are 26 communities in Nunavut, and we have a couple of different community radio stations that belong to some of the companies. We have two stations: One is CBC and the other is local. How does the approval apply to their equipment needs?
Mr. Guevara: If you are talking about equipment that a broadcaster purchases and installs, that falls under the realm of the CRTC. We regulate only equipment at the user end, such as telephone sets, modems and fax machines. The carrier who installs the equipment for the purpose of providing services is regulated by the CRTC, and we are mutually exclusive.
Mr. Beaudoin: From an equipment perspective, we want to ensure that even if the equipment is used by the broadcaster as radio equipment, it still must be certified to some extent. We ensure it is certified.
When it comes to the system and putting the equipment together in order to provide a broadcasting service, the CRTC then becomes involved and decides whether the broadcasting undertaking is following guidelines.
As far as we are concerned, we ensure the equipment broadcasters need is available in Canada for them to utilize.
Senator Adams: Presently, once a certificate has been obtained by a user, must they renew that certification every year like any other business, or is that only a one-time occurrence?
Mr. Beaudoin: As far as we are concerned, a specific product is registered only once. That is one aspect that we wanted to go toward. The labelling fee was a recurring fee. If a user wanted more labels, they were required to renew. It was an administrative burden on their part.
This current user fee will be a one-time fee.
The Chairman: Any other questions?
[Translation]
Thank you for coming this morning and informing us about the file that is being studied by the committee, and that we will be returning to during the coming weeks.
[English]
Honourable senators, tomorrow our meeting will take place at 6:30 p.m. with Minister Lawrence Cannon in room 2, Victoria Building. Dinner will be served at 5:45 p.m. The meeting will be televised.
The committee adjourned.