Telecom Decision CRTC 2016-127
Ottawa, 7 April 2016
Review of Telesat Canada's price ceiling for C-band fixed satellite services
The Commission encourages the deployment of new satellite technologies in Canada by removing unnecessary regulatory measures and closely monitoring Canada's fixed satellite services market. Specifically, the Commission hereby removes the price ceiling that is currently applicable to Telesat Canada's (Telesat) C-band fixed satellite services, but retains its powers under the Telecommunications Act to impose a new price ceiling or other regulatory measures on Telesat in the future, as necessary. The Commission also directs Telesat to file an annual report on the pricing and use of its Canadian satellite fleet.
The Commission's determinations in this decision will enable Canadians to benefit from an efficient and competitive fixed satellite services market and, in turn, improve the availability and quality of the communications services available to rural and remote residents, particularly those in the North.
- Satellite services, such as those offered by Telesat Canada (Telesat), enable broadcasters and providers of telecommunications services to deliver their services to Canadians. Satellite services are available across Canada, but certain satellite services are particularly important in rural and remote communities that are not served by terrestrial transport networks. In fact, satellite services are often the only means of obtaining voice, Internet, and broadcasting services in many of these communities, referred to as satellite-dependent communities.
- Of interest in this decision are fixed satellite services (FSS), which provide transport (or backhaul) capabilities through which a satellite in a geostationary orbitFootnote 1 is linked to earth stations or other types of antennas (such as small direct-to-home satellite dishes) that are in fixed locations on the Earth's surface.
- FSS are delivered over three radio frequency bands - C-band, Ka-band, and Ku-bandFootnote 2 - and each of these bands has unique physical characteristics that are useful for specific applications. This decision focuses on the regulatory measures applicable to FSS provided over C-band.
- Telesat is the incumbent provider of FSS in Canada. In Telecom Decision 99-6, the Commission established a transitional regulatory framework for Telesat's FSS, and in particular, partially forbore from regulating the provision of Telesat's C-band FSS. That decision was issued shortly before the Canadian satellite market was opened to foreign competition.Footnote 3
- In that decision, although Telesat was no longer required to file tariffs for Commission approval, the Commission set a price ceiling for the company's C-band FSS of $170,000 per month per transponderFootnote 4 (applicable to full transponders over a minimum contract term of five years),Footnote 5 pursuant to its power to impose conditions of service under section 24 of the Telecommunications Act (the Act), and pursuant to its power to ensure just and reasonable rates under subsection 27(1) of the Act.
- The Commission imposed this price ceiling (i) as a transitory measure during a time of uncertainty for the Canadian FSS marketplace, (ii) to allow Telesat to have some price flexibility to compete with foreign operators, and (iii) to protect the interests of users who may not have access to adequate competitive choice. The price ceiling has remained in place for the past 16 years.
- In Telecom Notice of Consultation 2014-44, pursuant to its powers under section 70 of the Act, the Commission appointed Commissioner Candice Molnar to conduct an inquiry with respect to the Canadian marketplace for satellite services that are used by telecommunications service providers to provide telecommunications services to Canadians. Specifically, the Inquiry Officer examined the state of competition of FSS in Canada's northern communities (referred to hereafter as the satellite inquiry).
- The satellite inquiry proceeding culminated in the publication of the Satellite Inquiry Report, dated October 2014.Footnote 6 Among her conclusions, the Inquiry Officer found that Telesat had market power in the provision of C-band FSS in Canada's satellite-dependent communities.
- The Inquiry Officer also concluded that some form of Commission oversight was needed as a continued safeguard against unreasonable price increases in the C-band FSS market, particularly in the provision of voice services. This oversight should continue to allow for competition in the C-band product market, while providing Telesat with the flexibility to respond to any competitive pressures.
- The Inquiry Officer therefore recommended that the Commission review Telesat's price ceiling for C-band FSS, and adjust it if necessary.
- The Commission subsequently issued Telecom Notice of Consultation 2015-133 on 9 April 2015 to initiate a proceeding to conduct this review.
- In Telecom Notice of Consultation 2015-133, the Commission called for comments on the following:
- whether the continued use of a C-band FSS price ceiling remains appropriate;
- assuming that the use of a C-band FSS price ceiling remains appropriate, whether the level of this price ceiling should be adjusted;
- assuming that the use of a C-band FSS price ceiling remains appropriate and that the level of the current price ceiling should be adjusted, how should the revised level be set (e.g. benchmarked against current market rates, justified based on costing, or some other approach), and what should the revised level be;
- whether it is appropriate to have a mechanism to review and adjust the level of the C-band FSS price ceiling on an ongoing basis and, if appropriate, what that mechanism should be (e.g. an adjustment factor);
- whether C-band FSS other than the services to which the price ceiling currently applies should also be subjected to a price ceiling (e.g. partial transponders and short-term leases for less than five years); and
- whether other regulatory measures should be taken in respect of C-band FSS, either in addition to or instead of modifying the C-band FSS price ceiling.
- The following parties participated in the proceeding: Bell Canada, Bell Mobility Inc., Northwestel Inc., and Télébec, Limited Partnership (collectively, Bell Canada et al.), Hunter Communications Canada (Hunter), Juch-Tech Inc. (Juch-Tech), SSi Micro Ltd. (SSi Micro), and TELUS Communications Company (TCC); the First Mile Connectivity Consortium (FMCC) and the Public Interest Advocacy Centre (PIAC); and the Kativik Regional Government (KRG) and the Government of the Northwest Territories. The public record of this proceeding, which closed on 14 January 2016, is available on the Commission's website at www.crtc.gc.ca or by using the file number provided above.
Does the continued use of a C-band FSS price ceiling remain appropriate?
Positions of parties
- Telesat submitted that the market for C-band FSS in Canada is competitive, that there is no need for regulatory intervention, and that the price ceiling for C-band FSS should be removed.
- Telesat indicated that its rates for C-band FSS have decreased steadily since the Commission forbore from regulating them, and that they are currently well below the price ceiling. The company submitted that no party that participated in the satellite inquiry proceeding or in this proceeding complained about its services or rates.
- Telesat argued that FSS provided over C-band, Ka-band, and Ku-band are in the same product market. The company submitted that although each of the bands has advantages and disadvantages for different applications, a significant price increase in any one band could lead to the use of a different band. Telesat indicated that, as such, Ka-band and Ku-band can be used as substitutes for C-band FSS.
- Telesat argued that when defining a product market, the products in question do not have to be perfect substitutes for one another; they must only be sufficiently substitutable that a significant price increase for one service would trigger migration to the other service.
- Telesat indicated that for broadband Internet service applications, various options exist for service providers aside from C-band - notably, Ka-band high-throughput satellites (HTS). In fact, certain companies have based their entire businesses on the provision of direct-to-home (DTH) broadband Internet services, which are provided using Ka-band and are available across Canada, including in satellite-dependent communities. Telesat submitted that these companies also offer a voice over Internet Protocol (VoIP) telephony service along with their DTH broadband service offerings.
- Telesat submitted that C-band FSS are becoming legacy services, and that although C-band FSS will continue to play a role in delivering voice services, their use as an input for other applications, such as broadband Internet services, will decline as new satellite technologies, such as Ka-band HTS, become more prevalent. Telesat argued that with this in mind, the best way to deliver broadband Internet services to remote communities is to expand the capacity of Ka-band HTS, not to impose price regulation on a legacy service that is mainly used to provide voice services.
- Telesat further argued that price regulation is not suitable for the FSS market because (i) there is a rough balance of bargaining power between satellite operators and their customers, which are both typically large, sophisticated organizations; (ii) each FSS contract is complex and unique in terms of price, service levels, and length; and (iii) FSS prices are set based on supply and demand conditions, so a price ceiling does not adequately reflect the complexities of the market.
- Bell Canada et al. initially argued that the Commission should mandate Telesat's provision of C-band FSS, as a wholesale service, to ensure that providers of telecommunications services have predictable access to the required backhaul facilities to serve their customers in satellite-dependent communities. Bell Canada et al. submitted that there are limited alternatives to C-band FSS, particularly for the provision of voice services. However, in their final comments, Bell Canada et al. submitted that based on a complete review of the record of this proceeding, the price ceiling should remain, and that no further regulatory measures are needed in relation to Telesat's C-band FSS.
- As a reason for their revised position, Bell Canada et al. cited the Northern Sky Research report entitled Canada C-band Market Analysis - Supply, Demand and Pricing Assessment, 2014-2024 (the NSR report),Footnote 7 which included the prediction that C-band prices in Canada are expected to decline annually at a rate of 3% due to the declining demand for, and the increasing supply of, C-band FSS. Bell Canada et al. also referred to new satellite technologies (i.e. Ka-band HTS and low-earth orbitFootnote 8 HTS) that will help to constrain C-band FSS prices, even if these technologies are not immediately available in the North.
- TCC submitted that the price ceiling for Telesat's C-band FSS is not necessary because the market for C-band FSS is competitive, and Telesat's prices are well below the price ceiling. In contrast, SSi Micro submitted that the price ceiling is functioning correctly and does not need modification. SSi Micro indicated that it has successfully negotiated fair FSS contracts and pricing with Telesat. SSi Micro argued that all FSS (C-band, Ka-band, and Ku-band) form a single product market, and that additional regulatory oversight over one particular technology or frequency band (in this case, C-band) could hinder the development of other satellite services.
- PIAC referred to the Inquiry Officer's conclusion that Telesat has market power in the provision of C-band FSS in the North, and argued that the Commission should therefore require Telesat to file tariffs for Commission approval. PIAC submitted that C-band FSS rates should be set based on costs plus a reasonable markup.
- The KRGFootnote 9 submitted that it recently issued a request for proposals for a new C-band FSS contract, and that it received multiple bids. The KRG indicated that New Skies SatellitesFootnote 10 was the successful bidder with the highest score, despite Telesat having been given a 15% advantage in weighted scoring as the incumbent satellite operator.
- Based on its experience, the KRG submitted that (i) there appears to be a significant amount of available C-band capacity on satellites operated by multiple satellite operators that cover a large portion of the KRG's region; (ii) there is significant rivalrous behaviour in the C-band FSS market, as demonstrated by multiple satellite operators aggressively pursuing KRG as a customer; and (iii) in the short term, the price of C-band FSS appears to be declining.
Commission's analysis and determinations
Telesat's market power
- To determine whether the price ceiling for Telesat's C-band FSS is still warranted, the Commission must first assess Telesat's market power.
- As part of the satellite inquiry, the Inquiry Officer carried out a market power analysis applying the framework set out in Telecom Decision 94-19 (the 94-19 market power test). The Commission applies this framework to consider whether to forbear from regulation pursuant to section 34 of the Act, and to consider whether the application of new or continued regulatory measures is appropriate.
- The 94-19 market power test is used to define the relevant product and geographic markets, and to evaluate certain factors, including market share, demand conditions (in terms of the availability of substitutes or the ability to reduce consumption, switching costs, and the essentiality of the product as an input), supply conditions (in terms of the capacity available and barriers to entry), rivalrous behaviour (for example, in terms of falling prices), and others (such as the potential impacts of new technology).
- After defining the relevant product and geographic markets as C-band FSS in satellite-dependent communities, the Inquiry Officer applied the 94-19 market power test and concluded that Telesat had market power, citing, among other things, the company's large market share and a lack of substitutes for its C-band FSS. The Inquiry Officer found that due to latency issues, signal interference from adverse weather conditions, and a lack of satellite coverage in the North, Ka-band and Ku-band were not substitutes for C-band FSS.
- The Commission finds that other frequency bands continue to be unlikely to serve as practical substitutes for C-band FSS at this time, particularly for the provision of voice services or other latency-sensitive applications. However, emerging technologies, such as on-board processing,Footnote 11 could serve to mitigate some of the above-mentioned issues. Regarding the provision of broadband Internet service, the record of this proceeding suggests that C-band FSS can increasingly be substituted by FSS offered over other frequencies, namely Ka-band.
- Therefore, the degree of substitutability may vary depending on the end-service sought to be delivered. As well, the determination of a single product market does not require the component services to be perfect substitutes for one another; even imperfect substitutes can have a disciplining effect on pricing behaviour. Accordingly, after examining the three frequency bands globally, while specific characteristics such as coverage area, speed, or price, may differ between FSS offered over C-band and Ka-band, on balance, the Commission is persuaded that they share sufficient common characteristics to be treated as substitutes, so that a significant price increase in one could result in customers switching to the other. This substitutability may become stronger as Ka-band becomes more prevalent on new satellites being launched.
- The evidence on the record of this proceeding largely supports the Inquiry Officer's conclusion that Telesat has market power in the provision of C-band FSS, particularly since the company has a large market share and extensive coverage in the North.
- However, there is evidence on the record of this proceeding suggesting that Telesat's market power is likely to diminish in the future. As found by the Inquiry Officer, the evidence from the present proceeding, including recent C-band FSS contracts filed by Telesat that were signed after the publication of the Inquiry Report, confirms that Telesat's rates for C-band FSS are well below the existing $170,000 price ceiling and have been declining for the past several years. If Telesat were exploiting its market power to the detriment of the interests of its customers, its rates would most likely be increasing, which is clearly not happening.
- Further, the following evidence on the record of this proceeding, that was not available to the Inquiry Officer, sheds further light on the decline in C-band FSS rates: (i) forecasted price trends, (ii) alternate sources of C-band FSS supply, (iii) the emergence of new technologies, and (iv) demand conditions and consumer trends.
Forecasted price trends
- In her 2014 Report, the Inquiry Officer noted that C-band FSS rates in North America were projected to increase over 30% in the next 10 years. As part of the present proceeding, the NSR report forecasted an annual decrease in C-band FSS rates in Canada over the next 10 years, due to a significant amount of new FSS supply entering the market, including Ka-band HTS and possibly low-earth orbit constellations.Footnote 12
Alternate sources of C-band FSS supply
- There is evidence on the record of this proceeding, including events that transpired following the publication of the Inquiry Report, showing that other providers of C-band FSS with Northern coverage are competing in the market. For example, the KRG submitted that it recently received multiple bids in response to a request for proposals for a new C-band FSS contract, which illustrates that the FSS market has evolved since the Commission last examined it. Specifically, this demonstrates that (i) customers are willing and able to switch satellite operators, (ii) barriers to entry can be overcome by competing firms, and (iii) there is a degree of rivalrous behaviour in the market between competing C-band FSS providers.
Emergence of new technologies
- The satellite service industry, like other segments of the telecommunications industry, is in the midst of a significant shift in technology. In recent years, public announcements have been made regarding new Ka-band HTS launches and new satellite service models, such as low-earth orbit constellations.
- Two upcoming Ka-band HTS launches in particular are likely to impact the Canadian FSS market - ViaSat Inc.'s ViaSat-2 satellite, which is expected to launch in mid-2016, and Telesat's Telstar 19 Vantage, which is expected to launch in 2018. Both of these satellites are expected to add FSS coverage to Canada's North, which could be used by providers of telecommunications services to deliver voice services, broadband Internet services, and other applications to end-users in satellite-dependent communities.
Demand conditions and consumer trends
- The evidence on the record of this proceeding indicates that overall demand for C-band FSS has been in general decline for many years for a variety of reasons, including the fact that C-band FSS is primarily used to deliver applications such as voice services and the distribution of over-the-air television signals.
- The Commission expects that as Canadians shift their consumption habits towards the use of broadband Internet services, which enables access to a multitude of applications, including video services, the demand for C-band FSS is likely to continue to decline. For broadband Internet service applications, FSS provided over other frequency bands, such as Ka-band, are far more efficient and cost effective than FSS provided over C-band.
- Decreasing C-band FSS demand, coupled with a stable or increasing supply of C-band FSS, is likely to put downward pressure on C-band FSS pricing.
- The price ceiling for Telesat's C-band FSS is no longer appropriate or necessary, and is not a regulatory measure that is efficient and proportionate to its purpose, since Telesat's C-band FSS rates are well below the existing ceiling and continue to decline.
- The record of this proceeding largely supports the Inquiry Officer's conclusion, based on her application of the 94-19 market power test, that Telesat has market power in the provision of C-band FSS. However, there is evidence showing that Telesat's market power has been, and is likely to continue to be, constrained by a variety of factors. As such, the interests of users are likely to be adequately protected without a price ceiling.
- As well, the Commission expects that, over time, C-band FSS is likely to be replaced to a certain degree by other frequency bands using other delivery models, particularly for the provision of broadband Internet services. Consequently, the Commission's regulatory approach regarding Telesat's C-band FSS should rely on market forces and not discourage satellite operators from deploying advanced satellite technologies in the Canadian market, which could enhance the efficiency and competitiveness of the FSS market and, in turn, improve the availability and quality of the communications services available to rural and remote residents, particularly those in the North.
- In light of all the above, the Commission determines that the $170,000 price ceiling for Telesat's full period, unprotected, pre-emptible radio frequency channel services over C-band FSS facilities, for lease terms of at least five years, is no longer appropriate or necessary and should be removed.
- In light of this finding, issues ii. through v. set out in Telecom Notice of Consultation 2015-133 listed in paragraph 12 above are moot and, hence, do not need to be addressed.
Should other regulatory measures be applied?
Positions of parties
- TCC proposed that the Commission monitor Telesat's FSS prices by requiring all satellite service providers to file their service agreements with the Commission on an ongoing basis. TCC indicated that this would enable the Commission to track and assess whether Telesat's rates are just and reasonable.
- The KRG was strongly in favour of the Commission closely monitoring both foreign and domestic satellite operators in terms of their intentions of replacing C-band capacity as satellites are decommissioned.
Commission's analysis and determinations
- The record of this proceeding shows that although demand is projected to decrease over time, there will nonetheless continue to be demand for C-band FSS in Canada for the foreseeable future, because of the country's geography and the large number of isolated communities that will continue to rely on C-band FSS for voice and other services. As well, new satellite technologies, while promising, are in the early stages of deployment and, in some cases, are not yet commercially available in Canada.
- As such, similar to the findings of the Inquiry Officer, the Commission finds that C-band FSS will continue to be necessary in the provision of communications services to remote communities in the North in the short to medium term, particularly in the provision of voice services.
- Accordingly, although the current price ceiling is removed as a result of this decision, the Commission finds that in all other respects, the scope of forbearance set out in Telecom Decision 99-6 remains appropriate and necessary. As such, the Commission will continue to retain, among other powers, its powers under section 24 and subsection 27(1) of the Act to impose a new price ceiling or other regulatory measures in the future, if necessary.
- In Telecom Decision 99-6, the Commission required Telesat to file semi-annual tracking reports of all of its FSS agreements until complete forbearance was granted. Since the Commission is not granting complete forbearance in this decision, and in order for the Commission to be in a position to monitor the Canadian FSS market to assess market conditions, including pricing levels and use, on an ongoing basis, the Commission directs Telesat to file, on 30 January each year, beginning in 2017, a report listing its C-band FSS agreements, including customer names, rates paid, the amount of capacity leased, and contract periods. Telesat is also to include a list of its customers that lease Ka-band and Ku-band FSS, including how much capacity each customer leases, on its Anik F1R, Anik F2, and Anik F3 satellites, as well as any future satellite in its fleet with Canadian coverage. This revised reporting requirement replaces the requirement for Telesat to file semi-annual tracking reports pursuant to Telecom Decision 99-6.
- The Policy DirectionFootnote 13states that the Commission, in exercising its powers and performing its duties under the Act, shall implement the policy objectives set out in section 7 of the Act, in accordance with paragraphs 1(a), (b), and (c) of the Policy Direction.
- The Commission considers that its determinations to remove the price ceiling for Telesat's C-band FSS and to require Telesat to file annual reports arein accordance with subparagraphs 1(a)(i) and 1(a)(ii) of the Policy Direction. Specifically, through these determinations, the Commission is relying on market forces to the maximum extent feasible as the means of achieving the policy objectives, and is using measures that are efficient and proportionate to their purpose and that interfere with the operation of a competitive market to the minimum extent necessary to meet the policy objectives.
- Review of Telesat's price ceiling for C-band fixed satellite services, Telecom Notice of Consultation CRTC 2015-133, 9 April 2015
- Appointment of an Inquiry Officer to review matters related to transport services provided by satellite, Telecom Notice of Consultation CRTC 2014-44, 6 February 2014; as amended by Telecom Notices of Consultation CRTC 2014-44-1, 2 June 2014; and 2014-44-2, 5 August 2014
- Telesat Canada - Transitional regulatory framework and forbearance for fixed satellite services, Telecom Decision CRTC 99-6, 25 May 1999
- Review of regulatory framework, Telecom Decision CRTC 94-19, 16 September 1994
- Footnote 1
A satellite in a geostationary orbit moves with the Earth's rotation, so that the satellite is in the same spot in orbit at all times relative to the earth stations and/or antennas that are linked to it.
- Footnote 2
C-band is the 4/6 gigahertz (GHz) band, Ku-band is the 12/14 GHz band, and Ka-band is the 20/30 GHz band.
- Footnote 3
Canada had committed, through the World Trade Organization's General Agreement on Trade in Services, to permit competition in the provision of FSS starting on 1 March 2000.
- Footnote 4
A transponder is the equipment on a satellite that receives, amplifies, and retransmits signals from and to Earth.
- Footnote 5
Specifically, the price ceiling applied to Telesat's full period, unprotected, pre-emptible radio frequency channel services over C-band FSS facilities, for lease terms of at least five years.
- Footnote 6
This report was released concurrent with the publication of Telecom Notice of Consultation 2015-133.
- Footnote 7
The Commission engaged the services of Northern Sky Research to analyze the market for C-band FSS in Canada. An abridged version of the report has been placed on the public record of this proceeding.
- Footnote 8
A low-earth orbit constellation is a group of satellites residing in an orbit that is close to the Earth (as opposed to a geostationary earth orbit, which is further away from the Earth) that together provide satellite coverage in a given geographic area.
- Footnote 9
The KRG is a public body that provides residential and commercial Internet services on a non-profit basis to 14 remote communities in the Nunavik region of northern Quebec.
- Footnote 10
New Skies Satellites is a subsidiary of SES, a foreign satellite operator.
- Footnote 11
This technology will enable satellites with multiple spot beams to switch traffic from one beam to another without the need for a “double hop,” which occurs when a signal has to travel to and from a satellite twice.
- Footnote 12
The larger American C-band FSS market bears different supply and demand characteristics than the Canadian market.
- Footnote 13
Order Issuing a Direction to the CRTC on Implementing the Canadian Telecommunications Policy Objectives, P.C. 2006-1534, 14 December 2006
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