Policy and Licensing Procedures for the Auction of Spectrum Licences in the 2300 MHz and 3500 MHz Bands
6. Licence Conditions and Ministerial Authority
The following conditions will apply to the spectrum licences awarded through the auction of spectrum for WCS in the 2300 MHz band and FWA in the 3500 MHz band. Please note that the spectrum licences that are issued pursuant to this auction will continue to be subject to relevant provisions in the Radiocommunication Act and the Radiocommunication Regulations. For example, the Minister continues to have the power to amend the terms and conditions of spectrum licences (see 5(1)(b) of the Radiocommunication Act). Such powers would be exercised on an exceptional basis and only after full consultation. As well, as noted in Section 4.2 of the Framework for Spectrum Auctions in Canada document, section 40 of the Radiocommunication Regulations 9 continues to apply. It is important to note that the Department, pursuant to this regulation, would reallocate spectrum assigned through auction only under extraordinary circumstances (e.g. a change in international allocation or an overriding policy need which arises to address a national security issue) taking into consideration that the licensee has complied with the conditions of licence, has made large investments in infrastructure, and is serving an established client base. If a reallocation were contemplated, it would take place only after full public consultation.
6.1 Licence Term
The Department proposed in the consultation paper that the spectrum licences would have a ten-year term with a high expectation of renewal at the end of the term. There were no comments received regarding the proposed licence term, therefore the Department will offer licences as proposed. The term of the licence will be ten years from the date of licence issuance, with an expectation to renew licences for subsequent ten-year terms unless a breach of licence condition occurs (e.g. failure to meet a reasonable level of service or implementation requirements as outlined in Section 6.13); a fundamental reallocation of spectrum to a new service is required (e.g. a change in international allocation); or, an overriding policy need arises (e.g. a spectrum reallocation to address a national security issue).
To provide a more stable investment climate for licensees, a consultation regarding the renewal of the licence will commence no later than two years prior to the end of the licence term if the Department foresees the possibility that it will not renew the licence or if renewal fees are contemplated.
6.2 Licence Transferability and Divisibility
The licensee may transfer its licence(s) in whole or in part (divisibility), in both the bandwidth and geographic dimensions. The area transferred in the geographic dimension may be no smaller than a single spectrum grid cell. A spectrum grid cell is a six-sided figure with an area of 25 square kilometres. The grid cells fit together in an interlocking pattern over the geography of Canada. No minimum limit will be imposed on the amount of spectrum transferred in the bandwidth dimension.
In the past the Department has interpreted the transfer of a licence to include any leasing, subleasing or other disposition of the rights and obligations of the licence. The Department is planning to consult to determine whether this interpretation will continue to apply for this licensing process and future licensing processes.
To provide licensees with the maximum flexibility, the auctioned licences will be transferable and divisible subject only to the following conditions and guidelines:
- All eligibility criteria and other conditions that apply to a licence, including those related to interference management, will continue, as applicable, should the licence be transferred.
- The party to whom the licence will be transferred must meet the eligibility criteria for a radiocommunication carrier outlined in subsection 10.(2) of the Radiocommunication Regulations.
- Should an auction winner transfer its licence to another party, the second party will only receive a licence term equal to that remaining on the original licence, but will be eligible for the same licence renewal provisions as the original licensee. For example, if the transfer occurs four years into a ten-year licence term, the second party will receive a licence term equal to six years.
- All proposed licence transfers must comply with any spectrum aggregation limits or other measures intended to preclude anti-competitive behaviour that may be in place. (It should be noted that any licence transfer may also be subject to the provisions of the Competition Act).
- In order to maintain compatibility with the Department's database, licences will be divisible in the geographic dimension only in terms of spectrum grid cells (as previously described). Thus, when an auctioned licence is divided, the minimum geographic size that any one of the new divisions may take is one spectrum grid cell. The individual spectrum grid cells are sufficiently small that even with this restriction, an extremely high degree of flexibility will be available to the parties involved in determining the size and shape of sub-divided portions of a licence.
- There will be no minimum limit to divisibility in the bandwidth dimension.
- Written notification will be required of all proposed licence transfers. The Department will also request attestations or other documentation to ensure that the points above (e.g. compliance with the eligibility criteria and other conditions of licence) have been satisfactorily addressed. Once a licence transfer has been registered, the Department will revoke the original licence and issue a new licence(s) in its place.
- The Department will maintain a publicly accessible database listing all auctioned licences and respective licensees, and will update the database upon a licence transfer.
6.3 Spectrum Aggregation Limit
The licensee must comply with the 100 MHz spectrum aggregation limit outlined in Section 3.4 of this policy document, which applies to all participating companies, their Affiliates (see Section 7.2.1) and Associated Entities (see Section 7.2.2). The spectrum aggregation limit will be enforced during the auction and for two years after the close of the auction.
The licensee must notify the Minister of any change that would have a material effect on its compliance with these spectrum aggregation limits. Such notification must be made in advance for any proposed transactions within the licensee's knowledge.
6.4 Eligibility Criteria – Ownership and Control
One respondent recommended that the ownership and control requirements either be relaxed or eliminated as the belief is that the condition is having a negative effect on the cost of capital and the ability to gain access to capital, especially for small and new players in the Canadian telecommunications market. A review of the ownership and control requirements is currently underway. Until the review has been completed, the current requirements will remain in effect.
The licensee must be eligible to become a radiocommunication carrier, and as such, must meet the ownership and control requirements in section 10(2) of the Radiocommunication Regulations. The licensee must notify the Minister of Industry of any change that would have a material effect on its eligibility. Such notification must be made in advance for any proposed transactions within its knowledge. For more information, refer to Client Procedures Circular 2-0-15, Canadian Ownership and Control (CPC-2-0-15).
6.5 Displacement of Incumbents
The licensee must comply with the transition policy outlined in Appendix 3 of this document.
6.6 Radio Station Installations
Site-specific radio licences will not be required for each radio station. However, for each radio station, the licensee must ensure that:
- radio stations are installed and operated in a manner that complies with Health Canada's limits of exposure to radio frequency fields;
- where applicable, antenna structures are marked in accordance with the recommendations of Transport Canada;
- prior to installation of significant antenna structures, consultation with the appropriate land-use authorities has taken place. 10 Installation of any significant antenna structure must be delayed for a period of time sufficient for Departmental review where, after considering reasonable alternatives and consultation options, land-use consultation negotiations remain at an impasse; and
- radio installations are installed and operated in a manner that complies with technical boundary and out-of-band emission conditions as specified by the Department.
6.7 Provision of Technical Information
When the Department requests technical information on a particular station or on a network, the information must be provided by the licensee to the Department according to the definitions and criteria specified by the Department which will be outlined in a Client Procedures Circular to be issued in the near future.
6.8 Laws, Regulations, and Other Obligations
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 (discussed in Section 5 of this document) will be imposed.
The licensee is subject to, and must comply with, the Radiocommunication Act, the Radiocommunication Regulations, the International Telecommunication Union (ITU) Radio Regulations and Canadian Table of Frequency Allocations pertaining to its licensed radio frequency bands. The licence is issued on condition that the certifications made in the application materials are all true and complete in every respect.
6.9 Technical Considerations
The licensee must comply with the technical requirements outlined in Sections 5.3 and 5.4 of this policy.
6.10 International and Domestic Coordination
The licensee must comply with the requirements of cross-border sharing and coordination arrangements established between Canada and the United States, as amended from time to time. While frequency assignments are not subject to site by site licensing, licensees may be required to furnish all necessary technical data to Industry Canada for each relevant site in order for international coordination to be effected with the United States as per the terms of any existing or future sharing arrangement. Should international coordination be required, Industry Canada will identify the appropriate data elements, format and means of submission.
Coordination between licensees within Canada will follow similar procedures as those for international coordination.
6.11 Lawful Interception
Lawful access is an important and well-established technique used by law enforcement and national security agencies to conduct investigations. In the context of telecommunications in Canada, it consists of the interception of communications and the search and seizure of information carried out pursuant to legal authority. To this end, certain radiocommunication carrier licensees are required to provide for and maintain lawful interception capabilities in accordance with requirements or standards set by the Solicitor General of Canada. These capabilities address both technical and operational matters related to the lawful interception of telecommunications.
Licensees resulting from this licensing process must, from the inception of service, provide for and maintain lawful interception capabilities. The requirements for lawful access capabilities for circuit-switched voice telephony systems are provided in the Solicitor General's Enforcement Standards for Lawful Interception of Telecommunications (Rev. Nov. 95). These standards may be amended from time to time, following consultation with the Solicitor General of Canada and the licensees. For licensees planning to install and operate technologies or topologies that are not circuit-switched or are currently under development, the Department will require that the licensee implement any lawful interception solution available to the licensee.
Licensees may request that the Minister forbear from enforcing certain lawful interception capability requirements for a limited period of time. The Minister, following consultation with the Solicitor General, may exercise the power to forbear from enforcing a requirement or requirements where, in the opinion of the Minister, the requirement(s) is (are) not reasonably achievable. Forbearance requests must include specific details and dates when compliance to requirement(s) can be expected.
Applicants should be aware that a legislative package is being developed to ensure that law enforcement and national security agencies acting with lawful authority have effective access to communications and information. The Department continues to meet with the Solicitor General and the Department of Justice on this initiative and will provide licensees with appropriate guidance until such time as any new legislation is enacted.
6.12 Research and Development
The Department continues to believe that important public policy objectives will be achieved through the proposed research and development licence condition. However, the Department has decided that small businesses with less than $5 million in annual gross operating revenues will not be required to meet the R&D expenditure requirement.
All other licensees must invest, as a minimum, two percent of its adjusted gross revenues resulting from their operations in the 2300 MHz and 3500 MHz bands, averaged over the term of the licence, in eligible R&D activities related to telecommunications. Eligible research and development activities are those that meet the definition of scientific research and experimental development adopted in the Income Tax Act. Adjusted gross revenues are defined as total service revenues, less inter-carrier payments, bad debts, third-party commissions, and provincial and goods and services taxes collected. Note that activities such as third-party payments to approved associations, educational institutions or organizations are accepted as meeting the requirements of the condition of licence even where the licensee does not control the R&D that is being performed and does not have the right to exploit the results of that R&D.
If the licence is transferred to any eligible entity prior to the expiration of its term, the condition of licence relating to investment in research and development will continue to apply on the initial transfer of the licence and on any subsequent transfer until the term of this licence expires. Prior to a transfer, in whole or in part, of this licence, the proposed transferee must undertake to ensure that the sum of the investment it will make in eligible research and development activities and all investments made by prior licensees in eligible research and development activities equals, as a minimum, two percent of the aggregated adjusted gross revenues resulting from all operations in this spectrum, over the term of the licence. An attestation signed by the proposed transferee setting out the undertaking must accompany the licence transfer notification to be submitted to the Department by the licensee prior to the transfer being effected.
To facilitate compliance with this condition of licence, the licensee should consult the Department's Guidelines for Compliance with the Radio Authorization Condition of Licence Relating to Research and Development which can be found on Industry Canada's Spectrum Management and Telecommunications Web site. Further details on the exact administrative procedures for transferring a spectrum licence will be provided in a forthcoming Client Procedures Circular.
6.13 Implementation of Spectrum Usage
The majority of respondents agreed that there is a need for implementation requirements, however a number of respondents recommended changes. The suggestions ranged from having less stringent implementation requirements for licensees in rural areas to having more stringent requirements to ensure that all communities within a service area are served.
The Department has taken all of the comments into consideration, however has not found the respondents reasons for changes, sufficient to warrant changing the proposed policy. The Department is of the view that the spectrum is a public resource which should be used in ways that serve the public interest. As such, licensees will be required, as a condition of licence, to demonstrate that their spectrum is being put to use at a level acceptable to the Department within five years of receipt of licence(s). The establishment of coverage to 50% of the population within the licensed service area, or some other indicator of usage that is acceptable to the Department, such as the plans the licensee has for developing the spectrum and/or how accommodating the licensee has been in facilitating the development of the spectrum through the secondary market, will be required. The Department recognizes that a variety of different business plans and technologies may be employed in these bands across markets of various sizes.
In the event that spectrum obtained in this auction has not been put to use within five years of receipt of licence(s), the Department may begin a process to afford the licensee the opportunity to demonstrate why its licence should not be revoked. The Department may also facilitate discussions between holders of the spectrum who have not deployed services and potential local service providers wanting to provide WCS or FWA service to unserved or under-served areas through spectrum in the secondary market. The Department will consider the level of service coverage and spectrum development by year five as an important criteria in deciding whether the licensees should continue to have an expectation of licence renewal.
Supporting documentation should be submitted to the Manager, Wireless Networks, Radiocommunication and Broadcasting Regulatory Branch.
6.14 Annual Reporting
The licensee must submit an annual report for each year of the term of the licence indicating continued compliance with all licence conditions, including:
- audited financial statements as required under the licensee's jurisdiction of incorporation, including an audited Statement of Research and Development Expenditures with an accompanying Auditor's Report, prepared in accordance with the same standards of reporting; to facilitate compliance with this reporting requirement, the licensee should consult the Guidelines for Compliance with the Radio Authorization Condition of Licence Relating to Research and Development published by Industry Canada; and
- a copy of any existing corporate annual report for the licensee's fiscal year with respect to the authorization.
- an update on the implementation and spectrum usage within the area covered by the licence.
The reports are to be submitted, in writing, within 120 days of the licensee's fiscal year-end, to the Manager, Wireless Networks, Radiocommunication and Broadcasting Regulatory Branch.
Confidential information provided will be treated in accordance with section 20(1) of the Access to Information Act.
9 Section 40 reads: "The assignment of a frequency or frquencies to a holder of a radio authorization does not confer a monopoly on the use of the frequency or frequencies, nor shall a radio authorization be construed as conferring any right of continuing tnure in respect of frequency or frequencies"
10 Refer to Client Procedures Circular 2-0-03, Environment Process, Radiofrequency Fields and Land-use Consultation (CPC-2-0-03) as amended from time to time.
11 Statistic Canada's definition of small businesses can be found in Small Business Profiles (http://www.statcan.ca/english/sdds/5028.html).
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