Hank Intven of McCarthy Tetrault has produced a big black book – the Canadian Telecommunications Regulatory Handbook, to serve as a convenient single reference source for telecommunications law and regulation. In addition to a synopsis of the rules, the 1200 page book includes the text of the laws, treaties, regulations, directions, orders, rules and other key documents that govern Canadian telecommunications regulation.

Hank is one of Canada’s leading telecom lawyers, with more than 25 years at McCarthy Tetrault, following serving as Executive Director at the CRTC.

The Handbook (certain to become known as the Black Book) was inspired by his colleague Peter Grant’s Red Book, the Canadian Broadcasting Regulatory Handbook.

I have known Hank for for more than 20 years; he was one of the lawyers who advised our team at CNCP / Unitel during the proceeding that led to the introduction of long distance competition in 1992. He has advised carriers, corporations, regulators and government agencies in Canada and around the world on business, regulatory and policy matters.

Many of you will recall that he was one of three members of the Telecommunications Policy Review Panel. That panel recommended precisely the form of liberalization of foreign investment restrictions in Canadian telecommunications, among many other policy recommendations, back in March 2006. It took the government two unnecessary further consultations, to adopt what was recommended by Hank’s panel 6 years earlier.

In flipping through the Black Book, I can see that it will be a handy reference guide for my work. Despite the availability of web-based versions of Acts and Regulations, sometimes paper-based books are the right form factor. Most importantly, the book collects the highlights and most relevant cases and decisions from the tens of thousands cases and files that have been adjudicated by the CRTC, Industry Canada and the courts.

It shouldn’t be part of your library; it should be on the corner of your desk within easy reach.

In a strange choice of settings, Industry Minister Christian Paradis delivered the long overdue 700 MHz spectrum announcement. The details of the Policy Framework can be found here.

There will be lots of coverage of the highlights of the announcement (Globe and Mail, National Post) – I’ll try to touch on points that aren’t receiving as much play.

Competitive measures

New entrants and Open Media had been calling for spectrum to be set aside, restricting Rogers, Bell and TELUS from competing for the new frequencies. The major carriers wanted an open auction. In a typical governmental compromise, Solomon went ahead and cut the baby in half.

Oops.

Excuse a little bit of technical detail here. The 700 MHz band consists of blocks:

• Paired blocks (6+6 MHz each): A, B and C;
• Paired blocks (5+5 MHz each): C1 and C2;
• Unpaired blocks (6 MHz each): D and E.

As Industry Canada describes, the best blocks are the ones in use already by AT&T and Verizon in the US:

Two non-interoperable equipment ecosystems have emerged in the United States, which correspond to the specific 700 MHz spectrum holdings of AT&T (blocks B and C) and Verizon (blocks C1 and C2). In the short to medium term, it is expected that most of the available equipment will operate either on blocks B and C and be compatible with AT&T equipment ecosystem, or on blocks C1, C2 and be compatible with the Verizon equipment ecosystem.

In fact, the Verizon blocks are less desirable, since Verizon’s gear is designed to interoperate with CDMA, not the GSM/HSPA ecosystem. CDMA has been largely abandoned by Canadian carriers. The large providers are restricted to bidding on only 1 paired block of prime 700 MHz spectrum, in order to leave at least one block available for new entrants.

It is a great compromise in theory, except it virtually guarantees that Canadians will not have access to the fastest mobile speeds. While LTE can operate on 10MHz of spectrum, it can operate that much better on 20MHz. In other words, Solomon went ahead and cut the baby.

Another complication comes up in the middle of the country where there will be four incumbents bidding: SaskTel and MTS have been recognized to be incumbents. Long time readers will recall that this was a problem in the last auction. So, there is a high probability that new entrants will be shut out of acquiring a national network since there will be a large hole in the midwest portion of the country.

Rural build out

The announcement was held in Russell Ontario, a community that has attracted rural broadband subsidies in the past. Perhaps the Minister was looking to emphasize the rural benefits to be derived from Canada’s new spectrum policy. After all, a number of carriers had told the government that 700 MHz was the key to extending broadband to rural markets.

The Minister announced

The measures I am outlining today will ensure the timely availability of world-class wireless services at low prices for Canadian families, including those in rural areas.

But look at the details:

The government will require companies having access to two or more blocks of paired spectrum in the 700 MHz band, through auction licences or through spectrum sharing, to cover 90 percent of the population of their current high-speed population coverage within five years and 97 percent within seven years of licensing.

In other words:

• The rural build won’t apply to all winners of 700 MHz spectrum, just those acquiring 2 or more blocks;
• If the rural build requirement applies, it doesn’t require extending the networks beyond the reach of today’s HSPA footprint – in fact it only applies to 97% of the current footprint after 7 years.

This strikes me as not being a particularly aggressive requirement.

Foreign ownership

There has been a fair bit of confusion about which companies are covered by the foreign investment liberalization announced.

The government will amend the Telecommunications Act to exempt telecommunications companies with less than 10 percent of total telecommunications Canadian market revenue from foreign investment restrictions in that Act. This change will promote competition by improving access to capital. In order to encourage long-term investment in Canada’s telecommunications industry, companies that are successful in growing their market shares in excess of 10 percent of total Canadian telecommunications market revenues other than by way of merger or acquisitions will continue to be exempt from the restrictions. Restrictions on foreign ownership under the Broadcasting Act would remain for all companies with broadcasting distribution activities. As is the case with any direct foreign investment, the provisions of the Investment Canada Act will continue to apply.

Let’s parse this. According to the CRTC’s Communication Monitoring Report, total revenues in 2010 were $41.7B. So, companies with less than $4.2B in revenues pass the first gate. Only the Telecom Act is being modified, so carriers with broadcast distribution undertakings (BDUs) will not benefit from the announcement. Note that BDUs aren’t radio or TV stations; BDUs are telecommunications carriers that deliver TV programming. By virtue of delivering IPTV, most local phone companies became licensed as BDUs.

There are only three companies that exceed the 10% threshold: Bell, Rogers and TELUS. All three are BDUs, so it is interesting that the government chose to set a market share metric at all. Further, the Minister reminded us that the Investment Canada Act provisions remain in place, which require an application for review if the investment exceeds $330M. In other words, Industry Canada will still have to review and make a determination for as low a threshold as less than 1% of the telecom market.

the purposes of this Act are to provide for the review of significant investments in Canada by non-Canadians in a manner that encourages investment, economic growth and employment opportunities in Canada and to provide for the review of investments in Canada by non-Canadians that could be injurious to national security.

As such, why couldn’t liberalization be offered to all carriers? Bell, Rogers and TELUS would still have needed to restructure their BDU businesses and be subject to Investment Canada review.

Public Safety

Among the most overlooked aspects of the announcement was the designation of 10 MHz of spectrum for public safety users, with the strong possibility of a further 10 MHz of spectrum to be added.

B2-1: The bands 763-768 MHz and 793-798 MHz (PSBB block) are designated for public safety broadband use. Consequently, these bands will not be part of the 700 MHz auction.

B2-2: A decision on the use of the bands 758-763 MHz and 788-793 MHz (the D block in the Upper 700 MHz band) will be made following a separate consultation.

99. Industry Canada will initiate a further consultation on the technical, operational and licensing issues related to the spectrum designated for public safety broadband use in the 700 MHz band.

Who will actually own and operate the networks that make use of this spectrum? It is 20 MHz of spectrum designated for use by agencies that do not necessarily have the financial means to implement a national network. This could be a really interesting opportunity for a company to emerge to build and operate the network to deliver public safety broadband services.

It is a lot of spectrum to be designated for a limited group. Could other users be loaded onto the network during off-peak periods? Would this help enhance the business case for development of a device ecosystem?

Other observations

The foreign investment liberalization will ease the corporate gymnastics that many companies have had to undertake to comply with the whims of less-than-transparent review processes. A number of companies were created with the sole purpose of laundering foreign ownership through Canadian partners in order to own spectrum or become a CLEC. Watch for these structures to be simplified in the coming months.

In the Minister’s remarks, we heard “The measures I am outlining today will ensure the timely availability of world-class wireless services at low prices for Canadian families, including those in rural areas.” The 700 MHz auction is scheduled for the first half of 2013, followed by the auction of the 2500 MHz spectrum within the following year. Canada should be moving forward more aggressively to get this spectrum deployed, encouraging more rapid investment in our national digital infrastructure.

The spectrum announcement indicates follow-up processes and consultations leading up to the auction. The 2012 Canadian Telecom Summit, June 4-6 in Toronto, will be the place to review these issues with a special panel on June 6 examining spectrum. Watch for further announcements regarding our program in the coming days.

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Stikeman Elliott’s Communications Law Blog has a new post (“CRTC tweaks anti-spam regulations“) that describes the recently filed final regulations made by the CRTC under Canada’s Anti-Spam Law (CASL). David Elder from Stikeman’s indicates 5 points where the regulations have seen some changes and clarification.

As indicated, we are still waiting for Industry Canada to finalize its regulations and for a vendor to be selected to operate a Spam Reporting Centre.

I continue to have doubts that any of us will see a decrease in the volume of real spam – offers for anatomical enhancement, debt relief, etc. This bill, as it was passed, will serve to dramatically increase the cost of electronic business and act as a deterrent for e-commerce adoption by legitimate businesses in Canada. The government should sit on this one until its impact can be assessed and integrated into an overall national digital strategy.

For the past 18 months, Bell has been trying to upgrade its infrastructure in Montreal’s Outremont district. According to a file submitted to the CRTC, the local council has been delaying Bell’s building permits for installing Fibre to the Home (FTTH; FALM – fibre à la maison – in French) and internet speed increases through Fibre to the Pedestal.

It is an interesting file to examine. It all started in September 2010, with what should have been somewhat routine applications for wiring upgrades. It is hard to imagine what gets into the minds of municipal politicians when they reject a fibre build due to “des prétendus impacts sonores et de santé relativement aux ondes émises par l’équipement FALM”. Noise and health impact associated with the waves emitted by the FTTH equipment.

Donnez moi un break.

The initial response of the City to the Bell application provides fascinating insights. “We see no urgency…”, despite delays to customer affecting capacity exhaust set out in the Bell application. Bell had not only asked the CRTC for an expedited process,  it asked for immediate approval of two of the permits where equipment was operating at capacity.

Around the world, governments at federal, provincial and city levels are spending gazillions of taxpayer dollars to upgrade communications infrastructure. Governments have begged and subsidized carriers to encourage them to install fibre optic connections for their citizens. But, in the city playing host this fall to The World Congress on Information Technology, roadblocks are being put in front of private sector investment in FTTH.

“Fulfilling the Promise of the Digital Age”?

Not in parts of the host city.

As Bell states in its application, Outremont’s concerns about protecting the “heritage” aspects of the district cannot leave its citizens restricted to legacy services over quaint copper connections. It is time for Outremont to develop a greater sense of urgency and encourage investment in digital networks.

When will we see the auction policy announced for the 700 MHz band?

This has been the hot discussion topic among the telecom policy wonks for the past few months. It is now reasonable for the smart money to be looking at dates a couple of months from now.

Why? Let’s look at how the announcement ties into the federal budget, which is scheduled now for March 29. At one time, a number of us thought it might be reasonable for the announcement to precede the budget. Our thinking was that the legislation required to liberalize foreign ownership in telecom carriers – likely to be announced prior to or as part of the auction policy – would be buried in the budget implementation bill as a means to expedite its passage. The federal government may still announce foreign ownership liberalization in the budget, under a heading of digital economy measures, without announcing the specifics of the spectrum auction.

The problem is that the auction can reasonably be expected to generate billions of dollars in revenues for the government. If the auction policy is announced immediately before, coincident or immediately after the tabling of the budget, it would be reasonable for the auction proceeds to be included in the revenue estimates for the budget. Since the AWS auction generated $4.25B, will this auction bring more or less?

But, the billions of dollars in windfall revenues is inconsistent with a budget that is expected to demand significant cuts in expenditures. Further, the government is not likely interested in signalling the amount of money it expects to raise. As the vendor, would you want to signal your baseline number, or allow the bidding to proceed unconstrained. Further, if the government is going to allocate 10-20MHz of spectrum to public safety, how would the opposition parties respond to cuts in services for various agencies when the government is choosing to forego auction revenues for up to 20% of the spectrum that is available?

So, the spectrum auction policy may continue to simmer away on the back burner until after the government passes its budget. Based on the 2011 Budget timetable, we could need a further 3 weeks from the time the Budget is tabled until it receives Royal Assent. The government may not want to announce its spectrum policy in that interim period, because of the magnitude of the funds that would be generated.

This theory implies that we won’t see a spectrum policy announcement for another month (to March 29) until the Budget is tabled, followed by at least 3 more weeks until the it is put to bed. That moves us toward late April or early May.

Of course, all of this is just an outside perspective that may have nothing to do with any of these considerations. Your comments, as always, are welcomed.

In any case, The 2012 Canadian Telecom Summit, taking place June 4-6 in Toronto, will be the place to debate the spectrum policy issues and we have a forum scheduled for the afternoon of June 6 to focus on precisely that area. No other event brings together all of the leading stakeholders for the sector that is driving Canada’s digital economy.

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