Spectrum Policy in Canada:Leveling the playing field for affordable rates and a breadth of choice

REPORT

With contributions from:

ContentExecutive Summary

Policy BackgroundI. What auction format will best promote competi-tion and innovation, improve access to mobile and Internet services across Canada, and gen-erate revenue for the government?

2. What licence restrictions should Industry Can-ada place on successful bidders in order to en-courage competition and consumer choice?

3. What portion of the spectrum should remain unlicensed and open as a valuable public commons?

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Executive SummaryWhile new entrants to the cell phone market have begun to provide affordable options to some Canadians, we still pay some of the highest cell phone rates in the industrialized world.1 Canadian incumbents have spectrum reserves that far outstrip those of their counterparts in the U.S. and, at the same time, have invested significantly less per capita then.2 It is only in the past year or so that new entrants have begun making some inroads into this confined marketplace, and the potential benefits of this new source of competition have already been proven.3

The government’s upcoming 700 MHz spectrum auction represents a potential threat to the positive inroads we have begun to see, as it could significantly hamper the ability of new entrants to remain competitive or even to survive. At the same time, it offers an opportunity to build on the basic starting point established in the last auction. A carefully designed auction will allow new wireless market entrants to grow and still leave room for future technological innovations. A successful balance will result in a competitive wireless marketplace with affordable prices for Canadians (including those in rural areas), widely available high-speed data networks, and the ongoing availability of spectrum

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restrictions will help further spectrumlpolicy objectives and affordable mobile options for Canadians. The aims of tower sharing and mandatory roaming, which were present in the 2008 spectrumicences, were well placed but encountered several problems in their implementation.

A few necessary modifications will help ensure success in bringing Canadians wireless services that function seamlessly across the country: indefinite roaming obligations (regardless of whether an operator seeks roaming inside or outside its licensed area, as is the case in the U.S.); seamless hand-offs of calls between operators; a streamlined arbitration process; and the imposition of penalties for non-compliance.

Wholesale access requirements will introduce services-based competition — an option that is especially important in less densely populated rural areas where facilities-based competition does not sufficiently exist. Mandatory wholesale access will also create a space for new services to enter the market, allowing innovators to continue to introduce alternative business models and new types of wireless technologies.

Device, data and wireless service neutrality is necessary to protect consumer

resources for community groups and new technologies.

A full or large spectrum set-aside for new entrants and smaller service providers will provide the best social and economic advantages in comparison to other auction options. With a proven track record of increasing competition and reducing consumer prices in the 2008 AWS auction, a set-aside of 72 MHz — or, at the very least, a bare minimum of 48 MHz — will continue to foster competitive growth in the wireless marketplace. It will also help remedy historical spectrum-holding inequalities that continue to the present day.

This set-aside must also include spectrum blocks for which a handset ecosystem is likely to develop; thus, the set-aside must include at least the lower B and C blocks combined, or the upper C block. To maximize competition, it should ideally include both. This will prevent the carriers with dominant market positions from trying to foreclose other providers out of the introduction of next-generation high-speed data networks.

Other conditions for access to public spectrum are equally important. Licence

choice and the portability of wireless devices, applications, wireless services, and media content. The latter — data neutrality for media content — is particularly important in the face of increased vertical integration between service providers and content distributors.

To promote efficient use of the spectrum and the expansion of wireless networks, it is also important that licences mandate use of the spectrum on a “use-it-or-lose-it” basis. These mandatory use provisions must particularly require spectrum use and network infrastructure build-out in rural areas so as to increase the availability of wireless access in all regions of Canada.

Finally, it is imperative that a significant portion of spectrum remains unlicensed as a valuable public commons for innovative uses. The existing small and crowded amount of unlicensed spectrum in the 2.4 GHz band is home to most wireless devices other than mobile phones: WiFi Internet, Bluetooth headsets and keyboards, baby monitors, car alarms, and cordless phones all operate in this band. A set-aside of at least 12 MHz for the public is important for future innovation, as well as for community-based independent networks that could potentially provide low-cost wireless access in urban and rural communities alike.

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1 OECD, “Mobile phone calls lowest in Finland, Netherlands and Sweden, says OECD report” (2009), online: <http://www.oecd.org/> (this 2009 OECD study found that Canadians pay some of the highest prices for mobile phone calls in the industrialized world); New America Foundation, “An International Comparison of Cell Phone Plans and Prices” (2010), online: <http://oti.newamerica.net> (Canadian plans amongst the highest priced in the world).

2 Seaboard Group, “Long Term Evolutionary Challenge: Limiting Wireless Carrier Gluttony + SeaBoard Comment” (2012), online: <http://www.seaboardgroup.com>.

3CRTC, Communications Monitoring Report, July 2011, <http://www.crtc.gc.ca/eng/publications/reports/policymonitoring/2011/cmr2011.pdf>,p. ii.

Policy BackgroundIn 2007, after extensive public consultation, Industry Canada concluded that the overarching policy objective of spectrum auctions must be to “maximize the economic and social benefits that Canadians derive from the use of the radio frequency spectrum resource.”4

The prime real estate of the 700 MHz,

only recently released from its prior use in UHF analog broadcasting, has the ability to move signals across long distances in rural areas and provide high-speed data communication in any location. The allocation of this valuable resource requires Industry Canada to carefully balance a milieu of objectives, both social and economic:

Consumer Choice & Marketplace Competition

With dominant market positions in Canada’s wired cable and DSL markets (in addition to the wireless market), incumbent providers have a major advantage within the Internet services marketplace. However, newly available spectrum provides a unique opportunity for 4G Internet to create a “third pipe” for broadband Internet. Importantly, this third pipe also involves no costly last-mile installation barriers and stands poised to provide Canadians with a cost-lowering option for Internet access.

Bridging the Digital Divide

The 700 MHz provides the best technological opportunity yet to bring high-speed data access to rural areas and reduce the digital divide. This low-frequency spectrum can travel long distances and could readily help achieve the CRTC target of bringing 5 Mbps Internet access to all Canadians by 2015.5

Encouraging Innovation

Most new consumer technologies have one feature in common: they use wireless radios. Tablets, smartphones and e-readers consume radio spectrum at an unprecedented rate. Efficient use of the radio spectrum, as well as the availability of airwaves for new and future innovative technologies, is essential.

I. What auction format will best promote competition and innovation, improve access to mobile and Internet services across Canada, and generate revenue for the government?

4 Industry Canada, Notice No. DGTP-001-07, “Spectrum Policy Framework for Canada” (2007), online: <http://www.ic.gc.ca/>.5 CRTC, Telecom Regulatory Policy 2011-291, “Obligation to serve and other matters” (3 May 2011), online: <http://www.crtc.gc.ca>

Option 1: Confined Auction (NOT RECOMMENDED)

A confined auction — or what incumbents call an “open auction” — would make the entire auctionable spectrum available to incumbents. The auction would not set aside any spectrum for smaller service providers with less available financial capital, nor would there be any spectrum caps to limit the amount of spectrum that a single provider could obtain. The

incumbents would likely bid in the auction on the basis of the foreclosure value of keeping new entrants from obtaining spectrum — a value that could far exceed the rational amount any new entrant would be willing to pay on the regular market basis of expected return. This is the option endorsed by the incumbents Bell, Telus and Rogers.

Advantages

Relative simplicity. Ostensibly, a confined auction’s simple, if ineffective, approach would leave the licence sale in the hands of rudimentary market forces. For this reason, this method should be considered in the future.

However, although ideal as a long-term goal, the Canadian wireless market has not developed to a point where this is feasible. A vast majority of the incumbents’ spectrum licences pre-date the emergence of competitive auctions, and their resulting dominant positions remain.

A recent SeaBoard Group report estimates that the spectrum awarded to incumbents for free in 1985 was worth more than $20 billion (in today’s dollar value) to the incumbent carriers.6 This giveaway amounts to a large public subsidy that should be considered in the context of all future auctions. New competitors cannot yet fairly compete against the incumbent carriers with their well-ingrained customer bases and substantial financial capital. The playing field still needs leveling if Canadians and Canadian businesses are to have access to mobile services at globally competitive rates.

6 SeaBoard Group, “SeaBoard Comment: Wireless is Working!” (2012), online: <http://www.seaboardgroup.com>.

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An overall spectrum cap would limit the total amount of spectrum that any single service provider could hold. Until 2004, Industry Canada imposed a total spectrum cap of 55 MHz on all wireless providers. These caps were later removed to provide more flexibility, but ultimately provided greater market power to incumbents.7

If Industry Canada restored this spectrum cap approach, it would need to mandate that providers exceeding the total cap could not bid in the auction. Depending on the rules implemented, the incumbents would likely be forced to sell off any existing spectrum amounts that exceeded the cap.

Advantages

Provides “catch-up” opportunities for new entrants. Overall spectrum caps could help even out the present wide gap in spectrum ownership between incumbents and new entrants. Presently, Bell-Telus and Rogers each hold well over 100 MHz of spectrum in many areas — a vast amount, more than any provider in the U.S.8 Providers which already exceed the permitted threshold of spectrum would be barred from bidding on more, thereby allowing other service providers to “catch up.” New entrants with no existing holdings could also enter the marketplace.

Disadvantages

The potential future need for existing holdings. Although incumbents may presently under-utilize their existing spectrum, requiring them to sell off some of their current holdings to fit under an overall cap could become problematic in the future. With the introduction of LTE networks and increased consumer use of data plans, incumbents may yet develop a need for their current spectrum holdings. On the other hand, even in the denser population zones of U.S. cities, Sprint — who licenses no more than 43 MHz of spectrum in any given area, and no 700 MHz spectrum at all — recently announced that it is rolling out LTE.9

Option 2: Overall Spectrum Caps (NOT RECOMMENDED)

DIsadvantages

Permits abuses of market power. Without a set-aside, anti-competitive motivations will govern the bid price, thus foreclosing access to the market by new entrants. In a confined auction, incumbents with extensive financial resources have a strong incentive to purchase spectrum in order to shut out potential competitors — even where they have little or no need for the additional spectrum and only intend to “squat” on it.

Reduces competition. Given the present financial power differentials between incumbents and smaller providers, a confined auction would actually result in decreased competition both within the auction itself and in the wireless marketplace. New entrants could find themselves effectively removed from the bidding process, only leaving the incumbents to carve up the market amongst themselves.

7 Industry Canada, Notice DGTP-010-04, “Decision to Rescind the Mobile Spectrum Cap Policy” (27 August 2004), online: <http://www.ic.gc.ca>. 8 Lemay-Yates Associates Inc., “The Impact of 700 MHz Spectrum on LTE Deployment and Broadband in Canada” (28 February 2011, prepared for Rogers Communications Inc.) [LYA] at 44.

Option 3: Per-Auction Spectrum Caps (NOT RECOMMENDED)

Per-auction spectrum caps would limit the amount of spectrum any single provider could purchase in the auction, as opposed to capping overall spectrum holdings.

Advantages

Equal distribution of the new spectrum. Sufficiently low caps would allow all serious bidders to win roughly equal portions of the new spectrum offerings. Assuming in there are sufficient spectrum blocks of a useful size, the auction would award the spectrum to companies in similarly-sized proportions, rather than on the basis of dominant market positions.

9 Ibid.; see also Sprint, “Baltimore and Kansas City Sprint Customers to Benefit from 4G LTE and 3G Enhancements in 2012: Sprint adds to the list of cities to benefit from new and improved network technology by mid-year” (8 February 2012), online: <http://newsroom.sprint.com>.

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Option 4: Partial Set-Asides (NOT RECOMMENDED)

New entrants that seeded their businessesthrough the 2008 process continue to attract new subscribers and reduce end-user consumer costs. The CRTC Communications Monitoring Report from July 2011 reports “the new entrants stimulated the market as the number of wireless subscribers increased by 8.5% in 2010 compared to 7.8% in 2009. The average revenues per subscribers decreased 1.6%, from $58.81 to $57.86 in 2010 due in large part to the lower prices for service by new entrants.”11

Advantages

Reduction of consumer costs. Set-asides for new entrants and smaller service providers could successfully foster the growth of alternatives in the marketplace, thereby providing further competition to reduce costs and increase choice for Canadians.

Proven track record. Set-asides have a proven track record. The set-asides in the 2008 AWS auction have permitted entrants such as Globalive (WIND Mobile) and David A/V (Mobilicity) to successfully enter the wireless marketplace.

Fair division of prime spectrum blocks. Whereas spectrum caps could leave new entrants closed out of the prime spectrum blocks, set-asides would permit fair division of the most valuable blocks. A set-aside would assign new entrants at least one 22 MHz block (and ideally more), thus allowing new entrant providers to roll out next generation high-speed data networks. Specifically, under this model, new entrants would receive a set-aside for one or both of the lower B-C block or upper C block.

Disadvantages

May not rectify ownership inequalities from past allotments. As with a per-auction spectrum cap, the set-aside approach would still allow incumbents who already own a large majority of the spectrum to bid on the non-set-aside portions. A partial set-aside would thus only partially balance the market. Depending on the amount of spectrum that does not form part of the set-aside, this approach might allow the already extensive gap in spectrum ownership between incumbents and new entrants to remain, or even widen.

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Disadvantages

Incumbents could monopolize the best spectrum. One serious threat to the success of this method is that, even if the per-bidder cap were set to only allow for purchase of one single block, the number of useful-sized blocks are limited. This means all incumbents are likely to succeed in securing the ‘maximum’, while new entrants are most likely to be left out in the cold.

A second impediment to the success of this approach is that it would allow for bid rigging. Incumbents, with their greater purchasing power, will be able to drive rates higher across all spectrum blocks in earlier bidding rounds, potentially driving these blocks beyond the reach of new entrants.

Additionally, A per-auction spectrum cap would, in essence, place the most valuable portions of spectrum into an auction that is effectively confined to incumbents. The valuable spectrum would include, for example, the frequencies upon which AT&T runs its new devices in the U.S.10 Incumbents would be able to leverage their financial largess, developed with the help of a historical regulatory protections and public subsidies, to acquire all of these valuable bands. This would leave new entrants with access to only less desirable spectrum that is considerably more expensive to develop and utilize.

10 See LYA, supra note at 52 (“The spectrum bands that are held by large carriers such as Verizon, AT&T, Vodafone, and other large players represent the largest markets for handset vendors to target”).11 CRTC, “Communications Monitoring Report” (July 2011), online: <http://www.crtc.gc.ca> at ii.

The “set-aside” approach would make a portion of the spectrum available as a confined auction, but set aside another portion on which only new entrants could bid. Industry Canada adopted this approach in the 2008 AWS spectrum auction. All parties were permitted to bid on 50 MHz of the AWS spectrum, while another 40 MHz was made available to bidders holding less than 10 percent of the national wireless market in revenue.

Recommendation: Set aside100% of the available spectrum for

new entrants and smaller service providers.

A full set-aside for new entrants and smaller service providers will generate the most new marketplace competition by creating a space for new competitors to set up their networks and grow. In the 2008 AWS auction, Industry Canada set aside 44% of the available spectrum for new entrants. With the viability and success of this approach now proven, it is feasible and r e c o m m e n d e d to expand upon these successes and move forward with a full set-aside.

Of the 84 MHz of newly available spectrum, 12 MHz should remain unlicensed (as this report subsequently discusses). The best approach to promote competition is to leave the full remaining 72 MHz set-aside for new entrants and smaller providers.

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Option 5: Full Set-Aside (RECOMMENDED)

A full set-aside would safeguard spectrum from being further dominated by the incumbents, making the newly available 700 MHz spectrum available only to new entrants.

Advantages

All of the advantages of a partial set-aside. A full set-aside will leverage all of the same advantages as a partial set-aside: reduction of consumer costs through the growth of marketplace alternatives; a high likelihood of success through a proven track record of fostering new competition; and the provision of prime spectrum blocks to new entrants to allow them to roll out high-speed data networks.

Balancing the market. The mobile market is presently imbalanced, largely due to previous subsidies and historical regulatory protections. A full set-aside will help establish balance in the marketplace. A 100% set-aside would go a long way towards rectifying spectrum-holding inequalities in order to bring more affordable services to Canadians.

A recent analysis from the SeaBoard Group readily illustrates the existing inequalities that the 700 MHz should seek to rectify12:

12 SeaBoard Group, Company Reports (2011).

In the alternative, a set-aside of at least 48 MHz could achieve many of these same benefits, even though it would not rectify past inequalities to the same extent. However, a set-aside any lower is not a feasible option; given the number of new

entrants and smaller providers likely to bid, a smaller set-aside would seriously jeopardize the potential of new entrants to expand their networks and provide high-speed data access.

Option 2: Mandatory Roaming (RECOMMENDED)

Industry Canada already imposed mandatory roaming as a licence condition on licensees of the 2008 AWS spectrum. As Industry Canada stated in the applicable notice, the purpose of these provisions was to “encourage the deployment of advanced networks that provide the greatest choice of basic and advanced services available at competitive prices to the greatest number of Canadians.”14

Unfortunately, the implementation of mandatory roaming provisions from the 2008 auction proved difficult. Disputes over the requisite level of service arose. In one case, a dispute even lead to a formal

CRTC complaint over whether mandatory roaming needed to also include seamless call transition to roaming customers.15

Thus, the mandatory roaming stipulations would benefit from adjustments. These should include indefinite roaming obligations (regardless of whether the operator is seeking roaming inside or outside its licensed area, as is the case in the U.S.), seamless hand-off of calls between operators when subscribers are roaming, setting up a streamlined arbitration process, and the imposition of financial penalties for uncooperative practices.

AdvantagesAvailability of Canada-wide service for all consumers. Mandatory roaming agreements help ensure that customers can always obtain wireless services across the vast majority of Canada, while still requiring fair compensation to the roaming providers.

Disadvantages

Difficult to enforce the requisite co-operation. There is an incentive for roaming providers to give their own customers undue preference, such as by providing roaming customers with degraded or less desirable service. This can unduly encourage customers to switch to the roaming provider’s own services based on the promise of better wireless access.

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2. What licence restrictions should Industry Canada place on successful bidders in order to encourage competition and consumer choice?

The large upfront investments required for network infrastructures — not to mention spectrum licences — create a high barrier for new entrants to the marketplace. However, a licensing restriction that mandates wholesale access to other parties would allow new companies to enter the market without the need for them to create a Canada-wide infrastructure of towers and base stations.

Advantages

Increased competition through a services-based competitive environment. In the same manner that a mandatory wholesale environment complements facilities-based competition in the household broadband Internet market, mandatory wholesale at reasonable rates could achieve the same results in the wireless marketplace.

Prevention of monopolies in rural areas. In regions with less dense populations, the infrastructure cost per subscriber can be too high for more than one service provider to set up a network infrastructure in the region. Where this is the case, wholesale access would at least bring services-based competition where the facilities-based competition is lacking.

Space for new business models. As Industry Canada notes, “long-term spectrum licences have a high expectation of renewal”.13 This licensing approach does not necessarily leave any spectrum available for new and alternative service business models that may be driven by future types of wireless devices. Wholesale access could help rectify this drawback by ensuring that newcomers always have a “place to go.”

DisadvantagesSpectrum crowding. If the wholesale load on a particular provider becomes too heavy, the provider could, potentially, end up without sufficient bandwidth or spectrum allocation for its own customers (though today spectrum is vastly under-utilized).

Option 1: Wholesale Access (RECOMMENDED)

13 Industry Canada, “Renewal Process for Cellular and Personal Communications (PCS) Spectrum Licences” (March 2011), online: <http://www.ic.gc.ca>

14 Industry Canada, Client Procedures Circular CPC-2-0-17, “Conditions of Licence for Mandatory Roaming and Antenna Tower and Site Sharing and to Prohibit Exclusive Site Arrangements” (November 2008), online: <http://www.ic.gc.ca> [License Conditions].15 CRTC, Telecom Decision 2011-360, “Globalive Wireless Management Corp., operating as WIND Mobile – Part VII application regarding roaming on Rogers Communications Partnership’s wireless network” (2011).

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Option 4: Network Neutrality (RECOMMENDED)

The CRTC has established network neutrality restrictions that apply to the mobile context in Telecom Regulatory Policy CRTC 2009-657, as extended by Telecom Decision CRTC 2010-445. However, given that spectrum is a public resource being granted to mobile providers, it is not inappropriate to put in place greater protections for network neutrality through the license approval process.

Device neutrality mandates that the network should be open to standard devices from any device manufacturer; conversely, devices offered by service providers function on any standardnetwork. To give effect to this principle,

licence conditions would particularly need to prohibit device “locking.”

Data neutrality mandates that services should not discriminate against different types of traffic or different types of applications. For example, a service provider should not provide some online services with network advantages of access, speed, or cost of usage not available to competing online services.

Wireless service neutrality mandates that the network should use standard and interoperable wireless protocols. This is necessary in order to enable wholesale access, as previously discussed.

Advantages

Encourages innovation. Device applications offer new ways to offer services that can operate more efficiently and reduce prices. For example, Skype applications using VOIP are able to more efficiently make long distance voice calls over the Internet, at a fraction of the cost to consumers. However, without data neutrality, service providers can interfere with these new technologies by detecting their traffic patterns and impeding the data service.

Protects consumer choice in the face of vertical integration. Many incumbents are now content providers as well as service providers. With consumers increasingly using mobile devices as portable video players, vertical integration poses the threat that service providers will unduly prefer their own content. Data neutrality would ensure fair treatment of all content, irrespective of the content source.

Portability. Device neutrality ensures that, as new competition opens up in the marketplace, consumers are able to move to the provider of their choice, without the need to needlessly and wastefully purchase new devices.

Option 3: Tower Sharing (RECOMMENDED)

Industry Canada also imposed mandatory tower sharing as a licence condition in the 2008 AWS spectrum auction with a goal to “limit the social impacts of a proliferation of new towers and to facilitate new competitive entry into the provision of

Advantages

Reduction of overall costs to service providers. Tower sharing allows parties to share tower infrastructures, thus reducing overall overhead costs of building towers. Cellular towers generally provide more than enough support for multiple service providers to operate on any one tower.

Reduction of “tower pollution”. The public directly benefits from fewer large cellular towers obstructing the skyline.

Disadvantages

Difficult to enforce the requisite co-operation. Where a service provider is trying to rapidly expand its network, it may not be possible — even through arbitration — for service providers to reach an agreement with sufficient promptness. The existing arbitration procedure takes up to 98 days, which may make the procedure infeasible in practice.17

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wireless services”.16 However, as with the mandatory roaming provisions, disputes arose. All carriers would benefit from improved arbitration and enforcement of these provisions in the 700 MHz licences.

16 Licence Conditions, supra note 11.17 Industry Canada, Client Procedures Circular CPC-2-0-17, “Conditions of Licence for Mandatory Roaming and Antenna Tower and Site Sharing and to Prohibit Exclusive Site Arrangements” (November 2008), online: <http://www.ic.gc.ca>.

Recommendation:Implement all of the aforementioned licence conditions

in a complementary fashion to promote competition and consumer choice.

By introducing a few licence nuances, Industry Canada can smoothly overcome possible shortcomings of the auction. First, Industry Canada should attempt to stimulate a market of services-based competition through wholesale access. This could involve some limits, such as a provider only needing to resell up to 1/3 of its available bandwidth, in order to reduce the possibility of the provider having to degrade services to its own customers.

Second, with respect to tower sharing and mandatory roaming, Industry Canada should streamline the arbitration process and set up a regime that includes financial penalties for uncooperative practices. Mandatory roaming conditions should also require that roaming providers give equivalent service to roaming customers as provided to their own.

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Option 5: Mandatory Spectrum Use / Use-it-or-lose-it (RECOMMENDED)

Mandatory spectrum use would require successful bidders to show that they have made substantial use of their spectrum within a specific period of time, otherwise the spectrum licence would immediately expire and Industry Canada could re-auction it. More importantly, this requirement should specifically impose requirements to build-out rural networks.

Advantages

Fair bidding practices. Mandatory spectrum use would encourage service providers to only bid on the spectrum they actually need and intend to use, rather than bid on spectrum merely to foreclose its use by possible competitors.

Increased data capacity. By requiring service providers to make use of their spectrum, this policy encourages them to build further infrastructure and capacity, which is a essential for consumers to take advantage of modern data-hungry services.

Increased rural capacity. Wireless service providers are often less keen to build infrastructure in sparsely populated rural areas. However, spectrum licences cover rural areas as well as urban areas and, as a condition of a licence, it is reasonable to mandate use of the spectrum in all areas. This would increase the availability of wireless services to all Canadians.

DisadvantagesTime constraints on service providers. Mandatory spectrum use requires service providers to promptly invest in infrastructure in order to make use of their spectrum, even though their business plans may not call for building upon such spectrum for some time.

Disadvantages

Higher data usage. Network neutrality encourages the fair use of any application and any Internet service, which may ultimately encourage higher data usage. Although this will likely result in higher revenues from customers purchasing higher bandwidth data plans, it will also put more strain on 3G and 4G services.

Third, the three layers of networkneutrality complement each other andshould all be implemented to provide an environment where new application and device technologies can thrive. This will maximize competition and minimize anti-competitive practices.

Likewise, a mandatory spectrum use condition complements the others. Encouraging infrastructure build-out on the new spectrum will serve to increase the resources available for the wholesale market. Encouraging infrastructure in rural areas will bring high-speed wireless access to all Canadians.

Option 2: Substantial Portion of 700MHz Spectrum Unlicensed

DisadvantagesLess government revenue. A side-aside for unlicensed spectrum would not result in any direct government auction revenue for that particular band.

Advantages

Improved spectrum efficiency. New device-based technologies can make very efficient use of unlicensed spectrum. “Spectrum agile” radios are now able to scan the spectrum for any free slot. New methods of error correction diminish the problem of interference and allow more devices to run on a single band.

Low-cost community options. Especially important for bridging the digital divide in rural areas, peer-to-peer radio technologies such as mesh networks show vast potential for providing alternatives to centralized commercial wireless networks. In particular, the long-distance capabilities of the 700 MHz spectrum could provide new possibilities for low-cost, low-infrastructure wireless networks in rural communities.

Room for future innovation. Unlike the technology lock-in of licensed spectrum, unlicensed radio technologies are generally designed to work amongst other devices on the same spectrum and amongst interference. New and unforeseen technologies could easily make new use of unlicensed spectrum — but not licensed spectrum that already implements vendor-specific protocols and uses vender-specific technologies.

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3. What portion of the spectrum should remain unlicensed and open as a valuable public commons? In 1985, the F.C.C. in the United States released the 2.4 GHz ISM band for unlicensed public use. Canada followed suit. Today, millions of Canadians make use of this spectrum commons in one way or another: WiFi Internet devices, Bluetooth headsets and keyboards, baby monitors, car alarms and cordless phones all operate on this band.

Remarkably, all of these technologies operate on what is commonly considered

a wireless “backwater.” High frequency and prone to interference from microwave ovens, the 2.4 GHz is less than ideal for modern consumer technologies.

The Canadian public is well overdue for a further assignment of spectrum to the commons and the 700 MHz spectrum provides a unique opportunity to fulfill this goal. With a set-aside to unlicensed use, all Canadians and Canadian businesses can directly share in this valuable resource.

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Option 1: No Unlicensed Spectrum

AdvantagesRevenue maximization. Selling the entire public resource of wireless spectrum to commercial service providers would raise the most revenue for the federal government.

Disadvantages

Technology lock-in. Once assigned to a wireless service provider, it is difficult to ever reallocate the spectrum to new uses and new technologies. Any allocated service provider will develop substantial infrastructure and specific protocols to use the spectrum — at considerable investment. This makes it very difficult to reallocate these bands in the future.

Underutilized spectrum. A service provider only uses spectrum when it develops the appropriate infrastructure in a given area. This often results in a vast amount of unused spectrum that cannot be used by anyone else in meantime. In contrast, unlicensed spectrum is usable by any person or business, anywhere.

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This approach will adequately allocate spectrum as a common resource for use by all Canadians, while still allowing the private sector to commercialize a vast majority of the spectrum.

Recommendation:Leave at least 12 MHz of the available spectrum unlicensed for innovative and efficient public use.

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