Proceedings of the Standing Senate Committee on
Transport and Communications
Issue 15 - Evidence, May 26, 2015
OTTAWA, Tuesday, May 26, 2015
The Standing Senate Committee on Transport and Communications met this day at 9:30 a.m. to begin its study on Industry Canada's User Fee Proposal, dated April 2015, for Fixed-Satellite Services and Broadcasting-Satellite Services Spectrum in Canada, pursuant to the User Fees Act, S.C. 2004, c. 6, sbs. 4(2).
Senator Dennis Dawson (Chair) in the chair.
[Translation]
The Chair: Honourable senators, I call this meeting of the Standing Senate Committee on Transport and Communications to order.
Today we are studying a user fee proposal under the User Fees Act. On May 6, 2015, the Deputy Government Leader tabled in the Senate Industry Canada's user fee proposal for fixed-satellite services and broadcasting-satellite services spectrum.
Industry Canada is seeking the authority to reduce licence fees charged by satellite service providers.
[English]
According to the User Fees Act and the Rules of the Senate, the committee is requested to review the proposal and report back with a recommendation approving or rejecting or amending it.
Our witnesses today from Industry Canada are Daniel Duguay, Director General, Engineering, Planning and Standards Branch; and Shari Scott, Manager, Satellite Authorization Policy, Engineering, Planning and Standards Branch. I invite the witnesses to begin their presentations. Afterwards, senators will have questions.
Daniel Duguay, Director General, Engineering, Planning and Standards Branch, Industry Canada: Thank you, Mr. Chair and honourable senators, for the invitation to speak to you today. The proposal we are here to discuss is for a new fee regime applied for the privilege of using spectrum for certain satellite services. The establishment of this fee is part of the Minister of Industry's overall responsibility for spectrum management. It reflects changes that the satellite industry has been anticipating for a long time. Following these brief remarks, we will be happy to take your questions.
I don't have to tell you that Canada's unique geography and widely dispersed population pose many challenges. From the beginning, telecommunications and broadcasting have played a pivotal role in keeping us connected from coast to coast. Satellites are a key element of that connection. Thousands of Canadians rely on satellites as the only means of communication in their rural and remote communities.
[Translation]
The regulatory context for satellites is unlike other areas of the telecommunications industry. Following the 1997 World Trade Organization Agreement on Basic Telecommunications Services, the Canadian market was opened to foreign-licensed satellites. This also means that Canadian satellite operators can be licensed by other jurisdictions. Under licences issued by other administrations, operators can provide services not only in Canada, but around the globe.
[English]
This last point is key because Industry Canada promotes national coverage and ensures the provision of sufficient capacity for Canadians by applying conditions on satellite licences. This would not be possible if satellite operators are licensed elsewhere. The maintenance of an attractive licensing framework is essential to encourage Canadian operators to continue to license in Canada; attract new investment; and maintain and expand services in all regions of the country, including the North.
Beginning in 2012, the department launched a consultation on changes to the satellite licensing framework, including an updated fee regime for fixed-satellite services, better known as FSS, and broadcasting-satellite services, better known as BSS. Late in 2013, we issued decisions on the licensing process. We also put forward a revised fee proposal for additional consultation. In January 2014, the changes in our licensing process took effect. This streamlined approach included simplified assessment criteria and improved application-processing timelines. It applies to applications for all types of satellites.
[Translation]
The fee proposal before you today, however, applies to fixed-satellite services and broadcasting-satellite services spectrum only. These types of satellites provide a range of services, from direct-to-home television, to commercial telecommunications, including Internet. Industry Canada issued this fee proposal in December 2014 for a final round of consultation, this one under the User Fees Act.
[English]
This is not a new fee, in the sense that fees are already charged for satellite spectrum. Industry Canada currently uses radio licences to authorize satellite spectrum under a fee established in the Radiocommunication Regulations. We will be introducing the use of spectrum licences for this purpose. This was proposed in the earlier consultations and is supported by industry. There is no existing fee for these types of spectrum licences, so one must be established.
Spectrum licences have some advantage over radio licences. Spectrum licence fees are based on the amount of spectrum assigned, independent of usage. The fee is, therefore, a fixed cost for licensees. It is in their best commercial interest to maximize the use of spectrum; and this is also in the public interest. Spectrum is a scarce and increasingly scarce resource, and we want to encourage the most efficient and effective use of it possible.
Finally, a spectrum licence regime is less cumbersome for both operators and Industry Canada as administrator and regulator. With radio licences, detailed traffic reports are required to calculate fees, which are available year over year. Spectrum licences have a very simple calculation based on the spectrum quantity multiplied by a set fee.
The introduction of this new fee regime will significantly reduce the overall annual fees satellite operators pay, resulting in lower regulatory costs and reduced administrative burden for Canadian satellite operators. It will contribute to the continuation of a healthy Canadian satellite industry and will facilitate the provision of cost-effective conversations to all Canadians, again most notably those in remote and rural areas.
[Translation]
Thank you for your time, and I look forward to your questions.
[English]
Senator Plett: Thank you for being here. I have a couple of questions that will probably appear silly to you, but this comes from somebody who has very little idea of what you're talking about.
Mr. Duguay: Okay.
Senator Plett: I want you to explain what a fixed-satellite service is and what a broadcasting-satellite service is.
Mr. Duguay: The simplest way is to think of a fixed-satellite service as a satellite that provides services between two fixed locations.
Shari Scott, Manager, Satellite Authorization Policy, Engineering, Planning and Standards Branch, Industry Canada: Most telecommunications are an example. The two fixed points will be the satellite in space and the earth station on the ground, which doesn't move as it is fixed in one spot. Typical services are telecommunications.
Mr. Duguay: Fixed is the idea that everything on the ground is fixed. Broadcasting is direct to home. That's probably the most common use. Satellite that transmits television signals to your dish on your home would be a broadcasting service. That's the distinction, generally.
Senator Plett: Thank you. My dish is broadcasting-satellite service.
Mr. Duguay: Correct.
Senator Plett: Who benefits by these fees; and who pays these fees? Do I, the consumer, pay these fees, or does the satellite operator pay them? Explain the fee structure to me a little bit.
Mr. Duguay: First, the licensee will pay the fee. The holder of the spectrum will pay the fee. That fee then becomes part of the cost that is put down to the operator of the service. Ultimately, the operator of the service will see the cost go to the consumer. It's initially paid by the entity that has the licence for the spectrum.
Senator Plett: I have Shaw at my cottage; so Shaw would pay the fee and pass it down to me?
Ms. Scott: In that case, Telesat is the operator that carries Shaw's signals; so Telesat pays the licensing fee to the department. They may or may not pass that cost on to Shaw, their customer. There is no direct regulatory fee trickledown to the consumer. The cost is borne by the satellite operator primarily and whatever arrangements they have in place with their customers, their purchasers, whether Shaw or another large service provider.
Mr. Duguay: In your case, you're dealing with Telesat's customer, which is Shaw, but Telesat is the one that pays the fee. To Ms. Scott's point, depending on the arrangement, either Telesat absorbs the fee or flows part of the fee down to Shaw, who would then either absorb it or flow it down. Effectively, there is no prescriptive provision to have it flow. It's really a question of the business arrangement between Telesat and, let's say, Shaw, in your case.
Senator Plett: These fees are reviewed how often?
Mr. Duguay: This is the first review.
Ms. Scott: Typically, we look at reviewing fees on a 10-year cycle. These ones have been a little bit longer. The last time the regulations were reviewed was, I think, in the late 1990s.
Senator Unger: If my colleague thinks he doesn't know much about this, I would say I probably know less. Canadian satellite operators have been able to obtain spectrum licences from foreign jurisdictions while providing services in Canada. Fees are going down. Is that correct?
Mr. Duguay: Yes.
Senator Unger: Why have they bought the spectrum licences from foreign entities? Is that why fees have to go down? We're sort of being held hostage, it seems to me.
Mr. Duguay: I would frame it by saying that in 1997, there was a change, and I'll generalize it, to the global satellite market to make it more competitive and to recognize that there was increasing opportunity and competition. Until that point, the only way you could operate in a country was to secure a licence in the country. Opening it up to competition in a more international market created the situation where an operator — let me take one step back. Spectrum usage internationally is governed through the International Telecommunication Union. It's a UN body that deals with all matters of international coordination of spectrum. In the matter of the satellite spectrum, countries actually file the applications. If you're an operator, you could choose to file, let's say, in the U.K. or in Canada or in the United States.
Senator Unger: As Telesat does.
Mr. Duguay: Yes, exactly, or whatever operator. In terms of where you provide your services, it becomes not necessarily only where you file your application. Pre-1997, it was where you filed and where you served; and that was removed.
Today, you have what I would consider a more international competitive context, where countries like the U.S. and the U.K. have, arguably, fairly low fees. Therefore, as a satellite operator, if you file in those countries you pay less than if you file in Canada today. To remain competitive, to retain the operators in the country, and to attract investment and new operators, you want to have your fees at the competitive level of other countries.
The advantage for Canada in attracting and retaining those operators is that when they file with us, we get to set the conditions of licence for that spectrum. This is where we have the opportunity to define the levels of coverage and the levels of service in the North and remote areas and the like. The advantage of having them file with us is that we get to set the rules, so to speak, of what services they can provide in Canada. If I may, the intent of having those fees low is to be competitive and to retain and attract those operators to work out of service through Canada.
Senator Unger: We can remain competitive only by lowering our fees to those of other countries?
Mr. Duguay: Notably with countries like the U.S., which is very close to us and similar, to some extent, to how we operate, and with the U.K. and a number of countries that are our closest competitors in terms of attracting and retaining satellite operator interest around the world, we would want to be seen to be competitive.
Ms. Scott: In addition to fees, there is also the licensing framework and how we process licensing applications. That apparatus needs to be competitive as well. That's why we did such extensive consultations and changed to a first-come, first-served licensing process with more objective assessment criteria and a streamlined processing time so that satellite operators have more certainty when they file an application. As well, they have a quicker turnaround in terms of getting regulatory decision, which is often a precursor to getting investment for their projects. It's not just on the fees that we charge but also on the processes in terms of licensing.
Senator Unger: Does size matter, because Canada is small compared to our big neighbour to the south?
Mr. Duguay: Size of market?
Senator Unger: Yes.
Mr. Duguay: My initial sense is not as much. Really, as Ms. Scott said, it's the effectiveness and efficiency of our process and how quickly we can come to a regulatory decision, thereby securing the spectrum internationally. Also, if the fees are competitive, you're not paying too much for that service. I don't think Canada's being a smaller market necessarily really plays against us.
Ms. Scott: Canada as a country has been very successful in securing orbital positions and assets for Canada to then license Canadian operators. That's an advantage as well because satellite operators are looking for attractive positions in space for provision of service not only in Canada but also in the entire hemisphere or North American market. That's helpful as well.
Senator Unger: If the price goes from $333 to $120, which makes us internationally competitive, can you give me an idea of what that will translate to in terms of dollars using Telesat?
Mr. Duguay: It's a reduction of slightly over $5 million in total annual revenue.
Senator Unger: How many are there?
Ms. Scott: That's $5 million in total, looking at about 14 licences, in annual fees. Fees will increase again as people start launching new satellites because they will pay for those. So it's not a flat line, but it's about $5 million over 14 or so licences.
Senator Eggleton: One of the statements we have in our briefing note from the Library of Parliament researchers says that if operators choose to abandon the Canadian regime for a foreign one, the federal government will lose the ability to implement regulatory control over this industry to ensure that Canada's communications system continues to serve the needs of Canadians.
That's another one of the objectives. Is this related to the controls that the CRTC has over broadcast in Canada? Why is there a concern in this area? Would they have less control if they go to a foreign satellite?
Mr. Duguay: I would describe it this way: Having the operator file their request to be licensed in Canada means that as an operator we can define the conditions of licence for that operator in terms of the services they provide in-country. That would be to a level where we can ensure alignment with other socio-economic objectives in terms of remote coverage and the like. If they're filing in another country, we don't have the same levels of authority or control over that filing.
I would generalize and say that's what we're looking for.
Ms. Scott: I would make the distinction that that statement is related to our ability to impose conditions of licence on the spectrum licences. It's for the use of the spectrum and, as Mr. Duguay mentioned, coverage in terms of where the satellite has to provide services, reserving some capacity for Canadians.
The other regulatory regimes in place under the CRTC for broadcasting or telecommunications carriers are still in place. They still apply whether the satellite is licensed from another country or from Canada; so our conditions are limited specifically to the spectrum licences. Everything else has its own.
Senator Eggleton: In effect, this will reduce the fees from $333 to $120. That's a two-thirds reduction, almost. You said it's worth about $5 million in total. Who absorbs that? Is that a loss of government revenue?
Mr. Duguay: It is a loss of revenue, yes.
Ms. Scott: Spectrum revenues go to the Consolidated Revenue Fund.
Senator Eggleton: As sure as day follows night, costs to the industry are passed on ultimately to the consumers. What are you doing to ensure that some of this big reduction will be passed on to consumers?
Mr. Duguay: That's an excellent question. Overall, we're talking about $5 million. If you look at it as market, for example, there are about 3 million direct-to-home subscribers in Canada. That's our estimate just on the broadcasting service side alone. So $5 million to many users, obviously, is not a huge amount. One of the perspectives is that having a competitive fee structure ensures that you retain a certain level of activity with respect to operators in Canada.
Then, you get into the competition question. You want to have a number of operators and services being competitive, which help to keep the cost down. If you have fees such that you're really moving into single operator or single service type, then you could see how, from a cost perspective, you wouldn't have the same level of competition. As for the $5 million trickling down, there are a significant number of customers. For us it's also important to ensure that we have a competitive market in this space with competitive fees.
Senator Eggleton: You're going to have the competitive market with obviously much lower fees; and the government is going to eat it. It's a question of what the consumer gets out of this. I realize what you're saying — the $5 million is spread over a lot of customers. I guess you don't know how much the customer savings might be.
Ms. Scott: Not in terms of financial savings. I think the change in regime from a radio licence to a spectrum licence is significant. With radio licences, the more data and traffic the satellite operator puts on their system, the higher and more cumbersome their fees are. However, a flat fee allows the operators to cram in as much as possible in terms of data rates, throughput, et cetera, for the same fee, which lowers what they refer to as their cost per bit. That would then translate into customers having access to higher-rate packages for the same price. It's not a direct dollar-for-dollar exchange benefit for consumers but a quicker delivery of services to market and perhaps more robust services at a competitive price point.
Mr. Duguay: It changes the way that fees are calculated and the economic model in that you don't pay more as you use more but instead pay a fixed amount. In this market, satellite services compete with arguably every other form of communications vehicle or medium available, whether fibre or other form of wireless communications. The calculation is dollars per bit. That's really the standard. In an industry where dollars per bit can be quite significant, reducing fees and having them fixed and not a function of usage will, we believe, ultimately lead to savings. To your point, quantifying those right now is quite difficult to do.
Senator MacDonald: Our information tells us that this new fee structure will apply differently to satellites that are not yet operational. Could you elaborate on that and why it was established that way? How many new satellites do we expect to become operational in the next 12 to 24 months? How will that affect the income derived from these fees?
Ms. Scott: We originally proposed that fees become applicable immediately upon the issuance of a licence — so before the satellites are operational. A typical communications satellite has about a five-year development window and a 15-year life on the satellite. Our initial proposal was that the fee should apply immediately after the licence is issued — so for the full 20 years. We had significant feedback from industry with respect to the burden that that puts on companies that may still be developing their base case for getting the satellite and still securing customers. That would add to their development costs when they're in more of an uncertain market.
We looked internationally and found that no one charges fees on that basis. Those who charge fees for satellites begin on operation. Given a couple of rounds of comments and the fact that part of our licensing changes were to have strictly enforced milestones, which will hold satellite operators to a specific delivery schedule, with the risk of losing those licences if they miss the milestones. We concluded that the fairest and most internationally comparable regime would be to charge only once the satellites are up and operating in compliance with their final milestone.
Senator MacDonald: How many do we have, and how many do we expect?
Ms. Scott: Currently, there are 14 approvals in principle for satellites, 11 of which are for FSS and BSS and subject to this regime. Over the next three years, between now and 2018-19, we expect seven to be launched. The others are beyond that.
Senator MacDonald: That seems to be a substantial number. What would the impact of that be on the market in terms of services and costs? Do you have any way of measuring that?
Mr. Duguay: In terms of the impact on the availability of new services to Canadians or more competition, for example?
Senator MacDonald: Yes.
Ms. Scott: All of our satellite approvals and licences are published on our website, so I'm going over the list to see which ones have service to Canada, because not all satellites that we license are exclusively Canada. Quite often they're for a North American market, Canada-U.S. Quite often there is a Canadian and a South American portion. I would say that all of those have Canadian communications payloads.
Mr. Duguay: About six of the applicants are Canadian service.
An interesting point here as well is that there is the emergence of —
Is this one NGSO, non-geostationary satellite, or that one?
Ms. Scott: These two are science.
Mr. Duguay: They're all GSO. Okay.
Ms. Scott: It's a mix of broadcasting and fixed, I would say. There are four or five coming online in the fixed telecommunications, Internet and data environment and a couple of broadcasting satellites.
Mr. Duguay: There's a mix of broadcasting services and fixed services, which would be remote, rural and Northern Internet access — a combination.
Senator Plett: You answered, in large part, my question in response to Senator Unger and Senator MacDonald when you said there are 14 licensees and seven coming on board. How do we compare per capita with the United States?
Ms. Scott: I might have to get back to you on that.
Mr. Duguay: Yes, we'll have to get back to you; but we probably do pretty well. They definitely have more filings than we have, but in terms of per capita, I don't think they're 10 times more than we are. We can provide a response to that.
Senator Plett: When we talk about consumers, are we talking about 35 million people? How many consumers do we have in Canada?
Ms. Scott: For satellite services, there are 3 million direct-to-home television subscribers. The entire population of Nunavut and about 10 communities in the Northwest Territories and one in the Yukon are 100 per cent satellite-dependent for everything. Their only connection to Canada is through a satellite link. Telecommunications within the territory back out — their broadcasting — are dependent on satellite. I can get you specific numbers on the number of communities, but an additional 30 communities or so in remote northern areas across the country are also dependent on satellite.
Senator Plett: You can send that information to us.
Ms. Scott: We will do that.
Senator Unger: Can people in the North obtain services from American satellites because of Alaska's proximity? Can they get only Canadian services, or can they pick up other countries, like Russia?
Ms. Scott: Yes. The answer to the question is theoretically yes. We don't license foreign satellites, but we approve their use in Canada. Any satellite company that wants to provide services, no matter where they're located or where they're licensed, can apply to the department for permission to operate in Canada. The piece between the satellite operator and the consumer is the service provider; so there needs to be a company providing services — telecommunications, Internet, television, et cetera — who would purchase their capacity from the foreign satellite. So it is possible.
To my knowledge, there's limited foreign satellite, although I believe some capacity is being provided by SES to Iqaluit.
Mr. Duguay: It's very limited. Historically, the services to Canada's North have been provided by Canadian satellite operators and Canadian service providers.
Ms. Scott: In part it's because of the regulatory requirement on our licences to cover the entire Canadian territory visible from the satellite and to reserve capacity for Canadian customers.
Senator Unger: Thank you.
The Chair: I'd like to thank the witnesses once again for their participation.
Honourable senators, we will proceed in camera to discuss a potential report with a recommendation to the Senate. I'd like those who are not parliamentary staff to please leave the room. We will proceed with the adoption of the report as quickly as we can.
(The committee continued in camera.)