August 12, 2011
Submitted electronically: FINA@parl.gc.ca.
- Canada’s wireless sector is a major driver of economic activity
across all sectors of the economy and in all regions of the country. In 2009,
wireless communications generated a total economic value of $41 billion for the
Canadian economy.
- Traffic on Canada’s wireless networks is growing exponentially,
requiring a constant cycle of capital investment on the part of Canada’s
wireless carriers.
- To facilitate the ability of the wireless industry to make
necessary continued capital investments in Canada’s wireless networks, CWTA
makes the following recommendations:
- Include a
recommendation in the Pre-Budget 2012 Report that the Government should set out
a timetable for bringing the administrative licence fees paid by Canada’s
wireless carriers into line with comparable fees paid by wireless carriers in
other G7 countries.
- Introduce in
Budget 2012 a temporary Accelerated Capital Cost Allowance for
broadband-network related assets, increasing the current CCA rates of
depreciation to 50% for most areas, and to 100% for the hardest and
most-expensive-to-serve areas of the country (as identified by Industry
Canada);
- Include a
recommendation in the Pre-Budget 2012 report that Industry Canada should eliminate
out-dated regulations and conditions-of-licence that impose an unnecessary
degree of regulatory overhead on both licensees and the Government (for
example, the current condition-of-licence requiring all wireless carriers to
devote 2% of adjusted revenues to a specific range of pre-approved R&D
activities).
- CWTA is the voice of the wireless industry in Canada.
Its membership reflects the growing imprint of wireless technology on the
Canadian economy and society: wireless carriers, domestic and international
manufacturers of wireless handsets and equipment, content and application
creators, and business-to-business service providers who combine to deliver a
world-class wireless ecosystem that provides an increasingly important
technological backbone for all aspects of life in Canada.
- The growth of the wireless industry in Canada since its
launch over twenty-five years ago has prompted a communications revolution that
impacts all Canadians. In a country as vast as Canada, any technology that
brings us closer makes us stronger. This has never been truer than today, when
Canada boasts more of the fastest advanced wireless networks than any other
country in the world.
- Canada’s wireless industry makes a remarkable
contribution to the country’s economy. The total value of direct GDP
contribution, output multiplier and consumer surplus is a significant economic
value of $41 billion. Over 260,000 people are employed as a result of the
wireless industry.
- In 2012 Canada and the rest of the world will continue
to experience the ubiquitous convergence of the two most important enabling
technologies of the 21st century so far: wireless communications and broadband
Internet. The result will be - and is already - the enabling of significant
productivity and innovation gains across all aspects of the Canadian economy
and society.
- The move to next generation networks is already well
underway in Canada, the product of massive and unprecedented private-sector
investments in an infrastructure no less critical to Canada’s future than investments in railways, roads, bridges, airports and seaways in previous
centuries.
- Since 2008, as other sectors of the economy were
retrenching during the recession, wireless carriers were investing: an
estimated $1.8 billion in 2010, on the heels of $3.16 billion in 2009, $1.85
billion in 2008 (and in addition to $4.25 billion in 2008 AWS auction proceeds
— $4.25 billion that went straight to the Government’s consolidated revenue
fund).
- In other words, as other sectors were shedding jobs to
stay afloat, the wireless industry was hiring in all regions of the country,
while contributing billions directly to the Government of Canada’s coffers.
- The results of these massive capital investments are
clear: Canada now boasts more of the fastest HSPA+ networks than any other
country, and leads the world in mobile tablet use. Of course, more Canadians
using more advanced wireless devices creates more traffic on Canada’s wireless
networks, spurring the need for further network investment. This investment
will result in increased network speeds and capacity, enabling even more Canadians to use even more advanced wireless devices, creating
even more traffic on Canada’s wireless networks, spurring the need for even
more network investment, and so on and so on.
- This continual cycle of network investment/increased traffic and
network pressures/network investment will only accelerate in coming years. Some
Canadian network operators are reporting 5% wireless data traffic growth on
their networks per week. Overall, wireless data traffic in Canada is
conservatively expected to double each and every year for the next decade, and
beyond. To put that in perspective, if the rate of vehicle traffic in Canada
was growing at the same rate as wireless data traffic, the Trans-Canada Highway
would have to expand from 4 lanes to 64 lanes, over the next 4 years.
- Some analysts are predicting that network operators will need
to invest $100 billion in telecom infrastructure over the next ten years, in
order to keep up with Canadians’ demand for more and faster wireless and
broadband services.
- This is why CWTA, through its participation in the Government’s
ongoing Digital Economy Strategy process, has been advocating that Government
should be looking for ways to reduce and remove policy and regulatory barriers
to network investment. There are three areas in particular that have bearing on
the Standing Committee on Finance’s Pre-Budget 2012 Report process.
- Wireless carriers in Canada (and ultimately their customers),
have to absorb disproportionately high regulatory costs. These costs act as a
drag on the amount of capital available for required network investment and
innovation.
- To cite one example, Canada’s wireless carriers currently hold
licences for less than 2% of licensed radio spectrum in Canada, yet pay roughly
half of all administrative spectrum licence fees collected by Government for
use of radio spectrum -nearly $130 million in 2010. To put that in perspective,
as Industry Canada allocates the $225 million earmarked in Budget 2009 for
broadband expansion in rural and remote areas over three years, it will collect
over $390 million from the industry in administrative spectrum licence fees
during that same period.
- In 2010 the Senate Committee on Transport and Communication
recommended that Industry Canada be guided by the approaches in other
countries, particularly the U.S., in setting administrative licence fees. If
the 2009 U.S. licence fee model were employed, Canadian carriers would have
paid $4 million in administrative licence fees last year. Again, they paid over
$130 million.
- Among CWTA’s July 2010 Digital Economy Strategy recommendations
was that the Government should avoid any increase to the already excessive
administrative licence fees paid by Canadian wireless carriers (currently the
most expensive in the G7). In November 2010, the Minister of Industry announced
that these fees would be capped at current levels, “for the
time being.” In March 2011, Industry Canada released a document confirming the
Minister’s earlier statement as it pertains to licences awarded in the 1980s,
1990s and early 2000s.
- While CWTA appreciates these steps in the right direction, we
respectfully submit that the Pre-Budget 2012 Report should include a
recommendation that the Government should set out a time-table for bringing
existing administrative spectrum licence fees paid by Canada’s wireless
carriers into line with the fees paid by wireless carriers in other G7
countries, and that Industry Canada should not introduce excessive administrative
licence fees when renewing licences in any bands not currently subject to them.
- Canada’s wireless carriers are preparing for at least two
expected spectrum auctions over the next 12 to 24 months -auctions that will
see another massive wave of capital investment as carriers put the newly
released spectrum to use, building and extending wireless broadband networks,
and buying new hardware and software to power those networks. This timeframe
coincides with what will likely be the full implementation of the Government’s
Digital Economy Strategy, and marks an ideal time for Government to introduce
temporary measures to stimulate investment in Canada’s broadband networks.
- Under the Income Tax Regulations there are currently several
classes of depreciable assets that relate to telecom network equipment,
including broadband networks, each with different capital cost allowance (CCA)
rates:
- Class 8:
radiocommunication equipment (CCA rate is 20%)
- Class 42: fibre
optics (CCA rate is 12%)
- Class 46: data
network infrastructure equipment and systems software (CCA rate is 30%)
- To coincide with the next wave(s) of network investment
expected between 2012-2015, CWTA recommends that Budget 2012 include a temporary
(24-36 month) ACCA for these classes of assets: from current rates to 50% for
capital investments in most areas, and 100% in “underserved” areas (as
identified by Industry Canada during its broadband availability survey
conducted as part of the $225 million Broadband Canada initiative).
- In Canada, mobile spectrum licensees typically carry a
condition of licence (COL) requiring them to dedicate 2% of adjusted annual
revenues to a narrow range of pre-defined R&D activities. This COL may have
made sense when the wireless industry was in its infancy, and there was little
or no wireless R&D infrastructure in Canada - a situation far from reality
today, with numerous wireless innovation clusters across the country. Today,
this COL contributes little to actual R&D innovation, while generating
large amounts of paperwork for carriers who need to file compliance reports,
and for Industry Canada, which has to process these reports.
- Accordingly, in the interest of generating cost
savings to Government and industry alike, and consistent with the 2007 Cabinet
Directive on Streamlining Regulation, and further reflective of a specific 2010
recommendation of the Senate Committee on Transportation and Communications,
CWTA recommends that the Pre-Budget 2012 report include a recommendation that
Industry Canada eliminate the current condition-of-licence requiring all
wireless carriers to devote 2% of adjusted revenues to a specific range of pre-approved
R&D activities.
- In conclusion, CWTA reiterates that the continued contribution
of Canada’s wireless sector to the Canadian economy as a whole will require a
continual cycle of capital investment over the next several years, and beyond. To
ensure that Government plays a facilitating role and is not a barrier to
necessary investment, CWTA proposes that the Pre-Budget 2012 Report include (i)
a recommendation that the Government set out a timetable for reducing
administrative spectrum licence fees relating to the use of spectrum in Canada,
and (ii) a recommendation that Budget 2012 include a temporary Accelerated
Capital Cost Allowance for the asset categories most closely associated with continued
broadband network investment, and (iii) a recommendation that Industry Canada
eliminate the out-dated COL requiring wireless carriers to spend 2% of their revenues
on a narrow range of pre-approved R&D activities.
- CWTA looks forward to answering any questions the members of
the Finance Committee may have, during the Committee’s upcoming Pre-Budget 2012
consultations, in either Ottawa, Moncton, or Toronto.
- CWTA appreciates the opportunity to share its views as part of
this important process.
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