THE STANDING SENATE COMMITTEE ON TRANSPORT AND COMMUNICATIONS
EVIDENCE
OTTAWA, Tuesday, February 7, 2023
The Standing Senate Committee on Transport and Communications met with videoconference this day at 9:02 a.m. [ET] to examine Bill S-242, An Act to amend the Radiocommunication Act.
Senator Leo Housakos (Chair) in the chair.
[English]
The Chair: Honourable senators, I am Leo Housakos, senator from Quebec and chair of the committee. I would like to introduce the members of the committee with us today: Senator Clement, Ontario; Senator Dasko, Ontario; Senator Quinn, New Brunswick; Senator Simons, Alberta; and Senator Wallin, Saskatchewan.
At this meeting, we are studying Bill S-242, An Act to amend the Radiocommunication Act. We are pleased to welcome the sponsor of this Senate public bill, our colleague the Honourable Senator Dennis Glen Patterson, who is with us. He is joined by his policy director, Ms. Claudine Santos. Welcome. The floor is yours, senator. You have the allotted time required. Senator Wallin?
Senator Wallin: Chair, I don’t know when the appropriate time would be to do this — I’m sorry, senators, if you could bear with me for a moment.
Many of us have observed and experienced the crisis in the transportation sector. This is the Transport Committee. I’m not a member of the steering committee, but I would very much like to suggest that we find a few days here and there over the next couple of months to deal with this issue and invite the heads of airlines and perhaps the minister to our committee.
The Chair: If that is a motion, Senator Wallin —
Senator Wallin: I would so move.
The Chair: If Senator Patterson would indulge us for a couple of minutes, I will open that up quickly to see if there is consensus among the committee members.
Senator Simons: I am pleased to second that motion. This is the first time we have had a chance to meet since before Christmas. Everyone knows what a disaster for planes and trains the Christmas season was. That is something that could be encompassed in our study about the resiliency of our transportation sector in the face of climate change. I would love to see us delve into the human resources side of that, but in the short-term, as the Transport Committee, we should find a moment in between other things to have some people before us to explain why these crises keep happening and what, if anything, can be done about them.
The Chair: Anybody else on debate? Is there a consensus on the motion from Senator Wallin and Senator Simons?
Senator Manning: I agree wholeheartedly with both senators. For example, I left my office at four o’clock on Thursday last week and I arrived in Newfoundland at eleven o’clock on Sunday after being to Halifax, Montreal, back to Toronto twice after doing two doughnuts over Newfoundland in an airplane and coming back. It’s not all the airline’s fault — we had some inclement weather also — but we were sitting on the tarmac for an hour and a half waiting for our crew to get to the gate and other things like that.
There are some serious issues there that are delaying absolutely beyond measure. I think a lot of it is staffing in a lot of cases, from what I understand. There is at least an opportunity to have a chat about it, and there are some issues.
Senator Wallin: “Couldn’t run a corner store” is the phrase that comes to mind.
Senator Dasko: The folks in the other place and their committee have been looking at this, too. When I read about what they are doing, I think we ought to be doing this and working on this, too.
The Chair: Whatever they are doing, we can do better.
Some Hon. Senators: Exactly.
The Chair: Clerk, if there is agreement, please proceed as per the instructions of the committee. You will get back to us with the schedule as soon as possible.
Sorry for the interruption, Senator Patterson.
Senator Wallin: My apologies.
The Chair: Let us return our focus to Bill S-242.
Hon. Dennis Glen Patterson, sponsor of the bill, as an individual: Honourable senators, it is indeed an honour to appear before you today to speak about Bill S-242, An Act to amend the Radiocommunication Act, or, as I call it, the “use it or lose it” bill.
Many of you will remember various questions or interventions that I have made over the years about improving connectivity for rural and remote regions within this vast country of ours. My region is probably a poster boy in remoteness and inaccessibility. This bill is another attempt to help all Canadians have access to the same level of service that you and I enjoy while here in Ottawa.
I know that today, following me, you will hear from representatives from Innovation, Science and Economic Development Canada, or ISED, appearing on this same subject. You may hear that the government already has in place a “use it or lose it” policy and that this bill is redundant. Or you may hear that the requirements to:
. . . deploy the spectrum to provide service to at least 50% of the population within the geographic area covered by the spectrum licence within three years of the licence’s issuance —
— which is the essence of my bill — is overly ambitious and perhaps arbitrary. However, colleagues, neither of these assertions would, in my view, be accurate.
The fact is that ISED’s current deployment conditions for spectrum licence holders are incredibly lax. Proponents are given 8 to 10 years to reach targets that vary from jurisdiction to jurisdiction, and the targets are historically built around the population density of urban centres. For instance, based on information available on ISED’s website, for key rural spectrum, a minimum of 40% of the population of Newfoundland and Labrador must be serviced within eight years. That number is 60% in southern New Brunswick, but only 40% in western and eastern New Brunswick.
In the more rural area of Pembroke in eastern Ontario, not that far from here, the target is 25%. It is similarly low for rural regions in Alberta, such as Red Deer and Grande Prairie, where the target deployment is 35% of the population within eight years. In the territories, it’s 30%.
With such low deployment targets, it’s no wonder that the Canadian Radio-television and Telecommunications Commission, or CRTC, has repeatedly spoken of the “digital divide” experienced by rural Canadians. According to the CRTC website, “. . . many Canadians, particularly those in rural and remote areas, do not have adequate access” to internet services. You all know this, I’m sure.
The government’s own National Broadband Internet Service Availability Map shows a number of rural and remote communities that are either under-serviced, meaning they fall below the national threshold of 50 megabits per second up and 10 megabits per second down, or are not connected at all.
While the vast majority of available spectrum is held by various licence holders, Canadians are largely not being connected. Instead, some providers are sitting on the spectrum and allowing the price of the spectrum to ameliorate before turning around and selling it to other providers at a massive windfall. I privately call this “spectrum trafficking.” Some of these providers were able to purchase their spectrum at an effectively subsidized rate, thanks to set-aside policies that were designed to enable new entrants to provide Canadians with more competition, thus lowering prices for the consumer. That was the object, at least. Perhaps ironically, this policy has resulted in Canada having the highest prices for spectrum in the world by a large margin, and studies show this contributes toward the prices we see in the market.
This bill will not solve all the issues around spectrum licensing and outrageous internet prices, but I believe it is an important step and piece of the puzzle. It aims to do a few things. It aims to incentivize companies to build infrastructure and deploy spectrum, and it aims to connect more rural Canadians to the level of internet service required to do everything Canadians living in urban centres can take for granted, such as working and schooling from home, or connecting with doctors and specialists in other parts of the country. It will also reduce the incentive to speculate on spectrum, which has caused the highest prices for spectrum in the world. Ultimately, this bill gives the Minister of Innovation, Science and Industry the tools they need to truly close the digital divide.
Thank you again for inviting me here today to speak about my bill. I’m very pleased to have had this opportunity to participate in your very busy schedule, Mr. Chair. I really thank you for accommodating me this week.
Thank you again. I would be very pleased to answer any of your questions. Thank you, qujannamiik.
The Chair: Thank you, Senator Patterson. Before we go to Senator Dasko, I will launch a couple of my questions.
I am always amazed how in this country — and it has been a number of years now — when it comes to connectivity, all of a sudden, we’re lagging behind other nations in the world. We are lagging in terms of reach, and, of course, we all know the cost of connectivity in Canada is significantly higher than in the rest of the world. It is disappointing given the fact that when I grew up in this country, many years ago, Canada was known as the world leader in telecommunications. Then all of a sudden, in four decades, we’re lagging, so I appreciate the bill.
Senator Patterson, why has this happened? Why has, in my opinion, spectrum in this country become, like everything else, a speculative game for profiteers who want to gain at the expense of service and Canadian taxpayers? Is it the fault of the CRTC? Is it the fault of the government? Can you give us a little bit of background on why this is happening?
Senator D. Patterson: Thank you, Mr. Chair. To understand this dilemma we’re in now, I think we have to go back to the Harper government in 2008, when the government introduced a policy of reserving spectrum for new entrants. The idea was to promote competition, allow smaller service providers to get into the market that had been monopolized by big telcos, as we all know, and it worked. Many new companies entered the cellphone service market. But, unfortunately, as the market evolved and matured, the government did not update its policies, so through set-asides, these new entrants ended up receiving more spectrum than they could deploy or that they chose to deploy.
The result of that was that some companies sat on this spectrum and then found, especially over as many as 8 or 10 years, they could resell it for a massive profit. They were following the rules, but they were making massive profits. Meanwhile, Canadians went unconnected for years while companies owned by, dare I say, billionaires, speculated on spectrum for profit.
My bill is designed to limit that spectrum speculation, which has deprived the public of available spectrum, which I think we should consider as a public utility. It is available for the public good. It will give the minister new tools to require companies who buy spectrum to use it.
To my understanding, the ministry has never revoked a spectrum licence, despite these clear examples of what I would call abuse. As a result — at least very largely a factor — Canada has the highest prices for spectrum in the world.
In the most recent auction, Canadian telcos paid three times what American telcos paid for the same spectrum, so something is wrong. This is the consequence of reserving spectrum for smaller carriers, a kind of unintended consequence of what was initially a good policy. We are the only country in the world that does this in many auctions, which I think explains why spectrum prices are so high. Thank you.
The Chair: Thank you, sir.
Senator Dasko: Thank you, senator, for bringing this to our committee. Your timing is right. We have finished one bill, and now we’re ready for your bill.
Could you describe in some detail how the licences are allocated? What is the process of allocation? You are looking for changes that would be tied to a licence that would be received. Can you describe that process?
Would you care to mention any companies that might be — I don’t want to use the word “guilty,” but you know what I mean. Do companies differ in the way they treat the licences that they win?
Senator D. Patterson: Thank you for the question. Wireless spectrum is, of course, the responsibility of ISED. They develop and implement the policies and programs relating to the use of the spectrum resource. That includes licensing and allocating spectrum to various users: wireless carriers, broadcasters and government agencies. ISED also ensures the use of the spectrum doesn’t cause interference to other users, such as radio stations. These decisions made by ISED affect how quickly Canadians are connected, and they have a broad ability to issue a call for these spectrum allocations. This bill provides some legislative direction to the minister and the department within their broad policy manoeuvrability.
Some telecommunication companies are awarded spectrum licences with a substantial subsidy. In many cases, these companies don’t fully use or deploy all the spectrum they’ve been granted and choose to sell their unused spectrum to other companies for a massive profit.
You asked for some examples. These companies were operating within the rules, but it was very much to their advantage and the public’s disadvantage.
In 2008, Shaw Communications was given privileged access to subsidized set-aside spectrum, but then it was never deployed, with impunity. They bought what is called AWS-1 spectrum for $190 million in 2008 and sold it for $350 million — at a $160-million profit — in 2013. In 2017, Shaw purchased 700 MHz and 2,500 MHz spectrum from Vidéotron. They paid Vidéotron $430 million for that spectrum, yielding Vidéotron a $243-million profit.
Those are a couple of examples in response to your question.
Senator Dasko: Is the allocation of licences done through a public process?
Senator D. Patterson: Yes.
Senator Dasko: Through an auction, you mentioned.
Senator D. Patterson: Yes.
Senator Dasko: So any of the players in the system can bid on the spectrum? Canadian firms only, correct?
Senator D. Patterson: Yes.
Senator Dasko: Thank you.
Senator Wallin: This is just a quick point, Senator Patterson, which is that we tend to think about this in terms of communication, radio, television and internet, but in the places where you and I live, it’s also about health care and transportation. So much of both of those things are impacted by the availability of — it is kind of the other side of it; it’s the “use it or lose it” side. The nature of what is accomplished is pretty key to those other sectors. Do you have some thoughts on that?
Senator D. Patterson: Yes. Thank you for that question.
I’m well qualified to answer this question because I live in a region, as you well know — and this is not unlike other parts of Canada, but it is particularly so in Nunavut — where there are no roads whatsoever. So the delivery of health care services, education, justice, court appearances, economic development, distance education — all of those programs are vitally dependent on having spectrum. It is critical to be able to interface with patients without having to send them to Ottawa, Winnipeg or Edmonton.
Those are all vital services to develop our economy and reinforce the social safety net that’s so important to Canadians.
I think it will be a game changer if we can make more spectrum available and thereby reduce the cost.
Senator Wallin: Thanks very much. I just think it’s important to keep it in that context that it’s not just watching TV.
Senator Manning: Thank you, Senator Patterson, for coming forward.
Maybe I’m not in as remote an area of the country as you live in, but where I live is very remote. Surrounding me are many communities that are only accessible by boat in some cases. This is a very important topic.
I may have gotten this wrong, so I just want to make sure we clarify this: By making more spectrum available — and the numbers you touched upon in relation to the percentages; you touched on ones in Newfoundland and Labrador — through an auction process so people can buy it and sell it, where does the guarantee come that it will enhance the opportunities in the rural parts of the country to be able to obtain access?
I’m not sure if I’m getting exactly at it — I’m trying to find out whether putting more on the table means more people will have an opportunity to participate.
Senator D. Patterson: Thank you for the question, Senator Manning.
I should probably describe the object of the bill as deploying unused spectrum rather than making more spectrum available. It’s being hoarded, and there is a long record of abuses of that kind. So the object of the bill is to deploy this unused spectrum in a reasonable time frame; the bill proposes within three years.
When you are talking about connecting rural communities, fibre is going to be a long way off for many of our rural communities. It’s the gold standard, but what we need currently and in the near future is a mix of low- and mid-range frequency spectrum to properly connect rural communities.
The low-range frequencies can travel long distance, and the mid-range frequencies carry lots of data. That is wireless. They are both needed to provide the same level of internet service that Canadians in urban centres enjoy. This bill will incentivize the building of both low- and mid-range frequencies by having consistent deployment conditions for both ranges across all geographic service areas.
To ISED’s credit, they’ve gotten it right recently in some respects with the medium frequencies that carry lots of data, but the big problem right now is all the unused rural spectrum in those lower frequencies. A big part of that is due to weak deployment conditions. For example, in one auction, which was for lower frequencies — in the 700 MHz range — the only deployment condition was based on connecting the urban parts of the provinces. That means the company only had to, for example, connect 30% of the population in Newfoundland and Labrador. In the territories, they only had to connect 20% of the population.
This isn’t good enough. We can do better. So I’ve aimed at a higher average percentage in this bill. Thank you.
Senator Manning: That is interesting. I just want to follow up.
When you talk about the guaranteed 30% in Newfoundland and Labrador, is that 30% of the population? Yes, okay. Therein lies the problem, because in Newfoundland and Labrador, with a population of 520,000 people, give or take, over half of our population lives on the Avalon Peninsula; the other half are spread out through a large geographical area. Then, up in Labrador, there are about 30,000 people living in an area that is bigger than the island of Newfoundland itself.
Where I live — and I’m only an hour and a half from St. John’s — we only have one supplier for our internet service. When I make calls and inquire about that and work with other people on it, it comes down to the point that it’s the cost; they keep talking about the cost to supply the service.
Regarding making more spectrum available, do you have any knowledge of where more was made available that it was taken up and used? If they make it more available to Newfoundland and Labrador, the suppliers then come back and talk about the cost. How do we find the middle ground with having the opportunity to have it and also the cost of supplying it?
Senator D. Patterson: Thank you for the question, Senator Manning.
The incentive to use the available spectrum that’s provided by an auction is a three-year time frame, which is built into the bill. That’s the incentive. If you don’t use it within three years, the minister can revoke the licence. That is spelled out in the bill.
The minister has had that power, but to my knowledge, it’s never been used. You can ask the officials but, to my knowledge, it’s never been used.
You are absolutely right, Senator Manning, that when your expectation is that you will serve 30% of the population, you can easily achieve that in the urban areas at the sacrifice of the rural areas. That’s exactly what’s happening in Canada right now. So my bill sets a higher target of 50% of the population in order to make it a more applicable to the rural populations of provinces and territories.
That is essentially what is hoped for in this bill. In my region, we basically have only one supplier as well, and that’s because people are holding onto spectrum and getting away with not servicing the rural folks. It will cost us less to deploy than fibre, but it’s unfortunately more profitable to sit on it.
Senator Manning: How long are they allowed to sit on it?
Senator D. Patterson: Well, under my bill —
Senator Manning: Under your bill.
Senator D. Patterson: Three years.
Senator Manning: If someone has spectrum today, can they hold on to it forever? There doesn’t seem to be any time limit. When you mentioned earlier what they pay for it and what they sell it for, we’re definitely in the wrong business here.
Senator D. Patterson: Yes, Senator Manning. The current deployment conditions are between 8 and 10 years; way too long.
Senator Manning: Way too long, yes. And they sell it for twice what they paid for it, and in some cases more.
Senator D. Patterson: And you can sell it with impunity at a big profit at a sacrifice to the public interest.
Senator Manning: We should apply for some spectrum ourselves.
Senator Simons: You know, Senator Patterson, this kind of “spectrum squatting” reminds me of the Greek fable by Aesop, The Dog in the Manger. You’re not going to let anyone else have it, but you’re not going to use it either.
I wanted to drill down specifically into the conditions of spectrum licence that you set out in proposed subsection 5(1.11). When you say “provide service to at least 50% of the population,” you don’t mean to have them signed up as customers; you mean to provide them with the potential to be signed up as customers. Is that correct?
Senator D. Patterson: Correct.
Senator Simons: I don’t want people to think that means that you have to have 50% market penetration. It means you have to have 50% market accessibility.
Senator D. Patterson: It is the provision of service that gives the option of connectivity, yes.
Senator Simons: I have great sympathy with the intentions of this bill because spectrum squatting has been a big problem in large parts of rural Alberta, but I want to understand. Three years does seem a little bit of a short time — not to begin making spectrum available but to have 50% accessibility, especially in larger rural and remote areas. I’m wondering how you came up with that 50% to three-year ratio.
Senator D. Patterson: Thank you for the question, Senator Simons. I’m well aware that it’s not easy to deploy spectrum. Basically, it would require the construction of cellphone towers. This is a challenge in remote regions with sometimes poor transportation infrastructure. Within my limited resources, I spoke with engineers for major service providers. Also, you have to recognize there is capital required. I worked to find a mix of employment conditions that I thought was achievable but also incentivized companies to work quickly and diligently to get Canadians connected.
The three-year time frame was the set of conditions that I landed on after having those discussions. I will say it was arbitrary, but from my discussions, I thought that it was reasonable and quite a change from the current lax conditions.
Senator Simons: Believe me, I support the idea of some sticks to get the squatters moving. I’m just a little bit concerned when we get down to section 5(7), the section on civil liability. This section would allow that any person within the geographic area that ought to be covered by the licence can sue for damages if the spectrum holder doesn’t make provision for them to be served. I want to understand exactly how that would work and to ask if you’re concerned that people might not bid for spectrum out of fear that they might not be able to — imagine I’m a small company trying to get a start in the industry and I have a good-faith intention of using my spectrum, but I might doubt my own capacity to reach your target. Is there a danger that somebody might not bid for spectrum who might be a good small competitor because they’re fearful of the civil liability provisions in section 5(7)?
Senator D. Patterson: I think it’s important to point out in answer to that question, Senator Simons, that the liability would only come into play if a holder does not follow the conditions of deployment. Spectrum holders who bid would be bidding with that understanding and ready to meet the conditions or they wouldn’t bid. I think the liability is to be understood as only applying where a bidder did not follow the conditions that they agreed to when they made the bid.
Senator Simons: I understand. I guess my concern is — suppose I’m a small provider. I’m not TELUS or Rogers; I’m somebody small trying to get into that resale market. I might not take the chance of bidding for fear that I might not be able to reach the 50% threshold in three years and that I might then face civil liability, especially if I cannot arrange for services to be assumed by another person. Believe me, spectrum squatting is a real problem. The upselling of spectrum is a real problem. I just want to make sure there aren’t unintended consequences of this bill that might, in fact, disincentivize competition.
Senator D. Patterson: I would like to refer this question to my director of parliamentary affairs, Claudine Santos.
Claudine Santos, Director of Parliamentary Affairs, Office of the Honourable Senator Dennis Glen Patterson, Senate of Canada, as an individual: Good morning, senators, and thank you, Senator Simons, for the question. I think the key here is the good faith part. It’s important to note that the civil liability kicks in if the spectrum licence is revoked, but before we get to the point of revocation, there are parts within this bill, including under section 5(6), that would give the minister the ability to go back and forth with the provider prior to the revocation. If there is a reasonable reason as to why that provider isn’t able to deliver 50% within the three years, then they don’t necessarily have their licence revoked.
Senator Simons: Thank you.
Senator Quinn: Thank you, Senator Patterson and Ms. Santos, for being here this morning. This is a really interesting discussion. You’ve said a few things that have caused me to pause and think about this whole question of Canada being in a position of having the highest cost for these types of services. The government allocates the spectrum.
It is appalling that somebody can bid on something, get it, sit on it and then sell it at a huge profit. Does your bill have a provision that would prevent them from being able to do that? In other words, does it have a provision to change that piece of the process so they can’t get it, sit on it and then sell it for a profit?
The second part of the question is about that “use it or lose it” within a three-year period — the revocation of a licence: Are there cases where they do provide a service but they have unused spectrum? Should their licence be revoked, or should they be caused to return that spectrum to the government and even face a financial penalty because they bid on it knowing the conditions? It’s like reverse engineering the profiteering to more of a punitive approach — don’t bid on it if you aren’t serious and don’t think you can do it. Don’t bid. Certainly don’t allow them to sell it. These are just a couple of thoughts that I have had from this discussion, which is a real eye-opener.
Senator D. Patterson: It’s the fear of losing the spectrum that should incentivize the companies to build. They will all be bidding with that time frame in mind.
There is a lot of evidence that the market is growing exponentially, so I am fairly confident that there will be a healthy auction process.
I didn’t have an opportunity to mention this in my opening remarks, but one of the reasons I brought this bill forward is that the next large-spectrum auction is due for June or July of this year. So if this bill can move forward in a timely fashion, we may be able to have a new set of conditions and incentives to see this significant amount of unused spectrum actually deployed for the benefit of rural Canadians.
The set-aside policies have to be revised, since they were put in place in 2008. That is a piece that is not addressed in my bill. This bill is a part of the solution to the problem, but I’m confident that, with the clear requirement or option for the minister to revoke a spectrum licence spelled out in legislation — it would be legislative direction from Parliament — the power the minister has had but not used, to my knowledge, will actually be utilized and known to all as a real incentive to deliver on the promise the company made when they bid for that valuable spectrum.
Senator Quinn: Senator Patterson, I understand what you’ve just said, but is this also an opportunity to address some of the issues of holding spectrum back, sitting on it, selling it at a big profit? Is this not an opportunity to address even that piece of the puzzle?
Successive governments have sat by watching idly as this process has taken place, with companies making hundreds of millions of dollars and services not being provided in the areas where they’re so badly required. Yet, the rest of Canadians, who have service, are paying rates that are the highest in the world.
Is this an opportunity to address that, or would it take the bill off track to make that kind of a point in the bill?
Senator D. Patterson: The bill does make that point by setting up the conditions and clearly giving the minister the power to revoke spectrum licences.
There was engagement by ISED on what they called access licensing in November 2021, and there was also a major telecommunications summit held that same month. I didn’t have the resources to consult as widely as I would if this were a government bill, but those two processes — the engagement by ISED itself was replete with calls for ending the abuse of spectrum squatting, to use Senator Simons’ excellent term. That term is a little more dignified than “spectrum trafficking.”
Senator Simons: Those are two different things.
Senator D. Patterson: There is widespread support for this change and widespread knowledge in the industry that this is a loophole that has been abused — all within the rules — to profit carriers and not benefit consumers.
I think it will be consequential because of widespread support. If we can move the bill in a new way, a new approach to the next spectrum auction, bidders will go into it with their eyes open as to new incentives to deploy that to-date — sadly — largely unused spectrum that’s available as a public good.
[Translation]
Senator Miville-Dechêne: You and I have talked before about your spectrum bill, which is obviously up my alley, because it’s not right that privately owned companies are squatting on spectrum, as they say, to turn a profit.
I will ask you this: At the next auction, I guess certain companies will remain owners of spectrum they purchased in the past; is your bill going to be, quote unquote, retroactive? Will your bill apply to all companies that purchased spectrum before this bill came along? Perhaps I’ve misunderstood how the system works.
[English]
Senator D. Patterson: Thank you for the question, senator; it’s a good question. The short answer is “no.” I think it would be perhaps punitive or unfair to retroactively change the conditions that were in place at the time the spectrum was acquired, but it will end the practice going forward.
Senator Miville-Dechêne: How much of the spectrum will be released and put to auction the next time? Is it a large part of what’s in the North of Canada, or is it just a tiny part every year? Once again, I’m not a specialist on this difficult question.
Senator D. Patterson: I would like Ms. Santos to respond.
Ms. Santos: Thank you, senator.
I can’t give you an exact number of how much is going to be released, but I can give you an example of what happened last time. It is important to know that, based on international standards, the recommended amount of spectrum to be made available to each provider is 100 MHz. That would help that provider properly deploy something like 5G.
In the last spectrum auction, only 200 MHz was made available, and actually — I’m just going off the top of my head — what I recall is that 90 MHz was properly auctioned and another 70 was part of the set-aside policy. So there are more than two providers, and only 200 MHz was made available, which is far below the threshold you would need.
Senator Miville-Dechêne: So that is also a problem.
Ms. Santos: That is also a problem.
Senator Miville-Dechêne: But that is not addressed in your bill, is it?
Ms. Santos: It is not. There are a lot of pieces required to get Canada in line with other OECD countries. This bill is one piece of that puzzle.
Senator Miville-Dechêne: Senator Patterson, you also said in your last speech that 80% of the spectrum sold in rural parts was not used; it was bought by enterprises that did not use it. How did you arrive at that particular figure?
Senator D. Patterson: We got this information from industry sources with which we consulted in the development of this bill.
Senator Miville-Dechêne: Is it an estimate?
Senator D. Patterson: It’s a best estimate, yes. There doesn’t seem to be — ISED has maps that show the deployment of spectrum Canada-wide, but there is not a lot of detailed data regarding what is deployed and what is available.
Senator Miville-Dechêne: Thank you.
Ms. Santos: To add to that, our contacts within the industry do have access to maps that show very clearly what licences have been purchased and whether they have been deployed.
So we have seen, for instance, maps that we maybe shouldn’t have seen between Alberta and B.C. We could see that 80% of that spectrum was held and not deployed by certain companies.
Senator Miville-Dechêne: And we can’t have access to those; are they secret?
Ms. Santos: They are difficult to get your hands on, but I am sure that when the industry professionals appear on Wednesday that it is something this committee could absolutely ask for.
Senator Miville-Dechêne: Thank you. I love documents.
Senator Dasko: Senator Patterson, I want to get back to exploring the dynamics of how this market works. You said that licence holders sell spectrum for exorbitant profits, but somebody is buying this; somebody is paying the exorbitant prices that are being put forward. Do those buyers who have paid a fortune for this develop the spectrum then? Do consumers pay for this in the end? Obviously, they’ve paid huge prices for the spectrum.
What actually happens in the market? Is the spectrum eventually developed by these institutions and companies that have paid so much, or do they find yet other buyers to pay even more exorbitant prices for the licences? I’m trying to understand how the dynamics work because you can’t keep paying exorbitant prices. Whoever it is you are, you have to justify your investment in some way. Can you enlighten me as to what happens in those frequent situations?
Senator D. Patterson: Senator Dasko, thank you for the question. If you look at the Shaw example I cited, they paid $190 million for spectrum in 2008 that they didn’t deploy but could have deployed with a profit relative to the $190 million cost. Then they sold it for $350 million in 2013. So the higher cost was absorbed by the new purchaser, meaning that there was a higher cost to the consumer. That’s the factor: When the spectrum is sat upon, it becomes more valuable and it becomes more costly for the consumer.
Had Shaw — and I don’t want to just pick on Shaw — but had they been required to deploy that spectrum within three years of 2008, we would have been in a range of $190 million in costs for the spectrum rather than the $350 million that the new purchaser had to pay to get that same spectrum in 2013. That’s why I think the costs have accelerated. There’s been profiteering on idle spectrum that increases in value over time. That’s why I want to shrink the time with this bill.
Senator Dasko: So those buyers do develop the spectrum but, because they’ve paid so much for it, they have to get their investment back, so it goes down to the consumer.
Senator D. Patterson: They don’t have to necessarily deploy the spectrum because they’ve been getting away with not deploying it. There is no guarantee that a new buyer will not do the same and speculate.
Senator Dasko: The thing is that they paid so much for it. Why would they pay so much? They have to do something. They’ve bought this thing. Somewhere you have to make money from it, so you’re either going to sell it to someone else or develop it and charge consumers or maybe go to the government. I’m just throwing out possibilities here.
Senator D. Patterson: Thank you.
In some cases, they do meet the minimum deployment conditions and will deploy according to the lax standards that I have set out that are demanded by ISED, but it’s also profitable to sit on portions of that unused spectrum. If you listen to some of the conference calls that company executives have with investors in connection with their quarterly reports, they brag about having made profits by holding on to spectrum, which is to the benefit of the shareholders but at the cost to consumers.
Senator Dasko: Thank you.
Senator Simons: This is pretty standard capitalist behaviour. People buy property and then they don’t develop it. People bought the property at the end of my block at home in Edmonton, and they got it “up-zoned” and then they flipped it. This is what companies out in the free market do. The challenge here is that we’re dealing with a public good, the spectrum, which is not just like everything else.
Do you think there also needs to be a cultural shift? You’ve just said that there are companies that have a fiduciary duty to their shareholders to maximize their profits, but they’re working in what used to be — I’m just barely old enough to remember the days when phone companies were not private corporate entities but, in Alberta at least, they were owned by the city and the province. It is still true Saskatchewan — the second-best province, Saskatchewan.
I’m wondering if the real problem here is that we have two models of how an economy should work that are in conflict.
Senator D. Patterson: You’ve absolutely described the situation, Senator Simons. Service providers are for-profit companies, largely, and they have acted within the rules to maximize profits for their shareholders, but spectrum is a public utility. It is the government that should be the guardian of the public interest.
My assertion here, with the greatest of respect to ISED, is that they’ve been lax in protecting the public interest. They’ve not revoked the spectrum licence, as far as I’m aware, for non-deployment, and they have allowed rural communities to be neglected, all while presiding over a system that allows companies to get credit for providing easy and low-cost services to urban areas.
So, yes, there is a new balance required in favour of the public interest, and the bill provides clear legislative incentives to the minister to do that. They still have a whole lot of power to hold these licences and set policies, but this is legislative direction to say that we no longer want this spectrum squatting to be allowed with impunity.
The Chair: The deputy chair has browbeaten me to give her the last word.
Senator Miville-Dechêne: I want to follow up on Senator Simons’ comments on the fiduciary duties of companies.
We’re trying to solve one problem, but there are many more. The fact that companies in Canada only have a fiduciary duty toward the corporation and the shareholders seems to me, in this particular case — when the interests of consumers and the greater good are at stake — that it doesn’t make sense that they shouldn’t consider more than the interests of the profit maker. So, let’s do this revolution, yes?
Senator D. Patterson: I would welcome your support, colleagues.
The thing I should have mentioned in answering Senator Simons is that the government makes a lot of money from these spectrum auctions. I think the number in the last spectrum auction was $9 billion, and that money goes into general revenue; it doesn’t go into subsidizing rural and remote communities.
The government itself has profited from the spectrum auction at the expense of the general public, especially in rural and remote areas. We do need to get more balance and take one small step in a kind of revolutionary new approach. Countries around the world are doing it way better. Australia provides, I believe, a phenomenal example of a country with lots of rural and remote areas that has targeted and incentivized the rural areas successfully with broadband and spectrum. This is a small step in that direction. Thank you.
The Chair: I will engage in one last question and comment as well. This is a very relevant subject matter, Senator Patterson. It is very important to the country. I just now see online a story that just came out, CBC signals plans to go full streaming, ending traditional TV and radio broadcasts, which is really interesting given the debate we’ve been having in this committee over the last ten months. Ironic is ultimately the word for this.
Senator Patterson, we’re having all kinds of difficulty in executing getting the bandwidth and spectrum set up to serve the regions now. The CBC, in my opinion, has infringed upon their licensing obligations in providing services to remote regions of the country. When we get a signal like this now from the CBC, if they indeed move in this direction, which they invariably will, what happens to these remote regions of the country? What happens to our regional diversity that we always beat the drum about? How concerned should we all be, Senator Patterson, by this?
Senator D. Patterson: You know, I live in a region that depends heavily on the CBC. I’ve heard Senator Downe talk about the importance of the CBC in his small region. It’s because we just don’t have other options. When I hear the possibility that the CBC is going to go full streaming, it alarms me because without a better balance of spectrum availability in the regions that most need a public broadcaster, we’re going to continue to deprive rural Canadians of connections to services that most urban Canadians take for granted. I think it is really critical as we move to 5G and beyond that the rural parts of the country are not left out. This is one tool to equalize what has been unfair to date in Canadian public policy.
The Chair: Thank you, Senator Patterson, and thank you for your testimony. Thank you for your bill. Of course, we will continue our study and we will be reporting back to the chamber quickly. I know you are not a permanent member of the Transport and Communications Committee, but as it is your privilege, you are welcome to participate any time. Thank you, senator.
We will now turn to our next set of witnesses on the study of Bill S-242. We just had the privilege of hearing from Senator Patterson and now we have before us our panel from Innovation, Science and Economic Development Canada: We have with us Mr. Matthew Kellison, Acting Director General, Spectrum Policy Branch; and Mr. Marc-André Rochon, Senior Director, Spectrum Management Operations Branch.
[Translation]
First, I have a rather simple question. Why do Canadians pay the highest rates for their cellular and Internet services? During a number of election campaigns, the government has committed to fixing this deep-seated issue. However, here we are in 2023, and the problem is worse than ever.
[English]
It is something that is a preoccupation and has been for the longest time: Why are Canadians paying amongst the highest rates in the world for cellular and internet service? Either one can take a crack at that one.
Matthew Kellison, Acting Director General, Spectrum Policy Branch, Innovation, Science and Economic Development Canada: Thank you, Mr. Chair. I am happy to start out there. So it is true —
The Chair: Actually, I will interrupt because the chair is a little bit frozen. I guess we had a long break, and I have to get back into the rhythm of things. I went right into questions, which shows how excited I am about the issue, and I have withdrawn the right of our witnesses to have their opening statements. I do apologize to Mr. Rochon and Mr. Kellison. We will start all over, and I will cede the floor to you for your opening statements. We’ll get back to these questions later.
Mr. Kellison: Thank you, Mr. Chair, for the opportunity to speak to you and to this committee about this very important and timely topic. As you mentioned, my name is Matthew Kellison, I am the Acting Director General of the Spectrum Policy Branch at Innovation, Science and Economic Development Canada. I am joined by my colleague Marc-André Rochon, who is Senior Director of Spectrum Management Operations.
Among other responsibilities, ISED manages wireless spectrum in Canada on behalf of the Minister of Innovation, Science and Industry to maximize the economic and social benefits that Canadians derive from this important public resource. This includes commercial mobile spectrum, which we manage toward our objectives of improved quality, coverage and price for Canadian consumers.
Managing spectrum is about more than just cellphones, wireless networks and internet connectivity. It is also about ensuring that Canadians benefit from a range of private, commercial, consumer, defence, national security, scientific and public safety applications.
Under the Radiocommunication Act, the minister has broad powers and flexibility to regulate wireless spectrum and its various uses. This flexibility helps to ensure spectrum is available for a wide range of uses and needs using a variety of licensing models.
Spectrum licences are not one-size-fits-all. ISED issues spectrum licences with different conditions to support diverse needs, including mobile 5G, fixed home internet, satellite services and public safety networks. ISED also makes rules that let Canadians use spectrum without a licence — for things like their garage door openers, their baby monitors or their home WiFi.
The current legislative framework allows us to tailor our policies and processes to do this, taking into consideration the characteristics of the spectrum in question, international commitments and trends, technological developments and the likely users.
Our spectrum licensing is also informed and guided by public consultations with stakeholders, including large and small providers, industry and technical associations, government and municipal users and individual Canadians. This lets us set licence conditions that reflect geographic and population differences across Canada, equipment availability, technological capacity of providers and the current state of wireless networks.
When we talk about licence conditions for spectrum, these include deployment requirements for providers to use or lose the spectrum that they hold. These requirements mandate that providers meet coverage targets at certain milestones, taking into account factors such as population density, terrain and build-out costs. As we release more spectrum, we continue to increase our deployment requirements using more ambitious targets as well as smaller licence areas to ensure that coverage can be targeted to rural communities.
For example, in our 2021 auction of 3,500 MHz spectrum, we used a two-tiered system of deployment requirements. Companies that already offer mobile services will have to deploy this spectrum within their existing networks within short, five-year time frames. Outside of these requirements, we also have general population-based coverage requirements, which increase over time. Both conditions apply across 172 different service areas covering Canada, ensuring that rural Canadians are connected along with urban markets.
We are taking additional steps to advance a “use it or lose it” approach to spectrum. We recently consulted on a new licensing process that will give new providers access to unused licensed spectrum in rural and remote areas, even where deployment conditions have been met by the original licensee. We also recently consulted on a non-competitive process that will allow simple local licensing for 5G spectrum to small internet service providers, Indigenous communities and innovative industrial users, such as those hoping to connect mines, factories or aquaculture. Decisions on both consultations will be issued in the coming months.
Finally, while these policies and programs are designed to ensure that spectrum is used, it is also our role to ensure that these deployment commitments are met. We monitor licensee compliance with these conditions of licence to ensure that spectrum is used in a timely manner and we require licensees to submit annual compliance reports. Our recent verifications indicated that almost 98% of licensees with upcoming deployment milestones had met or exceeded their deployment targets.
When a licensee is not in compliance with these conditions, we have a range of tools at our disposal. Often, we are able to work with a licensee to bring them into compliance and ensure their existing customers do not lose the services they rely on. However, in some cases we invoke enforcement measures, including licence revocation.
We have the legislative framework and the tools to set meaningful deployment requirements, hold licensees to them and ensure that services keep improving for Canadians. We want to set targets that are ambitious but achievable for all providers, not just national incumbents, and give licensees predictability for their investment and innovation while ensuring that Canada’s finite spectrum resources are used efficiently.
Mr. Chair, thank you again for giving me the opportunity to speak to you about this very important topic. My colleague and I are ready to take your questions.
The Chair: Thank you, sir. Shall I repeat my attempt to go first? I think my question was clear at the outset: Why are Canadians paying amongst the highest rates in the world for cell and internet service? If all the standards and rules that we have in place are designed to give Canadians as much connectivity as possible, the best services possible, why aren’t we doing that? Why do we have remote regions in the country that are not being served, and again, why are we paying such a fortune for it?
Mr. Kellison: Thank you, Mr. Chair. While we have seen some progress on wireless pricing in Canada, obviously, we have more we need to do. Senator Patterson mentioned in the previous session that it’s one of the reasons we have used pro-competitive measures in our auctions for several years, either in the form of a set-aside or in the form of a spectrum cap that would limit how much spectrum any one provider has available to obtain. The reason we do this is we know we have a concentrated wireless market, and we have tried to take steps to improve competition in that market because competition is what leads to lower prices for consumers.
The Competition Bureau has recently found that where the three national incumbents face a strong regional provider, prices are 35% to 40% lower in those markets. That’s in part why we promote competition through our auctions. We know we have more to do.
We also know that when it comes to rural and remote areas, there are things that we can do to improve connectivity in those areas in the form of smaller, more targeted licensing areas, which we have been moving to in our recent auctions, and stronger deployment requirements, which include both general deployment requirements as well as mobile network requirements that ensure that spectrum can be used quickly where infrastructure already exists.
We certainly take the point. I think there are a number of policy levers that we have at our disposal. Some are spectrum-based, and some are broader wireless policy, which is a little outside of our bailiwick today. It is a point well made, Mr. Chair, and it is something that we’re continuing to work toward.
Senator Wallin: You heard Senator Patterson make his points. The consultation process that the Government of Canada has been involved in on this issue has been going on for at least 10 or 15 years, because it was going on around 2008. Would it be easier if this bill just passed?
Mr. Kellison: I would say we have some concerns with the bill as it is drafted. In some cases, the deployment requirement is at 50% target within three years. In some cases, that’s less strict than what we’re using now. I talked about the 3,500 MHz auction where we had requirements that if you currently operate a mobile network, you have to deploy that spectrum within 90% of that network within five years, and 97% within seven years. Within 10 years, you also have to cover 95% of the rural areas outside of that. Those networks currently cover about 98% to 99% of Canadians, so you are really talking about 90% of 98% within five years, and 97% within seven years. That is the spectrum that’s going to get used very quickly and far beyond the 50% coverage basis.
At the same time, we know that in rural areas — and Senator Patterson listed some examples of deployment requirements from historical auctions — those deployment requirements are set based on public consultation. We are constantly hearing, even from the big providers, that we are setting them too strictly, and obviously, we take that with a grain of salt. But we also have to reflect that we want the spectrum to be used. In cases where you have extremely low population density, where you are required to build a lot of towers for not a lot of people, the business case for using spectrum can be difficult. So when we set deployment requirements and we consult on them, we try to find targets that are achievable for providers but also ensure that spectrum will be used.
For example, we held a residual auction last month for some licences that had been returned to us, including spectrum in the North, which had extremely low reserve prices, and we were unable to sell it even despite the deployment conditions, which some people say are not strong enough. We do want to make sure the spectrum is used. We do want to make sure the deployment requirements reflect the likelihood of it being used and the economic case that providers will face to use it. But we do want to push them, which is why we continue to strengthen those requirements over time.
When I mention that spectrum licences are not one-size-fits-all, the same goes for deployment conditions. We would have some concerns that we would either have conditions that are not strict enough in some areas or could preclude licensees from using spectrum or wanting to use spectrum in others.
Senator Wallin: I don’t want to get totally into the weeds, but I guess it’s in part a definition of rural versus urban. When there is more deployment, there are 49 new towers in Regina, and then nothing out in upper Saskatoon up and down the road. They have put the towers — for example, I live off Highway 5 — so that they can provide 911 service. Because as recently as three years ago, we didn’t have any of that, but you’re putting it out on a highway, where there is no population.
If you put the tower two kilometres this way, you would have a population base of 200 or 300 or 120, and you’d still be able to service the 911 on the highway. It depends on how you turn the — this is basic stuff. You’ll have a tower on a First Nation that’s turned inward when you have 100 people that live a quarter of a mile the other way. It just seems — I know you have requirements for usage, but what I’m saying is that it needs to be smarter usage.
Is there any way for you to do that through the system that you now employ?
Mr. Kellison: When we talk about population requirements — I mean, it is true; we sort of say, “Okay, if you have to meet X per cent, we don’t tell you who it has to be.” It does reflect — usually, people will start building in urban areas before they go to rural areas because that’s where the people are and that’s where the money is.
At the same time, when we have a general deployment requirement, we do try to make sure that it is meaningful for the entirety of a licence area. One of the things we’ve been doing in recent auctions is going to smaller and smaller licence areas. In the past, where we might have licensed spectrum on a provincial basis and said, “You have to meet X per cent of the population within that licence area,” that, in some cases, very easily could be met by serving urban and not rural. If 50% of the population of Ontario lives in three cities, then you are done.
At the same time, I talked about our auction we held last year and the upcoming 3,800 MHz auction that will begin in October, and we are using what is called Tier 4 licence areas. I won’t get into the weeds, as you say, but I will say we divided the country into 172 different areas. Some of those are extremely rural.
For example, in Newfoundland, rather than have a single licence area, we have five. St. John’s is its own. Corner Brook is its own. Gander is its own. Labrador is its own. Essentially, all of those have individual deployment requirements. So rather than serve St. John’s and leave the rest of the province out, there is a specific licence for Corner Brook with specific deployment conditions. In those cases, we have tried to say the more we can target the licence areas, the more we can target the deployment conditions. Past that, it will be to the business decision of the operator who and how they choose to serve.
Senator Wallin: One of my concerns — and I raised it with Senator Patterson — is that this issue is not about watching TV or Netflix. This is about access to health care, primarily, for people, so there has to be some consideration of whom it’s reaching and whether — in a lot of these rural communities, where I live, you’ve also got aging populations. There is no bus service to cities, so this is the only way to communicate with the medical professionals who are in the cities. I think there have to be some other considerations. Thank you.
Senator Simons: Thank you very much, Mr. Kellison.
I guess I’m concerned. As I listened to your presentation, you outlined powers that give you the flexibility to tailor the regulations to the particular client and the particular geography. It sounds like a great system, as you describe it, but the reality is that we know that spectrum squatting is still going on. If this bill isn’t the right tool, what tool do you need to make sure that people are getting spectrum? I have infinite sympathy with what Senator Patterson is trying to do. My concern with the bill as it’s drafted is that it may actually be a disincentive for people to enter the auction and enter the market. What do we need to do, because clearly the status quo is not giving us what we need?
Mr. Kellison: I agree in the sense that, from a legislative perspective, we do have some concerns with the way the bill is drafted in terms of the targets that it sets, in terms of the revocation and the civil liability provisions and the incentives that those create. Anything that would be retrospective, that would apply to someone who has already paid for spectrum and made investment decisions on that basis we would have concerns with. And we would have concerns with the idea that we have to turn around and hold an auction within 60 days because planning an auction — particularly when companies need time to get their strategy and their money together — that’s an extremely tall order.
With respect to tools, we would say that the legislative framework we have is sufficient. The minister currently has the power to amend, suspend, issue and revoke licences and has the power to set very broad conditions of licence, whether that be population coverage or something else. We are looking at auctioning very high-band spectrum in the next couple of years, which travels extremely short distances but has very high capacity. In those cases, population coverage is not necessarily the best indicator. We might want to look at how many stations have been deployed because, essentially, it is the kind of thing you would use to cover a building or a city block, not a wide area.
We know that all providers, whether small, medium or large, are not using 100% of their spectrum all the time. We know that to be the case. It is not a problem with set-aside spectrum specifically. It is not a problem with small providers. It is a problem with everyone to some extent. It is one of the reasons why we are trying to strengthen our deployment conditions and hold people to them, but it is also why we are trying to look at ways to reuse spectrum or get access to underused spectrum that currently exists.
I mentioned our access licensing consultation. What we propose to do is look at personal communications services and cellular spectrum, and where it has not been deployed, we are basically saying that if someone comes along and puts their hand up and wants to use it, and the current licensee is not using it, we will issue a licence overtop of them. We will say, “Okay, for this spectrum, if it is not being used, and someone else wants to use it for something, whether it is connectivity or connecting a remote mine, we want to make sure those kinds of business cases are possible under our spectrum policy.”
We are starting with those bands. Once a decision is issued, we will look at whether it’s something that can be added to other bands going forward. As we continue to release more spectrum through auctions, we’re continuing to look at ways that we can strengthen our deployment conditions going forward.
With respect to underused spectrum, a lot of the milestones that we have set recently are coming due very soon. In our 2019 auction for 600 MHz spectrum, the first milestones kick in after five years; so next year we will be doing compliance verification to ensure that spectrum, including set-aside spectrum, is being used. For our 3,500 MHz, it will be in 2026.
Going forward, we continue to both increase the requirements and shorten the time frames, because we know spectrum is underused and we want to ensure we can get there, but not in a way that will be a short-term blunt instrument that may have disincentives for a number of providers.
Senator Simons: One of the things about Senator Patterson’s bill are the civil liability provisions, which seem like they could be a pretty good incentive to get up off your butt and use your spectrum. You are saying that in a year you will have all these deadlines the companies have to meet. What are the consequences for them if they don’t? What powers do you have of enforcement?
Mr. Kellison: I will ask my colleague, Marc-André, to answer that.
Marc-André Rochon, Senior Director, Spectrum Management Operations Branch, Innovation, Science and Economic Development Canada: Thank you for the question.
We do have various powers when any service provider does not meet conditions of licence, including deployment requirements. It could be an administrative monetary penalty, AMP for short, or a fine. It could be revocation of the licence. It could be suspension of the licence.
I will use a specific example. In 2021-22, we did our annual licence verification exercise. To give an idea of size, we have about 15,000 spectrum licences that are used for commercial mobile, internet to the home, public safety and what is called wireless backhaul, so connecting towers together without needing a wire. We verified 1,422 licences that year, and 19 of those licences were deemed to be non-compliant when we did that analysis. Seven licences were returned to us. The service provider decided they were not going to use it, so they returned it to us when we asked them to return it to us. Seven were not renewed. In a lot of cases, it was a renewal year, so we just didn’t renew the licence. We revoked two licences.
And we also looked at — if there is already deployment in an area, especially if it is rural — if taking the licence away would deprive Canadians of service. Then we developed a compliance plan with them so that in very short order they meet the obligations of the licence and deployment. In some cases, that’s a good alternative to revoking the licence, especially if there are only one or two service providers offering service in the area.
Senator Simons: And how often do you use AMPs, then?
Mr. Rochon: For deployment requirements, we have not used AMPs. We have used AMPs if there have been issues with health and safety. If they don’t meet Safety Code 6, which is the health and safety standard, or if they have harmful interference with public safety entities, we will use AMPs in those areas, but not regarding not meeting deployment requirements.
[Translation]
Senator Miville-Dechêne: I’d like to know how many times you have revoked licences. Does it happen frequently? Do you only do it rarely?
Mr. Rochon: We don’t revoke licenses very often. We’ve revoked three spectrum licences since 2015. Generally, we verify that requirements have been met when licences are up for renewal. So we don’t renew the licence, which has the same effect as revoking it. Often, when we contact the company, we tell them that they haven’t been compliant, and they will simply give it back. So we don’t have to revoke licences ourselves.
Senator Miville-Dechêne: I’d like to take you back to the Québecor case in 2007. Senator Patterson cites this case a lot, where Vidéotron, which is no small player, acquired quite a bit of spectrum. I’d like to know, did Vidéotron meet its requirements or did it turn around and sell it quickly for profit? Is all of that acceptable if we consider that spectrum is really a public good? Therefore, I want to know if your system worked in this case, because it doesn’t seem like it did.
[English]
Mr. Kellison: Thank you for the question, senator. I would say a couple of things. We don’t preclude secondary market transactions for spectrum. We don’t regulate the price of what that will be, but we do insist that the deployment conditions that are issued with the licence are transferred to whoever buys the spectrum. I won’t speak for Vidéotron specifically. What I will say is that there are a number of spectrum transactions that take place every year. Sometimes the spectrum is sold for more than it was originally; sometimes it is sold for less. Often it is not a figure that is made public even to us, so we have a limited view into what secondary spectrum goes for in this country. I will say that it varies based on what we’ve seen.
Deployment conditions are transferred with the licence if the minister approves that transfer. My colleague can speak about some of the reasons why the minister would or would not approve a transfer. One of the things we have done in most of our recent auctions is coordinated our transfer restrictions with our pro-competitive measures. What I mean by that is that if a company is eligible to buy a set-aside spectrum and has deployment conditions that go with it, we require that company to meet those deployment conditions before we approve a transfer to a non-set-aside-eligible entity.
[Translation]
Senator Miville-Dechêne: In that case, did you use your authority to make sure the requirements were met prior to the sale? Do you do anything or did the transfer go smoothly?
[English]
Mr. Kellison: In the case of Vidéotron spectrum specifically and what Senator Patterson was referring to, I believe, at that time, the milestones for deployment had not yet been reached. We would assess compliance with those milestones at the time the milestones come up, according to the licence. That said, in a case where someone has transferred spectrum before the milestones come due, it is the responsibility of the purchaser of that spectrum to meet them within the same time frame. If I am three years into a five-year milestone, and someone buys the spectrum, they now have two years to meet those deployment requirements.
Senator Miville-Dechêne: Was it met?
Mr. Kellison: I’m not aware of any case within that spectrum that ultimately was not in compliance with deployment requirements.
[Translation]
Senator Miville-Dechêne: You do have guidelines that you can change from auction to auction, if I understand correctly. What bothers you about the bill, which would establish a framework that’s obviously a little more rigid? Because I understand that it can take up to eight years to meet those requirements. Therefore, that would give way to some speculation. You could tighten the guidelines to bring them in line with the law, but you still have tools to specifically achieve your goals, right?
[English]
Mr. Kellison: It’s a fair question. Each auction that we hold is subject to public consultation. I should be clear: Not all the spectrum that we make available for services is auctioned. Some of it is made available on a first-come, first-served basis, and some of it is licence-exempt. We typically hold an auction when we expect demand to exceed supply and we want to ensure that spectrum is put in the hands of people who value it and have an incentive to use it.
For each consultation we will look at deployment requirements as a condition of licence. They will depend on the characteristics of the spectrum: How far can it travel? It will depend on the characteristics of the licence area: How rough is the terrain? How sparse or dense is the population? It will depend on what the spectrum is used for internationally, what radios are available to put on towers, and what handsets people intend to use. All of that will go into deployment conditions. It will vary auction by auction. They have increased over time.
With respect to the historical conditions, they have had different targets in different years. For all the auctions that we have held since 2019, the first milestones come due within five years. Usually, it is 5 years, then 7 years, 10 years and 20 years for the term of the licence.
[Translation]
Senator Miville-Dechêne: What bothers you about the bill, since you have guidelines to set very specific conditions?
Mr. Kellison: Sorry, I don’t exactly understand the question.
[English]
Senator Miville-Dechêne: Senator Patterson’s bill wants to put reference to three years to do what is expected as a licence requirement before revoking it. Since you have the power to regulate and specify very clearly what you want in each of the auctions, why is it that you are bothered by this bill?
Mr. Kellison: Going back to my previous comments, in some cases, three years and 50% is not as strict as what we’re doing.
Senator Miville-Dechêne: How many cases? What is the percentage of cases where you really need less than three years?
Mr. Kellison: I wouldn’t say it’s so much a question of three years; it’s a question of coverage. What I will say is that when we look at timelines, we are applying these timelines not just to national incumbents, but to all providers. That includes small wireless service providers and regionals that are building out their networks.
We are applying these conditions both to companies that have a 30-year head start and to companies that don’t and are still building towers in rural areas. We want to take that into consideration because we are also committed to ensuring that we have a competitive wireless market, and sometimes that means ensuring that companies have the time to build out networks where other companies already have that advantage.
When I say we have stricter deployment conditions, I’m not so much talking in terms of time — although in a lot of cases we’re looking at five years instead of three — but I am referring to stronger coverage targets, particularly when we look at the ubiquity of mobile networks in this country and our requirements that essentially 90% and then 97% of them get covered with the spectrum that we’re auctioning within five and seven years.
I do think that looking at 50%, three years, one-size-fits-all across all bands is not going to necessarily lead to the outcomes we would hope for in terms of widespread coverage. It will be too much in some cases and not enough in others. It will also apply to spectrum licences where population coverage doesn’t make a lot of sense, including satellite licences, backhaul licences and licences where we are trying to get spectrum used for things other than population coverage. When I was talking about non-competitive global licensing, I was talking about getting 5G spectrum available for agriculture, industry, mining. Those are licences where a population-based coverage requirement would not necessarily make a lot of sense.
The Chair: I have a quick supplemental to Senator Miville-Dechêne’s question. Do you have an example of any spectrum licensing that was revoked by your ministry in less than three years’ time?
Mr. Rochon: Usually it’s more than that because the deployment requirements would be within five years. As discussed before, the licence —
The Chair: So the answer is “none.”
Mr. Rochon: None.
The Chair: When Mr. Kellison says that this bill in some instances is too rigid and in other instances not rigid enough, that’s not true because three years, from what you’re telling me, is the max.
I’m going to ask my next question. Have you revoked any spectrum licensing within less than five years since 2019 or 2018 or 2015? I suspect the answer is “no.”
Mr. Rochon: Not to my knowledge.
The Chair: Exactly. The question from Senator Miville-Dechêne was very simple.
Three years is actually far more rigid than what the current practices are, and it’s far more rigid, Mr. Kellison, for a reason: We would like to get things done and we would like to get more regions of the country hooked up.
So I wanted to be clear on the record that the point that my colleague is making and the point the bill is making are very prescriptive for a reason.
Senator Quinn: Thank you, gentlemen, for being here this morning. Chair, I thought that question was a very good question. I was going to go down a similar avenue, but you clarified that all, so thank you.
The spectrum belongs to the government, and they deploy that through the auction process. In fact, they’re selling government property.
Mr. Kellison: Just to be clear, we consider it a public resource. It belongs to Canadians. We manage it on behalf of Canadians.
Senator Quinn: Great.
My question comes back to that which was at the beginning when the chair asked about the cost of services in Canada, and you responded that, in some places, the costs have actually gone down. It’s not a very common or publicized event, I don’t think. In the world I circulate in, I hear nothing other than costs going up.
My question really comes down to the spectrum speculation process. Let’s say I buy spectrum and then I hold it — don’t use it — I sell it over to another company, and the other company pays me, oftentimes, a lot more. I do know you said that sometimes it could be sold for less, but the stories we heard this morning concerned instances where it was sold for hundreds of millions of dollars more than it was paid for.
If the spectrum is a public good, and we’re looking after that asset, should we not be concerned when the spectrum is sold at those excessive prices? I know that is market-driven and everything, but I come back to the cost drivers that feed back to a company having the fiduciary responsibility to its shareholders to make money. So the cost they’ve incurred in getting that spectrum would be absorbed in the profit chain.
Why does the government and why does your department not require that any sale of spectrum that you’ve sold or auctioned off in good faith on behalf of Canadians — why would you not be interested in and have a requirement that if anything is resold at a profit or a loss, it should be reported prior to? I believe that you, doing the public good function, should have the final say and sign-off, because it’s all going to back to consumers, who are picking up the costs eventually, because that’s how the marketplace works. I’m kind of at a loss regarding this spectrum squatting and the subsequent profiteering.
Mr. Kellison: We do have the final say in terms of whether a licensee can transfer a spectrum licence to someone else, and that is ultimately the decision of the minister. My colleague is responsible for the transfer framework that guides the considerations we have in terms of allowing a spectrum transfer. We look at things like concentration in the market and those sorts of things.
I mentioned before that the deployment requirements would transfer with the sale of the licence. I mentioned that once we auction a licence and someone has paid a lot of money for it, they are usually licensed for up to 20 years. It is their asset to use. We auction the spectrum because we want people to pay so they have an incentive to use it.
Regardless, whether it’s an auction price or a secondary price, our view is that spectrum prices don’t drive consumer prices; competition does. You don’t sell spectrum to a consumer; you buy it so you can offer them a service. Usually the valuation that companies put on spectrum, whether it’s in an auction or in a secondary market, is based on their expected rate of return in the consumer market.
One of the reasons we’ve tried to champion pro-competitive policies in our auctions is to increase competition in the consumer market. The more competitive the market is, the less you would be willing to pay for spectrum because the less return you would expect to make on it.
I take the point that, in some cases, there is an appreciation of value as an asset, and that can happen with spectrum as it can with other markets. At the end of the day, we do hold people to account with respect to deployment. The more we can use our auctions to promote competition in the consumer market, we would expect that at some point we would see spectrum prices, in auctions or secondary markets, to follow that trend.
Senator Quinn: I understand all that. One of the things you did mention is that you don’t always know what that spectrum is sold for, which is the point I’m trying to make. I understand everything you said in terms of consideration of recommending the minister to allow the transfer, but shouldn’t the cost of the transfer, positive or negative, be a factor because regardless of the competitive environment we talked about — and it does drive prices — but so too do costs to acquire assets? They have to be recovered so the shareholders get a return on the investment that the company makes on their behalf. Shouldn’t that be one of the fundamental requirements if we’re looking at a public good?
Mr. Rochon: The transfer framework is the framework we’ve had since 2013. It was set up to govern the transfer of licences to make sure that it’s done for the benefit of Canadians. Right now, the transfer framework considers concentration of spectrum to make sure there is enough spectrum for smaller players in all that. There is no consideration in the current transfer framework for the value of the spectrum and how much a company would sell it for or buy it for.
Senator Quinn: I understand. I’ll probably pursue this with other witnesses because, quite frankly, it’s like federal land. I know a little bit about that, having run a port for a number of years. I can go into leases with those people who are going to use that land and make a profit. If they want to have a sublease, I have to approve it to understand what that model is and how they’re going to use that.
You could argue that is a public good, but this is clearly a public good because it connects Canadians. We’re not connecting very well in rural areas, which is one of the main focuses of Bill S-242.
I’m at a loss in terms of how that can’t be a significant factor for a minister to make a decision. It also comes again into the profit chain. Who is profiting? Shareholders are profiting. If the shareholders lose, the company has made bad decisions. But shareholder profit is the name of the game. Sometimes those shareholders are the senior executives of these companies, and that is probably a questionable thing in terms of the public good.
I’ll leave at that. I just find it quite interesting how this all unfolds with respect to costs if it’s truly a public good that is sadly lacking in areas of the country.
Mr. Rochon: There is one thing I will add, senator. In the recent licensing frameworks, we do have the condition where a licensee must have deployed — they must meet their first milestone deployment requirements — before being able to be considered to transfer the licence. So that’s something we have put in place recently.
Senator Quinn: Thanks for that.
I took note that, in 2019, spectrum that was awarded is due for a five-year review, which is next year. Do you monitor at all during those years, or is it, “Now it’s year 5; we had better start reviewing what progress was made”? Or is it continual?
Mr. Rochon: We normally don’t, but there are a few aspects to this. When we issue a licence, it takes time for a service provider to build out. They have five years, so we will normally not check anything until the first five-year milestone.
Between the 5-year and the 10-year milestones, they’re obliged to keep at least that level of deployment. So we may go and verify, if we feel we need to, between the 5-year and the 10-year mark. At the 10-year mark, we will do a formal exercise to validate deployments for all licences.
Senator Clement: Welcome to the committee.
I want to apologize to you and my colleagues for arriving while you were speaking. Chamber coordinator duties conflict at times.
I am a former mayor of Cornwall, Ontario, and we were involved with the Eastern Ontario Wardens’ Caucus and the Eastern Ontario Regional Network. Those are municipalities trying to be partners in the connectivity challenges for rural areas.
I have a visceral reaction to this bill around the fact that it’s necessary, and there are several things wrong, so let’s look at what people are proposing in order to fix this.
I’ve heard you reference public consultation quite a lot in your comments. Can you describe what that means for you? How do you do that? Is it stakeholder meetings or is it actual public? Going to Senator Housakos’s comments earlier, the public is becoming very aware of this and is very irritated by this. Are they consulted as well, and how do you do all that?
Mr. Kellison: We have a requirement under the Radiocommunication Act to consult when we do things like change what spectrum is used for or develop a framework for licensing, whether that be first-come, first-served or an auction. We consult as well on technical rules.
It is typically a paper process. We will publish a notice of consultation on the ISED website. We have a lot ongoing at any given time. Essentially, we’ll have a notice saying that this is what we’re proposing to do, and you have so many days for comment — 90 or 180 days, whatever it is. Then we have a period of reply comments after that. We post all the comments and reply comments on our website. So people will look at what others are proposing in response to what we’re proposing and then provide their comments on that as well. A period after that, we will issue a decision. That will be a few months or something like that.
All of that is public record in terms of why we’re doing what we’re doing, what we’re proposing to do. We will put all the comments up in our decision paper. We will say, “These are the comments we received. Some people thought this; some people thought that. Upon reflection, this is what we want to do.” We’re either going to proceed with the original or we’re going to change it based on the comments we received.
That’s typically what we refer to when we talk about public consultation.
Senator Clement: Do you get a lot of uptake in that process?
Mr. Kellison: More and more. In fact, we’ve been trying to solicit non-traditional stakeholders. It’s one thing to have just the big telcos come in and say what we should do with the spectrum that they want to buy.
What we’ve been trying to do recently, especially with some of our consultations around access licensing and around the non-competitive local licensing I was talking about, is to reach out to non-traditional stakeholders. For non-competitive licensing, we’re getting a lot of industry and utilities coming in. We’re getting public safety folks coming in. We’ve had Transport Canada come in on a number of things recently and other government departments.
One of the blind spots, quite frankly, that we’ve had historically is consulting with Indigenous communities. One of the things we’ve been trying to do, especially with non-competitive licensing, is to reach out to Indigenous partners, understand some of the barriers they face in even participating in our processes and make sure they’re aware that we’ve got these things ongoing and that they’re able to participate so that we can apply that lens to some of the consultation we’re doing as well. Unfortunately, we’re in early days on that, but we are trying to reach out to new and non-traditional stakeholders as we hold these consultations.
We also get a lot of individuals and academics who will come in.
Senator Clement: On tower construction, I have a visceral understanding, but I’m trying to get up to speed on the technical.
Who pays for that tower construction and then who owns the rights to that?
Mr. Rochon: The tower construction is the responsibility of the proponent, so the service provider would be responsible for putting up a tower. We have a framework for that as well. That’s public and that was consulted on when it was put together many years ago.
In a nutshell, if a proponent wants to put up an antenna structure, a mast or tower, they need to reach out to what we call the land use authority, the municipality or whoever owns the land, and try to come to an agreement for a location for the tower. If they come to an agreement, then they would put up the tower. There is public consultation for the people who live close to where the tower is to get their feedback on the tower, so there is a process around that.
The responsibility for the tower and who owns the tower would normally be the proponent — usually the service provider, but it could be a third party that would put up a tower on behalf of the service provider as well.
Senator Clement: Thank you.
Senator Dasko: I have a question about the timelines. I think you may have answered this perhaps in a roundabout way, but I want to focus on it a bit.
We heard from Senator Patterson that it’s taking 8 to 10 years to develop the spectrum. He has proposed three years in his bill, and you have used the figure of five years in a lot of your discussion today.
Tell me about whether the five-year timeline is something that is now the norm. Is that what you’re putting into most of the licensing requirements, the auctions that are coming out? Is that now the norm?
Is the three-year timeline that he has proposed not feasible for the companies who are getting the licences? Is that something that is just too tight to develop the service? I want to get a sense of that. Perhaps the 8 to 10 years that he mentioned, would that be the licences that were in the distant past, let’s say, and that’s not the norm right now?
Mr. Kellison: The milestones will depend on the length of the licence. Quite often we have 20-year licences, but some are shorter, and it would depend on where we think the first milestone should fall.
I would say that 8 to 10 years is no longer the norm. There have been historical licensing processes where we might have used those. The last three auctions we’ve held are planned. That would be 600 MHz in 2019, 3,500 MHz in 2021 and the 3,800 MHz auction that will start in October. For all of those, the earliest milestones are five years. We’re making those more common.
We know that in some cases deployment happens before five years, even if we’re saying that will be the first milestone. In urban areas, with our 3,500 MHz spectrum, I believe that Bell, Rogers and TELUS all issued press releases on the day they got their licences to say that new 5G services were available in downtown Toronto or Montreal or Vancouver. Certainly in urban areas, people have a financial incentive to use it as soon as possible.
With respect to rural areas, it is a bit more complicated. The business case is not as strong. There are fewer people, and there is more terrain to cover. Whether three years is appropriate to meet 50% — you could say that in three years you have to meet some percentage, or you have to meet 50% within some period of time. When you put them together, in some cases that may be overly ambitious, particularly if we’re talking about a new entrant that is having to cover a large area with a lot of towers that cost a lot of money and require a lot of steel, which has its own supply chain issues these days.
We would try to look at how we balance ensuring that the spectrum is put to use, and Canadians are connected reasonably quickly — and as quickly as possible, quite frankly — with the risk that if the deployment conditions are too onerous, no one is going to put their hand up for a licence. Taking a one-size-fits-all approach — I take the point that three years is more than enough time for deployment in some areas — I think that across the board we would have concerns with that.
Senator Dasko: Thank you.
Senator Wallin: This is just a comment. I’m sure you’re aware, but Statistics Canada told us that this year is the first year that there are more seniors in Canada than there are children. When you engage in the consultation process online, when we are, in fact, talking about the lack of access because of the lack of available technology, it’s maybe not the best way to consult people in areas where they are truly impacted. That’s not a question but just a statement. Thank you.
Senator Simons: I want to come back to Senator Quinn’s point.
When you’re giving a licence for 20 years, why is it even possible to sell that at a huge markup? Might it not be a simpler way to solve this problem of spectrum squatting that if you don’t use the spectrum, you have to sell it back, return it to the government, maybe with some kind of value attached to it?
To go back to the port metaphor, if you’re leasing land on an airport or seaport site, you don’t get to sell it to someone else. The spectrum doesn’t belong to them; it belongs to us. Why can they profiteer at all?
Mr. Kellison: It’s a fair question, senator, thank you. There are a couple of things. We do auction the right to exclusive use for a period of time. We manage the spectrum on behalf of Canadians. But we do also want to ensure that if we give someone a licence, they’ve made a significant investment and they have an asset that they can use according to their business plan.
We also encourage licensees to effectively sublease their licences in some cases. We have a subordination policy where if someone says, “I’m using it in this area but not in this area, and I can find a partner who will use it on my behalf,” that is another kind of licensing transaction that takes place in the private market, subject to our approval, that helps licensees in some cases meet their deployment conditions or helps interested providers, particularly in rural areas, come along and say, “If you’re not using the spectrum here, I would like to get a sub-licence so that I can cover my community,” or something like that.
What we’re trying to do with our access licensing consultation is effectively take it away from being a private negotiation and make it more of a licensing framework where rather than go to a big company and say, “I would like to sublease some of your spectrum if you are not using it,” we are essentially saying that you don’t even have to negotiate with them anymore. We will license overtop of them if they are not going to use it. We do have that kind of framework in place.
With respect to transactions, my colleague has said that we don’t regulate the market value — if we see it at all. We don’t know sometimes what it is. Sometimes it may be nothing. It may just be something like, “I’m not going to use it, and I need this off my books.” In those cases, we also still want to make sure the spectrum will be used. So it is fine for someone to say, “I’m not going to use it; I will give it back to ISED,” but that may result in a loss of service for the customers who are in that area now. It may also result in a loss of time in terms of how quickly we can turn around and relicense it. As I mentioned, an auction, especially when we are dealing with some of the valuations on spectrum that we looked at, is not something we take lightly. We want to make sure it is a transparent process but also one where companies are not able to collude or fix the results of an auction. We want to make sure it is all on the up and up.
With respect to the question, we don’t get into the dollar value but we do want to make sure that if the transfer is going to happen, that it is under our framework and that, at the end of the day — whether it’s the company that bought it and maybe their business plan changed or the company that is buying it because they want to get into the market — somebody is going to use it.
The Chair: I would like to thank our witnesses on behalf of the committee for being before us. Clearly, this piece of legislation has elicited a lot of interest. We have had an interesting discussion about a subject matter that has been a nuisance to Canadian consumers for a long time, and I get a sense that my colleague the deputy chair has recaptured the essence of the question. If the witnesses will indulge, you get the last question, senator.
[Translation]
Senator Miville-Dechêne: You say you’re going to make smaller sections of land for spectrum. I’m wondering if this will really help the very remote areas where, as I understand it, it’s much harder to sell spectrum because there’s no money to be made. Wouldn’t it be more logical to create larger areas and force the wealthiest to not only put up towers in the cities, but to go to the far north and take part in the Canadian experience?
Mr. Rochon: Yes, we have that option, and there are two factors. Currently, some licences are issued for an entire province, for example. With the tools we have now, we can set up the deployment conditions to go smaller in three or four areas. Those are the Tier 4 areas that my colleague was talking about, the 172 different sections. We also have the Tier 5 option, which goes even smaller. So we have the option of going deeper. If a big company holds the licence for an entire province, we have the tools in place to go further, potentially beyond 50% of the licence, which is what the current bill proposes.
Then we have the option to license at smaller levels, which is a bit different, but doesn’t quite accomplish the same thing. As you mentioned, sometimes it can be harder. So, depending on the type of licence and the purpose of the services they want to provide, those are the two tools that we have and use to try to push deployments into the regions.
Senator Miville-Dechêne: Thank you, Mr. Rochon.
The Chair: Thank you very much. Once again, Mr. Rochon and Mr. Kellison —
[English]
— thank you very much for being with us.
(The committee adjourned. ).