Policy and Licensing Procedures for the Auction of Spectrum Licences in the 2300 MHz and 3500 MHz Bands

1. Introduction

In July 1998, Industry Canada released DGTP-013-98, entitled Spectrum Policy and Licensing Provisions for Fixed Wireless Access Systems in Rural Areas in the Frequency Range 3400–3700 MHz. At that time, the Department indicated that the band 3400–3700 MHz would be opened for service in urban and large communities when equipment became more readily available and that the spectrum would be licensed using a competitive process. In June 2001, the spectrum at 2300 MHz was designated for WCS as per DGTP-003-01, Revisions to the Spectrum Utilization Policy for Services in the Frequency Range 2285-2483.5 MHz.

Given the demand for this spectrum and the increased availability of equipment for these bands, the Department is now in a position to licence this spectrum via an auction. The purpose of this document is to launch the licensing process for spectrum licences for Wireless Communications Services (WCS) in the 2300 MHz band and Fixed Wireless Access (FWA) in the 3500 MHz band.

In proceeding with an auction of these spectrum licences, the Department reflected on the commitments the Government made in the Speech from the Throne 2001-to work with the private sector to achieve the goal of making broadband access widely available to citizens, businesses, public institutions and to all communities by 2005. With the release of this spectrum, the Department is taking an important step towards fulfilling the Government of Canada's goal. This spectrum provides an opportunity to complement and improve local network distribution facilities for the delivery of a range of telecommunication services.

Departmental documents cited in this document are available on Industry Canada's Spectrum Management and Telecommunications Web site at http://www.ic.gc.ca/spectrumauctions.

All enquiries should be addressed to:

Rosamond Bain
Manager, Wireless Networks
Radiocommunication and Broadcasting Regulatory Branch
Industry Canada
Room 1512A, 15th floor
300 Slater Street
Ottawa, Ontario
K1A 0C8
Telephone: 613–990–4736
Fax: 613–991–3514
E-mail: ic.spectrumauctions-encheresduspectre.ic@canada.ca

2. Consultation

In August 2001, the Department released DGRB-006-01 entitled Consultation on the Auction of Spectrum Licences for Wireless Communication Services in the 2300 MHz Band and Fixed Wireless Access in the 3500 MHz Band – Proposed Policy, Licensing Procedures and Technical Considerations. Comments and reply comments were received by November, 2001. The Department values the submissions received and wishes to thank those who participated in the consultation process.

After reviewing and analysing the public input received on the August 2001 consultation paper, the Department is now in a position to define the policy and licensing procedures for this spectrum. Details on the policy and the rules and procedures of the licensing process for the auction are laid out in the remainder of the document.

It should be noted that, subsequent to the release of the consultation paper, in February 2003 the Department released DGTP-002-03 entitled Restructuring the Spectrum in the Band 3400-3650 MHz to More Effectively Accommodate Fixed and Radiolocation Services. The purpose of the notice was to announce a rearrangement of the spectrum in the Band 3400-3650 MHz to better accommodate Fixed Wireless Access (FWA) systems and radiolocation operations. In April 2003, the Department released a subsequent gazette, DGTP-006-03 entitled the Expansion of Spectrum for Fixed Wireless Access in the 3500 MHz Range which revised the licensing provisions previously outlined in DGTP-013-98 and expanded the spectrum available for FWA in the 3500 MHz range (see Appendix 1 for Gazette Notices).

3. Eligibility to Acquire Spectrum

The following sections outline the Department's policy on eligibility to participate in the auction for spectrum licences for WCS in the 2300 MHz band and FWA in the 3500 MHz band, taking into consideration the telecommunications policy objectives as outlined below.

3.1 Telecommunications Policy Objectives

The Minister, in exercising his/her powers under the Radiocommunication Act, may have regard to the policy objectives set out in the Telecommunications Act. The Telecommunications Act establishes several objectives of particular relevance to wireless telecommunications services that can be provided using WCS and FWA communication systems. These objectives include:

  • to enhance the efficiency and competitiveness, at the national and international levels, of Canadian telecommunications;
  • to render reliable and affordable telecommunications services of high quality accessible to Canadians in both urban and rural areas in all regions of Canada;
  • to foster increased reliance on market forces for the provision of telecommunications services and to ensure that regulation, where required, is efficient and effective; and,
  • to respond to the economic and social requirements of users of telecommunications services.

3.2 Competition Principles

Within a competitive environment, a market-based spectrum assignment mechanism is best able to select licensees who can most efficiently provide the wireless services most valued by Canadian consumers. Auctioning has the ability to award spectrum in a transparent and economically efficient manner. However, to ensure that economic benefits are maximized, it is important that potential licensees will indeed be operating in a competitive marketplace. The means available to the government to promote a competitive post-auction marketplace for the spectrum licensees of WCS in the 2300 MHz band and FWA in the 3500 MHz band, include disallowing the participation of certain firms in the auction and/or imposing aggregation limits on the amount of spectrum that any bidder may acquire.

With regard to these two measures the Department considers the following two guiding competition principles:

Principle 1: Restricting Participation

An entity that currently provides telecommunications services should be restricted from holding certain licences if: 

  1. that entity possesses market power in the supply of one or more telecommunications service in a region covered by the licence to be auctioned;
  2. a new entrant is likely to use the licence to provide services in competition with that entity's existing services; and
  3. the anti-competitive effects of that entity's acquisition of a licence are not outweighed by the potential economies of scope arising from the integration of the spectrum in question into that company's existing network.

Principle 2: Spectrum Aggregation Limit

When multiple licences for the use of spectrum in a given geographic area are auctioned and these licences can be used to provide closely substitutable services, limits on the amount of spectrum that any single bidder is allowed to acquire may be required to ensure competitive markets. Spectrum aggregation limits may be imposed in the following circumstances:

  1. a bidder that acquires a significant amount of spectrum would not face effective competition from providers of services that use infrastructure other than the spectrum being auctioned; and,
  2. the anti-competitive effects arising from the acquisition of a significant amount of spectrum by a single bidder would not be offset by lower costs or higher valued services resulting from holding this amount of spectrum.

3.3 Eligibility to Participate in the Auction

In the consultation paper, the Department sought comments as to whether and how the public interest would be served by limiting the eligibility to participate (beyond the competition principles outlined in Section 3.2) in the auction for spectrum licences for WCS in the 2300 MHz band and FWA in the 3500 MHz band.

A range of viewpoints was expressed as the respondents were divided on eligibility to participate in the auction. Their positions may be summarized as follows:

Limit eligibility of Incumbent Local Exchange Carriers (ILECs) 1 and cable companies 2 by one of the following:

  • Not allowing them to participate;
  • Not allowing them to acquire spectrum in their operating territory(s); or
  • Limit them to 100 MHz of spectrum in any area (i.e. a spectrum aggregation limit).

Other positions presented include:

  • Open eligibility to all entities with a spectrum set-aside for new entrants;
  • Open eligibility to all entities with a spectrum no set-aside for new entrants.

The Department considered all of the arguments raised by those wanting to restrict participation in the auction. The main arguments raised pertained to the availability of capital, the potential impact on the current industry structure and the potential delays in the offering of innovative and advanced services. The Department notes that open entry conditions prevail in virtually all aspects of telecommunications service provision in Canada. Accordingly, the Department found no compelling argument indicating that the public interest would be better served by restricting the eligibility of any potential applicant to participate in the auction.

The Department concludes that the public interest is best served by allowing all entities to be eligible to apply and participate in the auction. However, successful bidders must be eligible to become radiocommunication carriers 3 as described in section 10(2) of the Radiocommunication Regulations, and as such, must meet the related ownership and control requirements (refer to CPC-2-0-15). It should also be noted that only one member of an Affiliate or Associated Entity will be permitted to become a qualified bidder in the same service area. This is based on the principle that only competitors should be permitted to participate in the auction. Further, allowing Affiliates or Associated Entities to bid separately in the same service area would pose problems for those entities in terms of respecting the spectrum aggregation limit on a round-by-round basis. Affiliates and Associated Entities must, therefore, decide prior to the application deadline which entity will apply to participate in specific service areas in the auction. Affiliate and Associated Entity relationships are explained in further detail in Section 7.2 of this document.

3.4 Spectrum Aggregation Limit

The Department has concluded that while all entities are eligible to apply to participate in the auction, some aggregation limits are required during the auction and for a period after the auction, to act as a safeguard against anti-competitive behaviour. The Department continues to believe that no one entity should be permitted to acquire all the available spectrum in a given area and hence a spectrum aggregation limit should apply. This limit will increase the opportunity for Canadians to have an expanded choice of new and innovative wireless services through a number of service providers.

Hence the Department has decided to apply a spectrum aggregation limit of 100 MHz per service area, to participating companies, their Affiliates and Associated Entities (as described in Section 7.2). This limit will apply to spectrum within the FWA band 3475-3650 MHz and the WCS bands 2305-2320 MHz and 2345-2360 MHz. To provide maximum flexibility for bidders, the 30 MHz WCS block will be counted as 25 MHz towards the spectrum aggregation limit. The aggregation limit will remain in place for the duration of the auction and will continue to apply for two years after the close of the auction. It will be enforced during the auction through the use of penalties.

It should be noted that spectrum in the band 3475-3650 MHz is currently available on a First-Come, First-Served (FCFS) basis in rural and remote areas. All FWA spectrum acquired prior to the auction through the FCFS process in the band 3400-3650 MHz, will not be considered to be part of the 100 MHz spectrum aggregation limit during the auction. However, at the end of the auction, holders of FCFS licences who have successfully bid on spectrum that puts them over the 100 MHz limit, will be required to divest some of their holdings to meet the 100 MHz limit. This provision will provide FCFS licence holders the flexibility to change their original choice of spectrum blocks. The incumbent FCFS FWA licensees may also find it advantageous to acquire their own area in the auction to expand their licence to include the entire tier, and to gain a 10 year licence term with transferability and divisibility. FWA spectrum acquired through the post-auction FCFS process (see Section 9.7) will count towards the spectrum aggregation limit for a period of two years after the close of the auction.

The 100 MHz spectrum aggregation limit will provide the opportunity for two licensees or more per service area. The spectrum aggregation limit does not prevent subsequent transfers during the first two years, as long as the 100 MHz limit per single holder (Affiliates and Associated Entities) is not exceeded.

Further details on the enforcement of these spectrum aggregation limits are provided in Section 8.11.

3.5 Spectrum Set-Aside

The Department also considered comments on whether a certain amount of spectrum should be identified for which only new entrants would be eligible to bid (i.e. a set-aside). Respondents were again divided on the issue. Proponents for a new entrant set-aside indicated that it would give less well-capitalized companies an opportunity to develop novel competitive wireless services and to deliver services that would provide Canadians a choice to those offered by ILECs and cable companies. Other proponents indicated that without such a set-aside participation in the auction would be significantly impacted. Respondents who did not support a set-aside argued that it goes against the fundamental principle of allocating spectrum through auctions to ensure that spectrum ends up in the hands of those who value it the most.

The Department found no compelling argument to demonstrate that a set-aside of spectrum for new entrants would significantly advance new service offerings, nor serve the public interest.

Accordingly, the Department will not set-aside spectrum for which only new entrants can apply.

4. Definition of Licences

The authorizations available for assignment are spectrum licences which are defined in subparagraph 5(1)(a)(i.1) of the Radiocommunication Act as authorizations "in respect of the utilization of specified radio frequencies within a defined geographic area".

To ensure that licensees can continue to quickly and efficiently adapt their public service offerings to changing consumer demands, the Department will provide licensees with the maximum possible flexibility in determining the services they will offer and the technologies they will employ. Beyond the need to conform to the applicable Canadian spectrum allocation, only those limitations required for interference management purposes and utilization policies discussed in Section 5, will be imposed. Transition and/or coordination requirements of the incumbents and auction winners in the 2300 MHz and 3500 MHz band are also outlined in Section 5 and Appendix 3.

Overview of Attributes of 2300 MHz and 3500 MHz Licences

  • 5 licences will be auctioned within 172 areas of the country (with the exception of FWA systems on Vancouver Island);
  • Ten year licence terms;
  • Transferability and divisibility;
  • Spectrum aggregation limit – 100 MHz to all participating companies, their Affiliates and Associated Entities;
  • Implementation requirement – licensee must demonstrate to the Department that the spectrum has been put to use at a level acceptable to the Department, within 5 years of receipt of licence;
  • R&D requirement – 2% of adjusted gross revenue with the exception of small businesses with less than $5 million in annual gross operating revenues;
  • Open eligibility – successful bidders must be eligible to become radiocommunication carriers; and
  • Other standard conditions of licence will apply (e.g. interference management, ownership and control, international and domestic coordination).

The following sections provide more detail on the status, structure and characteristics of the 2300 MHz and 3500 MHz bands.

4.1 Spectrum Status

4.1.1 WCS Spectrum at 2300 MHz

WCS will be licensed under the frequency allocations for fixed and mobile services. Use of this spectrum is subject to domestic spectrum utilization policy and technical restrictions in order to address potential interference matters. Mobile Aeronautical Telemetry Systems (MATS) are authorized on a secondary basis only when they do not constrain the implementation of WCS.

In March 2000, the Department released a consultation paper entitled Proposed Revisions to the Spectrum Utilization Policy (SP 1-20 GHz) for Services in the Band 2285-2483.5 MHz under Gazette Notice No. DGTP-003-00. One of the proposals included the classment of the 2305-2320 MHz and 2345-2360 MHz Bands with the United States for WCS applications.

In the U.S. WCS is described as radiocommunication that may provide a range of services to individuals and businesses. The Federal Communications Commission (FCC) issued licences in April 1997 through an auction process in 126 markets and to 17 individual winners. Initial expectations suggested that the WCS would be used to provide a variety of services. Current activity is focussed on multipoint fixed wireless access applications with considerable interest in offering high-speed access services to residential and business customers.

The public submissions to the consultation supported the designation for WCS and encouraged the Department to proceed expeditiously to license. The Department subsequently designated this spectrum for WCS services in June 2001 in the document Revisions to the Spectrum Utilization Policy for Services in the Frequency Range 2285-2483.5 MHz (DGTP-003-01) a re-assignment from conventional microwave radio systems (point-to-point).

The Revisions document (DGTP-003-01) recognizes that the defining line between fixed and mobile services is becoming less distinct in some scenarios which are envisaged for local broadband networks. Provision for applications which have elements of both services, depending on the user location or situation, are included in several broadband requirements. The Department will provide full flexibility for the development of local broadband networks in this band and does not want to predetermine or prescribe what types of commercial services should be offered. However, due to current technical restrictions, Industry Canada envisages that the spectrum designated for WCS services will be used predominantly for the provision of one-way and/or two-way, local broadband access services in digital, fixed, point-to-multipoint configurations. 4

4.1.2 FWA Spectrum at 3500 MHz

FWA systems will be licensed under the fixed service. Licensees may deploy a full range of fixed applications (i.e. point-to-multipoint or point-to-point) in support of FWA applications, including ancillary portable terminals. Note that there is a strong possibility that the U.S. will deploy licence-exempt devices in the band 3650-3700 MHz, in which case Canada will likely harmonize with the United States. Licence-exempt devices in the band 3650-3700 MHz could be used for fixed wireless applications.

In the consultation, the Department proposed to auction up to 200 MHz of spectrum within the frequency range 3400–3700 MHz. Several factors were outlined that would affect the final decision as to how much of the spectrum would be made available.

In the past year, the Department has undertaken discussions with the Canadian Department of National Defence and the U.S. Administration, including government users, to better understand radiolocation operations, spectrum requirements and the potential for interference between FWA and radiolocation systems. As a result of these discussions, the Department reached the conclusion that in order to accommodate both services, the FWA spectrum needed to be reclassed so that (i) the existing priority spectrum for radiolocation is preserved; and (ii) the spectrum for commercial FWA service receives minimal interference.

In the Department's official release, Restructuring the Spectrum in the Band 3400-3650 MHz to More Effectively Accommodate Fixed and Radiolocation Services, DGTP-002-03, February 2003, the FWA spectrum was reclassed to 3500-3650 MHz from the original 3400-3550 MHz for the reasons outlined above. With the exception of select geographic operational restrictions, particularly on the West Coast, all policy provisions were carried over to the new band. Subsequently, in April 2003, the Department released an Expansion of Spectrum for Fixed Wireless Access in the 3500 MHz Range, DGTP-006-03. This document prescribed new restrictions based on studies carried out by the Department and extended the core FWA spectrum, by one 25 MHz block, to 3475-3650 MHz. See Appendix 1 for the above noted Gazette Notices.

4.1.3 First-Come First-Served (FCFS) in the FWA 3500 MHz Band

As mentioned in Section 1, in August 1998, Industry Canada released the document Spectrum Policy and Licensing Provisions for Fixed Wireless Access Systems in Rural Areas in the Frequency Range 3400–3700 MHz (DGTP-013-098) which provided access to FWA spectrum to radiocommunication carriers on a FCFS basis in rural and high-cost serving areas. Licences issued under the FCFS policy had one-year terms with a six-month implementation requirement, and did not include transferability or divisibility rights. Since that time, two Gazette Notices (DGTP-002-03 and DGTP-006-03) have been issued as noted in Section 4.1.2 announcing rearrangements of the spectrum in the band 3400-3650 MHz to better accommodate FWA systems and radiolocation operations. As a result of these rearrangements, FCFS FWA spectrum is currently available in the band 3475-3650 MHz, in rural areas and high-cost serving areas. Licensing on a FCFS basis will continue until one month prior to the commencement of the auction, based on the restructured band and additional licensing guidelines outlined in the April 2003 Gazette Notice DGTP-006-03. At that point, all licensing activity for new FWA system applications in the band 3475-3650 MHz will cease. Anyone having been issued a licence or a written approval-in-principle will be treated as an FWA incumbent licensee. A list of these FWA incumbent licensees will be made available in advance of the auction so that bidders will know which licences are encumbered, and the location of the incumbents within the service area.

4.2 Spectrum Structure

The following outlines the structure of the 2300 MHz and 3500 MHz spectrum blocks. See Appendix 2 for the allocation of these bands in the Canadian Table of Frequency Allocations.

4.2.1 Structure for the WCS Band at 2300 MHz

In the consultation paper released in August 2001, the Department solicited comments on the proposed spectrum band plan of 15+15 MHz (2305-2320/2345-2360 MHz). This band plan was proposed based on industry requirements and appropriate economies of scale with the U.S. who auctioned this spectrum in 1997. With the exception of one respondent, who requested smaller block sizes, comments from industry fully supported this band plan.

The Department has decided to make available for WCS one paired block of 15 + 15 MHz as shown in Table 1.

Table 1 — WCS Spectrum Blocks
Auction Label Lower Frequency (MHz) Upper Frequency (MHz)
W 2305–2320 2345–2360

4.2.2 Structure for the FWA Band at 3500 MHz

The original band structure for FCFS licensing of FWA spectrum at 3500 MHz, consisted of three paired blocks of 25 MHz for use in the rural and high-cost serving areas. In the consultation for this auction, the Department proposed the same band structure of 25+25 MHz paired blocks with 100 MHz spacing.

As outlined in Notice DGTP-002-03, a moratorium was placed on the licensing of FWA systems in the band 3400-3450 MHz, and existing systems were grandfathered. 5 At that time, licensing of FWA systems in the band 3450-3500 MHz was suspended until further characterization of this spectrum range by the Department was finalized. Since the release of DGTP-002-03, the Department has completed its characterization. See Section 5.2.4 for more details. Note that this band plan, while consistent with ITU-R Recommendation F.1488, Frequency block arrangements for fixed wireless access systems in the range 3400 – 3800 MHz, differs from that used in Europe. The equivalent U.S. spectrum is used for radiolocation.

The Department will auction 175 MHz in the 3475-3650 MHz band. Three block pairs (25+25 MHz), namely D&H, E&J, and F&K will be auctioned, as well as block G as a stand-alone 25 MHz block as shown in Table 2.

Table 2 — FWA Spectrum Blocks
Spectrum Block Auction Label Lower Frequency (MHz) Upper Frequency MHz)
D/H D 3475-3500 3575-3600
E/J E 3500-3525 3600-3625
F/K F 3525-3550 3625-3650
G G 3550-3575 N/A

4.3 Geography

The Department sought comments on the proposed use of Tier 4 service areas for the WCS and FWA spectrum licences available in this auction. Tier 4 service areas are based on groupings of Statistics Canada's Census Divisions and Subdivisions which range from a single national service area to localized areas.

In the comments received, general support was expressed for licensing Tier 4 service areas. However, some supporters suggested that a few of the Tier 4 areas should be modified to keep urban and rural areas separate, and others also suggested that some rural Tier 4 service areas are too large and should be further broken down into smaller areas. The Department has re-examined the Tier 4 service areas, and found that in a number of cases the service areas did encompass a large geographic area and in some cases included both rural and urban territories. In order to more accurately reflect Statistics Canada's urban/rural split, the Department has redrawn and split some of the original service areas. The WCS and FWA spectrum blocks will be available for licensing using the revised Tier 4 service areas as shown on the Spectrum Management and Telecommunications Web site at http://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf05909.html.

The holders of Tier 4 spectrum licences will be allowed to partition their licences into areas that can be no smaller than a single spectrum grid cell 6 to provide the greatest degree of flexibility for those requiring spectrum for expansion or to meet capacity constraints in certain areas. Tier 4 service areas can also be aggregated.

Incumbent FWA licensees may find it advantageous to acquire their own area in the auction to expand their licence to include the entire tier. In addition to expanding their licensed territory the licensee would be provided a 10 year licence term, transferability and divisibility.

Note: FWA tiers in the 3500 MHz band may be subject to occasional interference due to radiolocation services (radars) operating in the band 3400-3650 MHz in Canada, along the Canada-U.S. border and in Canadian coastal waters. Due to these radiolocation services FWA tiers on Vancouver Island (Tiers 4-154, 4-155 and 4-156) will not be available for licensing through the spectrum auction. In addition, FWA tiers in Halifax, Dartmouth, Vancouver and nearby coastal areas including those communities that are along the Strait of Georgia (Tiers 4-010, 4-152, 4-157 and 4-158), may be susceptible to an increased potential of interference. Refer to Section 5.2.4 for further details.


Footnotes

1 An ILEC is a telecommunications common carrier which provides local exchange telephone services anywhere in Canada

2 A cable company is licensed to carry on a cable distribution undertaking under the Broadcasting Act anywhere in Canada

3 The Radiocommunication Regulations defines a radiocommunication carrier as "a person who operates interconnected radio-based transmission facility used by that person or another person to provide radiocommunication services for compensation."

4 Licensees should note the restrictions on emission characteristics specified in RSS-195

5 FWA incumbents licensed under the 1998 FCFS policy (DGTP-013-098) are able to continue operating in this band.

6 Spectrum grid cell are six-sided figures with an area of 25 km2 that fit together in an interlocking pattern over the geography of Canada (see Service Areas for Competitive Licensing at http://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/h_sf01627.html

 


 

Image Descriptions

Figure 1

WCS Spectrum at 2300 MHz
Frequency range Type of services
2305 – 2320 MHz (15 MHz)Wireless Communication Services (WCS)
2320 – 2345 MHz (25 MHz)US Satellite Digital Audio Radio Service (S-DARS)
2345-2360 MHz (15 MHz)Wireless Communication Services (WCS)

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Figure 2

WCS Spectrum at 2300 MHz
Spectrum Blocks Lower Frequency (MHz) Upper Frequency (MHz)
*Available for licensing Paired blocks
**One single 25 MHz block
***Proposed for licence-exempt devices in the U.S
A34003425
B34253450
C34503475
D/H*3475-35003575-3600
E/J*3500-35253600-3625
F/K*3525-35503625-3650
G**35503575
L***36503675
M***36753700

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