Wireless industry: Licensing, taxation stalls innovation

Government agencies must coordinate taxing and regulation to ensure a fair distribution of financial burden in the wireless sector, an advocacy group warns.

In its response to Industry Canada’s call for feedback to its proposed Innovation Strategy, the Canadian

Wireless Telecommunications Association has outlined areas it sees as being of critical importance to the Canadian wireless sector in hopes that they will influence the final Innovation Strategy draft, when the consultation process culminates in a national innovation summit next month. They are one of a number of business and advocacy groups to address this government effort.

The advocacy group represents Canadian cellular, PCS, messaging, mobile radio, fixed wireless and mobile satellite carriers as well as companies developing products and services for the industry.

Issues of taxation and licensing costs are the biggest challenge facing players in the Canadian wireless space and should be addressed as soon as possible, says CWTA president and CEO Peter Barnes. While industry players accept that licensing fees for using radio waves are an acceptable way to access the use of a public good, the industry generally has a problem with how disproportionate those fees are to the cost of administering the spectrum, he says.

“”The amount we pay in Canada is much, much higher than what is paid in the U.S. It works out to the costs in the U.S. being about $0.38 per customer, ours are probably closer to $10 per customer,”” he says. “”And while you can’t directly compare because the systems are a bit different, when you’re talking about levels of cost that are 25 times higher, there clearly is an imbalance there.””

The businesses within the wireless space are also frustrated by the lack of coordination between federal government agencies, Barnes says. Communication bottlenecks between Industry Canada and the CRTC, for example, have led to instances where enterprises have to pay twice for the same thing, he says.

The best example of this are CRTC imposed contribution payments, designed by the agency to subsidize the cost of providing telecommunication services in high cost areas, Barnes says. The subsidies are in addition to an obligation put on the wireless sector by Industry Canada to roll out services in a series of geographic areas, often those same high-cost areas, he says.

“”The contribution payments used to be four-and-a-half per cent, now it’s one-and-a-half, but still one-and-a-half percent of our revenue base — which is, let’s say, $6 billion — is a lot of money,”” he says. “”The obligations and costs pile up.””

While the wireless community may not fare any worse than the rest of the teleco space, says IDC Canada telecommunications research senior analyst Warren Chaisatien, these types of roadblocks can prove deadly.to an industry which depends on investing huge amounts of capital in innovation in order to remain competitive.

Any additional taxation or fees will be felt mostly by the smaller players in the wireless space, he says. This is not a good sign for innovation in general, since it tends to be most pronounced in a market where competition is vibrant. In the Canadian space that’s already looking a bit sickly because of a generally weak economy.

“”Bell Mobility, Telus Mobility and Rogers AT&T are still doing relatively well, since essentially they’re all part of big telecom conglomerates. But if you look at Microcell, the smallest national player, they’re not in ship-shape at all,”” Chaisatien says.

One of the topics making all enterprises in this industry very nervous is the proposed lawful access to telecommunications, regarding which the federal government is currently consulting industry, says Barnes. Much like what they wish to see happen in the data transmission space, the federal government wants to gain access to telephone conversations transmitted over wireless networks. What is bothering all in the industry, Barnes says, is the suggestion that providers absorb the costs associated with providing access to new technologies and services for the purpose of such monitoring.

“”Again, the concern is that if you load in cost to the delivery of service you may stifle innovation because the manufacturer may say, ‘It’s just not worth my while providing that service in a market place because if I’ve got to spend extra money to allow the monitoring, I can’t make a go of it in the market place,'”” Barnes says.

There is little hope that the government, no matter what the amount of consultation or protests, will forego the monitoring or the passing of its costs onto providers, Chaisatien says. The most industry players can hope for is some flexibility in amount they’ll be asked to contribute and the compliance time frame they’ll be presented with.

Barnes, however, says he’s optimistic that the industry consultations will bring the issues the wireless market players are struggling into sharper focus and receive favourable treatment from the federal government — body the industry has found receptive to its concerns in the past, he says.

Comment: info@itbusiness.ca

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