Legal advisers to companies that provide telecommunications services in Canada which use both ‘wireline’ and ‘wireless’ technologies are frequently asked about the regulatory status of unlicensed radio frequencies.

These frequencies form a part of the regulated radio spectrum but, unlike other radio frequencies, do not require users to obtain spectrum licences from the federal spectrum licensing authority (Industry Canada), provided that their users are operating equipment that meets certain technical standards.

One of the most popular examples of how unlicensed radio frequencies are used is cordless telephone equipment. Typically, these telephones have two components: a base station and a cordless telephone handset. The base station plugs into a standard telephone wall-jack, while the handset is used for actual voice communication.

Because the handset is cordless, radio frequencies are used to communicate with the base station which, in turn, is connected to the conventional wireline telephone network. The radio frequencies that are used for communication between the base station and handset are referred to as ‘unlicensed frequencies’.

In addition to their use in cordless telephone communication, unlicensed radio frequencies are used in a variety of other network applications and equipment. Some of these applications and equipment include:

  • local area networks;
  • wireless internet access;
  • personal digital assistants; and
  • point-of-sale wireless services.

Because the uses of unlicensed radio frequencies are multiplying exponentially, it is important for equipment manufacturers and service providers who rely on these frequencies to understand their obligations under both the federal Radiocommunication Act and the Telecommunications Act.

For example, many companies assume that if they are exempt from the requirement to hold a spectrum licence under the Radiocommunication Act, this entitles them to exemption from federal radiocommunication and telecommunications law.

This is not so. Under the Radiocommunication Act, a company is entitled to operate radio apparatus on a ‘licence-exempt’ basis only if its equipment satisfies certain conditions and standards that are detailed in various Industry Canada regulations, standards and procedures.

In many instances, therefore, the exemption under the Radiocommunication Act for unlicensed radio frequencies is conditional.

Furthermore, and perhaps of more significance, even if a company or its radio apparatus satisfies the licence exemption criteria that have been established by Industry Canada, this does not mean that the company need not obtain other licences in order to provide services using unlicensed radio frequencies.

For example, if the company is using licence-exempt equipment and frequencies to provide "telecommunications services to the public for compensation", it may fall with the definition of a ‘telecommunications common carrier’ contained in the Telecommunications Act.

More specifically, under Section 2(1) of the Telecommunications Act, a ‘telecommunications common carrier’ is defined as "a person who owns or operates a transmission facility used by that person or another person to provide telecommunications services to the public for compensation".

The term ‘transmission facility’ is defined, in turn, to mean "any wire, cable, radio, optical or other electromagnetic system, or any similar technical system, for the transmission of intelligence between network termination points, but does not include any exempt transmission apparatus".

The act also defines a ‘telecommunications service’ as "a service provided by means of telecommunications facilities and includes the provision in whole or in part of telecommunications facilities and any related equipment, whether by sale, lease or otherwise".

These definitions are broad and could easily capture service providers that use unlicensed radio frequencies to provide telecommunications services to customers in Canada.

If this is the case, then under various established policies of the Canadian Radio-television and Telecommunications Commission (CRTC), it will be necessary for the carrier to register with the CRTC as a Canadian ‘carrier’ (which is another defined term in the Telecommunications Act) and to obtain a basic international telecommunications service provider licence from the CRTC if the carrier provides certain types of international telecommunications services.

Under Section 16.1 of the Telecommunications Act, this licence must be obtained by the carrier prior to offering such services.

In addition to these obligations, telecommunications common carriers are required to comply with the foreign ownership rules of Section 16 of the Telecommunications Act and the Canadian Telecommunications Common Carrier Ownership and Control Regulations.

These rules limit the amount of voting equity that can be held by non-Canadians in a Canadian carrier (including any holding company of the carrier), and restrict the number of non-Canadians that can occupy seats on the board of directors of the carrier.

They also limit the control that can be exercised by non-Canadians over the operations of the carrier through, for example, shareholders agreements and other arrangements that might be entered into by a Canadian carrier with one or more non-Canadian partners.

In order to demonstrate their compliance with the foreign ownership rules, it is also necessary for Canadian carriers to file ownership reports with the CRTC pursuant to the Canadian Telecommunications Common Carrier Ownership and Control Regulations, which must include an affidavit attesting to the carrier’s compliance with the foreign ownership rules.Finally, the CRTC has established a subsidy regime that is used to offset the costs of providing residential telephone service in some of the more rural and remote areas of the country. Most telecommunications carriers are required to participate in this regime by reporting their telecommunications service revenues to the CRTC. If their revenues exceed a specified threshold amount, a fixed percentage of those revenues are payable to a central fund which, in turn, is responsible for distributing the funds to eligible local exchange carriers.

Therefore, it would be incorrect to assume that an exemption from the requirement to hold a licence under the Radiocommunication Act provides a company with an automatic exemption from the requirement to comply with other federal laws relating to the radiocommunication and telecommunications industries.

Although the facts of each situation will dictate which of these laws will apply, it is important for companies that use unlicensed radio spectrum to be mindful of the existence of these laws and their potential application to their wireless businesses.

For further information on this topic please contact Lorne Abugov or Kirsten Embree at Osler, Hoskin & Harcourt LLP by telephone (+1 613 235 7234) or by fax (+1 613 235 2867) or by email ([email protected] or [email protected]).