Policy and Licensing Procedures for the Auction of Spectrum Licences in the 2300 MHz and 3500 MHz Bands
7. Licensing Process
The comments received in the consultation process indicated a general agreement with the Department's proposed steps for licensing spectrum in the 2300 MHz and 3500 MHz bands. The process by which interested parties may apply to participate in the auction are laid out below.
The Department makes no representations or warranties about the use of this spectrum for particular services. Applicants should be aware that this auction represents an opportunity to become a licensee, subject to certain conditions and regulations. An Industry Canada auction does not constitute an endorsement by the Department of any particular services, technology or product, nor does a spectrum licence constitute a guarantee of business success. Applicants should perform their individual due diligence before proceeding as they would with any new business venture.
The Department expects that the actual bidding will commence in late January, 2004. A summary of key dates associated with this licensing process is provided on Industry Canada's Spectrum Management and Telecommunications Web site. Interested parties are advised to check the site for updates to the schedule of events.
The Department will not be providing public information sessions as it has for the previous auctions. However, the Department is planning to provide a Webcast presentation to further explain the licensing policies and procedures. This presentation is for information purposes only. The policies and rules associated with this licensing process are set out in their entirety in this document, and in any written amendment or supplement that may be issued by the Department. Interested parties are invited to visit the Industry Canada's Spectrum Management and Telecommunications Web site to obtain further information.
7.1 Prohibition of Collusion
Prospective bidders will note that the auction application form contains a declaration that the applicant will be required to sign certifying that the applicant has not entered into and will not enter into any agreements or arrangements of any kind with any competitor regarding the amount to be bid, bidding strategies or the particular licence(s) on which the applicant or competitors will or will not bid. For the purposes of this certification the word competitor means any entity, other than the applicant, its Affiliates or Associated Entities, who could potentially be a bidder in this auction based on its qualifications, abilities or experience.
Prospective bidders should note that "affiliate" for the purposes of this policy (defined by reference to control in fact) differs from "affiliate" for the purposes of the Competition Act. As such, in order to avoid contravening section 47 of the Competition Act, a bidder who enters into such an agreement or arrangement with any one or more of its Affiliates may have to make the agreement or arrangement known to the Department at or before the time when any subsequent agreement or arrangement is made.
Applicants are prohibited from co-operating, collaborating, discussing or negotiating settlement agreements with competitors, relating to the licences being auctioned or relating to the post-auction market structure, until the deadline for the final payment on high bids.
7.2 Participation in the Auction – Affiliates and Associated Entities
It should also be noted that only one member of an Affiliate relationship 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 Affiliated 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. Affiliated 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 below.
"Affiliate", for the purposes of this policy, means a person who controls the entity, or who is controlled by the entity or by any person who controls the entity. "Control" means control in any manner that results in control in fact, whether directly through the ownership of securities or indirectly through a trust, agreement or arrangement, the ownership of a body corporate or otherwise. Control in fact is the ongoing power or ability, whether exercised or not, to determine or decide the strategic decision-making activities of an enterprise or to manage or run the day-to-day operations of an enterprise.
7.2.2 Associated Entities
For the purposes of this policy, any entities who enter into any partnerships, joint ventures, agreements (including agreements in principle) to merge, consortia or any arrangements, agreements or understandings of any kind, either explicit or implicit, relating to the licences being auctioned or relating to the post-auction market structure, will be treated as Associated Entities.
The existence of such agreements, arrangements or understandings must be disclosed in writing to the Department at the time of application and this information will be disclosed to other bidders and to the public. Changes made after the application deadline which create an Association with another applicant are not permitted, and any applicant who has formed such an association will be disqualified from participating in the auction.
7.2.3 Presumption of Affiliate and Associated Entity Status
If a person owns, directly or indirectly, at least 20% of the entity's voting shares where the entity is a body corporate or where the entity is not a body corporate, at least 20% of the beneficial ownership in such entity, this will result in a rebuttable presumption that the person controls the entity. A person may attempt to rebut the presumption of an affiliate relationship by submitting an affidavit or declaration, signed by an officer or other appropriate official, which sets out the specific ownership holdings of any person with a 20% or greater holding in the entity, affirms that the person does not control the entity, and sets out the reasons as to why the person does not control the entity. A copy of this affidavit will be made public. Such an affidavit or declaration must also be accompanied by supporting documentation as well as copies of all arrangements, agreements, or understandings between the subject entities. Such materials should be filed as part of the application materials, and in any event, no later than five business days after the publication of the qualified bidders. The Department reserves the right to request further information and make its own determination on this issue.
In those cases where materials have been filed to rebut a presumption of affiliate status, Industry Canada will apply a control in fact test to determine whether or not the entity has satisfactorily demonstrated that it is not affiliated with the other entity. Such determinations are done on a case-by-case basis. In making its determination, Industry Canada will generally request and review the type of information listed in Appendix 8, Declaration of Ownership and Control For Provisional Winners of the 2300 MHz and 3500 MHz Licences. The Department reserves the right to request additional information. For example, the Department will require the entity to submit the following types of documentation for itself and any related holding company: the incorporation documents, bylaws, details of shareholdings, shareholder agreements, details related to the election of directors and appointment of officers of the company, complete details on the financial structure of the company, information regarding relationships between the parties, as well as copies of any agreements or arrangements which could affect whether the company or any related holding company are, or are not, controlled by another entity.
Any entity wishing to demonstrate why it should not be treated as an Associated Entity in the presence of the agreements, arrangements or understandings as outlined in Section 7.2.2 of this document, must, as part of its submission, include evidence and set out the reasons as to why an association does not exist. Such a submission must include a narrative, which will be made public, outlining the arguments as to why an association does not exist. Supporting documentation, as well as copies of all arrangements, agreements, or understandings between the subject entities must also be provided to the Department. The Department reserves the right to request additional information in order to make its determination. Should the entities fail to provide all the relevant information in a timely fashion to allow the Department to complete its determination, or if the Department is not satisfied five business days prior to the date set for the mock auction that an association does not exist, then only one of those Associated Entities will be permitted to become a qualified bidder in the same service area.
It should be noted that during the Department's review of the materials filed to rebut the presumption of affiliate status, or to dispute the existence of an Associated Entity, the entities will be considered to be competitors and will be subject to the prohibition of collusion rules outlined above.
To participate in the auction, all applicants must submit a completed application form as well as financial deposits. Further, in the interest of providing both the Department and other bidders with adequate information on the identity of all bidders, applicants are required to fully disclose the beneficial ownership for every entity that owns, directly or indirectly, 10% or more of the applicant's voting shares, non-voting shares, partnership interests, or any other beneficial interests, as the case may be. The Department will make this information available to the public so that all bidders have knowledge of the real identity of the other bidders. This information will be used, along with other documentation submitted by applicants, to determine the type of relationship, if any, that may exist between entities. See Section 7.2 for more information on participation in the auction by Affiliates and Associated Entities.
7.3.1 Financial Deposit
In order to enhance the integrity of the auction, the Department requires that all bidders submit a pre-auction financial deposit with their application to participate in the auction. The financial deposit is to be in the form of an irrevocable standby letter of credit. The elements required in a letter of credit and a sample letter of credit acceptable to the Department are provided in Appendix 6.
The Department has established the pre-auction financial deposits based on the licences on which the applicant wishes to be eligible to bid. Each of the licences has been assigned a specific number of eligibility points ("points") that are approximately proportionate to the population covered by the licence. One eligibility point is approximately equal to 20,000 in population per 25 MHz of spectrum. Refer to Appendix 7 which provides the eligibility points and opening bids for each of the licences. The calculation of eligibility points is further described in Section 8.3.
The Department believes that it is appropriate to require bidders to submit a deposit to ensure that the integrity of the auction is maintained. At the same time however, the Department does not want to disadvantage those applicants who may only be interested in obtaining spectrum in a few areas. Therefore, the Department has decided that the financial deposit will be equal to $500 per eligibility point for the first two hundred (200) points and $3,000 per eligibility point requested thereafter.
The Department reserves the right to request additional financial deposits during the auction. This will be determined by considering such factors as the standing high bids on a licence and the bidding activity. The additional financial deposit will be based on a percentage, not exceeding 50%, of the standing high bids for a licence for a specified round. Requests for additional financial deposits will be announced to bidders ahead of their implementation. Bidders will be provided two full business days to submit their additional financial deposits to the Manager, Wireless Networks (address provided in Section 1).
Financial deposit(s) will be returned to any applicant that is not found to be a qualified bidder, to any applicant that provides written notification to the Department of its withdrawal from the process prior to the auction's commencement, and to any bidder whose eligibility is reduced to zero during the auction and who is not potentially liable for any withdrawal penalties.
7.3.2 Application Form
The application form that is to be submitted to apply for participation in the auction is contained in Appendix 4 of this document. Additional copies of the form can be obtained electronically from Industry Canada's Spectrum Management and Telecommunications Web site under Development of Final Policy, in Final Policy and Licensing Procedures.
Please note that additional corporate documentation may be required as attachments to the application form.
7.3.3 How to Submit the Application and Financial Deposit
The application form, the associated documents that may be required (as per the instructions provided on the various forms), and the financial deposit are to be physically delivered by 5: 00 p.m., Eastern Standard Time (EST), December 8, 2003, to the Manager, Wireless Networks (address provided in Section 1). The Department reserves the right, under exceptional circumstances, to accept applications and associated documentation after this deadline, but prior to publication of the list of applicants.
Upon receipt of the application and the associated documentation, the Department will send notification to the applicant that the application materials have been received and confirming the amount of the deposit that has been submitted. This notice does in no way mean that the application materials or the deposit have been approved.
If, prior to the application deadline, an applicant wishes for any reason to amend any of the forms it has submitted and/or submit a new irrevocable standby letter of credit, it may submit one or more amended forms and/or a new irrevocable standby letter of credit with an accompanying letter explaining that the enclosed form(s) and/or letter of credit are to replace the one(s) previously submitted. Any such amendments are to be physically delivered to the Manager, Wireless Networks at the address noted in Section 1, by 5: 00 p.m., Eastern Standard Time (EST), December 8, 2003.
Upon receipt of an amended form(s) and/or replacement irrevocable standby letter of credit, the Department will send notification to the applicant that the amended form(s) and/or letter of credit have been received. The notification will state the amount of the new letter of credit that has been submitted. The initial irrevocable standby letter of credit will also be returned to the applicant. This notice will in no way mean that the amended form(s) or the additional deposit have been approved.
Multiple letters of credit from one or more financial institutions will be permitted within reason. The Department will treat the financial deposit for an applicant as being the sum of the amounts of each accepted letter of credit. Each letter of credit must comply with the conditions laid out in this policy concerning letters of credit. No letter of credit shall have any conditions requiring the Department to draw on the letters in any particular order of priority, or requiring any letter to be drawn upon completely before drawing upon any other letter.
A list of all applicants will be made public via Industry Canada's Spectrum Management and Telecommunications Web site shortly after the closing date for receipt of applications. The publication of this list does in no way mean that these applicants have been approved as qualified bidders.
7.4 Bidder Qualification
The Department will begin to review the application forms (and any associated documents) and the accompanying irrevocable standby letters of credit after the closing date for the submission of applications. In this initial review, the Department will identify any errors in the application forms or the letters of credit. It will also determine any additional information related to any Affiliate or Associated Entity of the applicant, if required.
Following the initial review period, the Department will provide applicants with an opportunity to correct any errors or inconsistencies in their application or letter of credit that have been identified by the Department, and will request the required additional information related to the Affiliates or Associated Entities, where applicable. The original applications may be returned to the applicant with a brief statement outlining any discrepancy(ies) and/or omission(s), or requesting additional information. The applicant will be invited to resubmit the corrected form and/or the additional information and to physically deliver this to the Manager, Wireless Networks at the address provided in Section 1, by the date specified in the statement.
Applicants who do not comply with this request will have their application to participate in the auction rejected. Applications that are rejected, including those for which an opportunity has been provided to correct errors or inconsistencies identified by the Department, but are still found to be deficient, will be returned to the applicant with a letter indicating they have been rejected. The letter will outline the deficiencies and will include the applicant's irrevocable standby letter of credit.
Those applicants who have submitted acceptable application materials, including the accompanying financial deposit, will receive a Qualified Bidder Certificate and the necessary software, instructions, and codes to allow them to use the Department's automated bidding system. This includes encryption software that allows bids to be submitted securely over the Internet. Qualified bidders will also receive information on mock auctions and an on-line Webcast presentation in the weeks following the publication of this document, which will allow bidders to better familiarize themselves with the auction system. The initial schedule of the actual auction will also be provided at this time. The auction is expected to begin late January.
A list of all qualified bidders, the licences for which they are eligible to bid, and their initial level of eligibility points will be made public via Industry Canada's Spectrum Management and Telecommunications Web site late December 2003.
7.5 Withdrawal of Application Forms
Applicants wishing to withdraw their application materials and have their irrevocable standby letters of credit returned may do so, without prejudice, by sending a written request to the Manager, Wireless Networks at the address provided in Section 1. This request is to be physically delivered to the Manager, Wireless Networks prior to 5:00 p.m. (EST) on the business day preceding the opening of the auction.
7.6 Change of Information
Qualified bidders are to notify the Manager, Wireless Networks at the address provided in Section 1 of any material changes in the information submitted in their application documents. Notification is to take place within five business days of such change.
Should a qualified bidder wish to change their contact information or the name of one or more of the individuals names as designated bidders, they may do so by notifying the Manager, Wireless Networks. A request to change a designated bidder should be done prior to the activation of their digital signature and encryption keys.
7.7 Amendments and Supplements
The Department may amend or supplement the policies and rules contained in this document. Any such amendment or supplement will be published on Industry Canada's Spectrum Management and Telecommunications Web site and will be sent to all qualified bidders.
Written questions asking for clarification of rules or policies will be accepted. All questions received by the deadline, and the Department's written answers to these questions will be made public. Such answers will be considered as amendments or supplements to the policies and rules set out in this document.
Written questions are to be submitted to the Manager, Wireless Networks by 5:00 p.m. (EDT), October 17, 2003 at the address provided in Section 1, by fax to 613–991–3514, or sent by e-mail to firstname.lastname@example.org. The Department will publish the questions and its responses on Industry Canada's Spectrum Management and Telecommunications Web site as soon as possible after the deadline for receipt.
From time to time, the Department will also update the list of "frequently asked questions" (FAQ) on the Web site, however these questions and their responses are for information purposes only and will not form part of the official policy.
7.8 Software Requirements
The Department's automated auction system features a user-friendly Web browser interface. The auction will be run over the Internet and bids will be encrypted and digitally signed to ensure security and authenticity. Each entity that is qualified to participate in the auction may designate up to three individuals to submit bids on its behalf.
The results of each round will be accessible to bidders through the auction system. These results will also be posted on Industry Canada's Spectrum Management and Telecommunications Web site so that anyone who is interested may monitor the auction's progress. At the close of a bidding round, the Auction Management System (AMS) automatically tabulates the bids for that round and within a few minutes posts the results for designated bidders to examine. General public availability of these results takes only a few minutes longer as results are transferred to Industry Canada's Spectrum Management and Telecommunications Web site. A bid tracking tool that can be used to analyse round results will be made available to the public. It is important to note, however, that the Department will not be providing any form of user support for the bid tracking tool.
To access and run the Department's auction software with maximum performance, the following are recommended:
- Pentium II, 450 MHz microprocessor or better;
- At least 256 megabytes of RAM;
- A CD-ROM drive;
- Minimum of 50 MB of free disk space;
- Supported operating systems: Windows 98, Windows 2000® and Windows XP®;
- Internet Explorer version 5.5;
- Internet access with a reliable connection to the Canadian Internet backbone by a 56 kbsp modem (or faster) or a high-speed Internet connection.
To minimize difficulty with corporate network configurations and firewalls, bidders may be required to use a high-speed Internet connection other than their corporate local area network.
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