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

9. Post-Auction Procedures

9.1 Bid Payment

Within ten business days of the auction's close, each provisional licence winner will be required to submit an initial payment with a value equal to twenty percent (20%) of the sum of its standing high bids plus one-hundred percent of the sum of any penalties that it has incurred. This payment will be non-refundable. If the provisional licence winner fails to make this initial payment within the specified period, then the provisional licence winner's irrevocable standby letter of credit will be drawn upon. If the value of the provisional licence winner's irrevocable standby letter of credit, combined with any partial payment, is less than the required amount, then the provisional licence winner will forfeit its right to have the licence(s) issued to it and the provisional licence winner will be subject to the applicable forfeiture penalties. A payment for the remaining eighty percent (80%) of the total of the high bids will be due within thirty business days of the auction's close. If the provisional licence winner fails to make this final payment within the specified period, then the provisional licence winner's irrevocable standby letter of credit will be drawn upon. If the value of the provisional licence winner's irrevocable standby letter of credit, combined with any partial payment, is less than the required amount, then the provisional licence winner will forfeit its right to have the licence(s) issued to it and again, the provisional licence winner will be subject to the applicable forfeiture penalties.

A provisional licence winner who is in default of payment may not selectively forfeit on a subset of the licences on which it placed the high bid. If all required payments are not received, then the provisional licence winner will forfeit its right to have any 2300 MHz or 3500 MHz licence issued to it.

All payments must be made by certified cheque, bank draft, or wire transfer, payable to the Receiver General for Canada, drawn on a financial institution that is a member of the Canadian Payments Association.

It is important to note that these bid payments for the initial ten-year term are in lieu of any fees fixed for the radio authorization under the Radiocommunication Act or any other Act. 13

9.2 Penalties Payment

After the auction's close, the sum of the standing high bids and the sum of any withdrawal penalties and other penalties incurred will be calculated for all bidders. If the total value of withdrawal penalties cannot be calculated at that time because one or more licences remain unsold, the full value of the withdrawn bid will be used as an interim proxy for the value of the withdrawal penalty. 14 For each bidder, one of the scenarios laid out below will apply.

  • If the sum of a bidder's standing high bids equals zero and the sum of its penalties equals zero, then that bidder's irrevocable standby letter of credit will be returned.
  • If the sum of a bidder's standing high bids equals zero and the sum of its penalties is greater than zero, then that bidder will be required to submit a payment for the full amount of the penalties within ten business days. If payment for the full amount of the penalties is not received by the Department within ten business days, then the bidder's irrevocable standby letter of credit will be drawn upon for the amount in question. If the full amount of the irrevocable standby letter of credit, combined with any partial payment, is less than the required amount, then the difference will be owing and payable to the Receiver General for Canada. 15
  • If the sum of a bidder's standing high bids is greater than zero and the sum of its penalties is equal to zero, then that bidder will be required to: (1) submit payment with a value equal to twenty percent of the sum of the standing high bids within ten business days; and (2) submit a second payment with a value equal to eighty percent of the sum of the standing high bids within thirty business days. If either of the required payments is not received by the Department within the specified time-frames, then the bidder's irrevocable standby letter of credit will be drawn upon for the amount in question. If the value of the irrevocable standby letter of credit, combined with any partial payment, is less than the required amount, then the bidder will forfeit its right to have the licence issued to it and will be subject to the forfeiture penalties discussed in Section 9.3.
  • If the sum of a bidder's standing high bids is greater than zero and the sum of its penalties is greater than zero, then that bidder will be required to: (1) submit payment with a value equal to twenty percent of the sum of the standing high bids plus one-hundred percent of the sum of the penalties within ten business days; and (2) submit a second payment with a value equal to eighty percent of the sum of the standing high bids within thirty business days. If either of the required payments are not received by the Department within the specified time-frames, then the bidder's irrevocable standby letter of credit will be drawn upon for the amount in question. If the value of the irrevocable standby letter of credit, combined with any partial payment, is less than the required amount, then the bidder will forfeit the right to have the licence issued and will be subject to the forfeiture penalties discussed in Section 9.3.

Example:

Bidder X withdraws a bid of $150,000 on Licence 1, which is eventually won by Bidder Y for $130,000. Bidder X withdraws a bid of $120,000 on Licence 2, which remains unsold at the auction's close. At the auction's close, Bidder X is the standing high bidder on Licence 3 for $250,000 and Licence 4 for $300,000. In a subsequent licensing process after the close of the initial auction, Licence 2 is sold for $90,000.

At the auction's close, the sum of Bidder X's standing high bids is $550,000 and the sum of Bidder X's penalties is $140,000 (withdrawn bid of $150,000 less final selling price of $130,000 equals penalty of $20,000 for Licence 1 and withdrawn bid of $120,000 equals interim proxy penalty of $120,000 for Licence 2).

Within ten business days, Bidder X must submit a payment for $250,000 (20% of the value of the standing high bids equals $110,000 and 100% of the value of the penalties equals $140,000). Within thirty business days of the auction's close, a payment for an additional $440,000 is required.

After the subsequent licensing process for Licence 2 is held, the correct penalty for Bidder X can be calculated as $30,000. Bidder X is then refunded $90,000.


9.3 Bid Forfeiture and Related Penalties

After the conclusion of the auction, bidders who have submitted the high bid on a licence but fail to comply with the specified payment schedule or, as outlined in Section 9.1, fail to come into compliance with the eligibility requirements of the Radiocommunication Regulations, will forfeit their right to the licence. Furthermore, those bidders will be required to pay a penalty in the amount of the difference between the forfeited bid and the eventual selling price of the licence (determined by a subsequent licensing process), if the eventual selling price is lower than the forfeited bid. 16 If the licence is not sold in a subsequent licensing process, then the selling price will be deemed to be zero and the penalty will be calculated accordingly. An additional amount of the greater of (a) 3% of the original forfeited bid; or (b) $10,000 for each forfeited bid will be charged, regardless of the eventual selling price.

In the event of licence forfeiture, the bidder's irrevocable standby letter of credit will be drawn upon for the full amount of the interim proxy forfeiture penalty. If the interim proxy forfeiture penalty is greater than the full amount of the bidder's irrevocable standby letter of credit combined with any partial payment, or if the letter of credit has been returned before the forfeiture, then the difference will be owing and payable to the Receiver General for Canada. 17

Any bidder who forfeits on a licence, that bidder and any Affiliates or Associated Entities, will be ineligible to bid on it in any subsequent licensing process.

9.4 Eligibility Documentation

Bidders who are provisional licence winners will be required to submit documentation related to their compliance with the condition of licence, "Eligibility Criteria – Ownership and Control" discussed in Section 6.4 of this document. Provisional licence winners must submit The Declaration of Ownership and Control for Provisional Winners of the 2300 MHz and 3500 MHz Licences (see Appendix 8), as well as all documents listed therein, within ten business days of the auction's close.

The Department will review these documents expeditiously. The Department will then notify each provisional winner regarding compliance with the Canadian ownership and control requirements. In the event that a provisional licence winner does not, in the opinion of the Department, comply with the Canadian ownership and control requirements, the Department will require that the provisional licence winner make changes in order to become compliant. If the provisional winner fails to comply with the Canadian ownership and control requirements within sixty days after being notified by the Department of the required changes, then the provisional licence winner will forfeit the right to have issued any licences offered in this auction and will be subject to the penalties outlined in Section 9.3.

9.5 Enforcement of Spectrum Aggregation Limits

The spectrum aggregation limits discussed in Section 3.4 of this document will be enforced as described below.

During the course of the auction, bidders who place bids on licences whose total bandwidth exceeds the spectrum aggregation limit will be subjected to the penalties outlined in Section 8.11.Note that FWA spectrum acquired prior to the auction through the FCFS process 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 selectively divest some of their holdings to meet the 100 MHz limit. Apart from this approach for incumbent FWA FCFS licensees in a particular service area, any bidder who, at the auction's close, is the standing high bidder on licences such that the bidder, his/her Affiliates and/or Associated Entities will exceed the aggregation limit in any service area, must forfeit bids on all licences in this service area. The forfeiture penalties discussed in Section 9.3 will apply. Note that forfeiture penalties will not apply to FCFS licence holders who divest some of their holdings to meet the 100 MHz aggregation limit.

The spectrum aggregation limit does not prevent trading on the secondary market during the first two years, as long as the 100 MHz to a single holder (Affiliates and Associated Entities) is not exceeded.

9.6 Issuance of Licences

Provisional winners of spectrum licences will have those licences issued to them on completion of the following: (1) payment of the sum of their standing high bids and the sum of their penalties, if any; and (2) a determination by the Department that the Canadian ownership and control requirements have been met. Depending on the complexity of the provisional winners' ownership and control structures and the responsiveness of the winners in providing any required additional documentation, this determination may take several months to complete.

9.7 Post-Auction Licensing Procedures

Thirty days following the auction, licences which receive little or no bidding activity during the auction, and remain unsold at the close of the auction may be made available on a First-Come, First-Served (FCFS) basis. Licences that received significant bidding activity but remain unsold at the auction's close (e.g. withdrawn bids) or are not sold due to bid forfeitures (see Section 9.3), may be made available via a future re-auction.

The FCFS post-auction licences will have similar attributes and conditions as the licences available during the auction. Specifically, they will be issued for a 10 year term and with the exception of the eligibility criteria (see Section 9.7.1), will carry the same terms and conditions as the auctioned licences. The Department will make the FCFS spectrum available for licensing by grid cell 18, as well as by Tier 4 service area. The transition for the displacement of incumbents outlined in Appendix 3 will apply to spectrum licences issued on a FCFS process and also to the licences issued before the auction.

9.7.1 Eligibility

The licensee must be eligible to become a radiocommunication carrier as described in section 10(2) of the Radiocommunication Regulations 19, a radiocommunication service provider, or a radiocommunication user, as described in section 9 of the Radiocommunication Regulations. 20 Radiocommunication carriers 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 the licensee's knowledge. For more information, refer to Client Procedures Circular 2-0-15, Canadian Ownership and Control (CPC-2-0-15).

9.7.2 Procedure

A Client Procedures Circular (CPC) will also be published outlining the details of the FCFS process. The licence fees for Tier 4 and grid cell licences having a 10 year term, will be provided at a later date with the issuance of a fee order. The Department expects that licence fees will be equal to the opening bids of the auction.

Issued under the Authority
of the Radiocommunication Act

September 20, 2003



________________________________
Jan Skora
Director General
Radiocommunication and Broadcasting
Regulatory Branch


Footnotes

13 As per subsection 5(1.3) of the Radiocommunication Act.

14 Suppose that a bid of $100,000 was withdrawn on licence X during the auction and that no new bids were placed on that licence thereafter. The ultimate selling price of licence X will not be known until a subsequent licensing process and hence the value of the withdrawal penalty cannot be calculated until that time. The full value of the widthdrawn bid, $100,000, would be used as the interim proxy withdrawal penalty until a subsequent licensing process.

15 If a subsequent licensing process results in the calculated values of final withdrawal penalties being different from the interim proxy values, then the difference will be refunded to the bidders in question.

16 Suppose that a bid of $1,000,000 was forfeited on licence X after the auction. The ultimate selling price of licence X will not be known until a subsequent licensing process and hence the value of the forfeiture penalty cannot be calculated until that time. The full value of the forfeited bid plus 3% ($1,030,000 in this example) would be used as the interim proxy forfeiture penalty until a subsequent licensing process.

17 If a subsequent licensing process results in the calculated values of final forfeiture penalties being different from the interim proxy values, then the difference will be refunded to the bidders in question.

18 Spectrum grid cells are six-sided figures with an area of 25 km2 that fit together in an interlocking pattern over the geography of Canada

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

20 The Radiocommunication Regulations defines a radiocommunication service provider as "a person, including a radiocommunication carrier, who operates radio apparatus used by that person or another person to provide radiocummnunication services for compensation" and a radiocommunication user as "a person who operates radio apparatus for personal or government use or for a business other than the business of a radiocummunication service provider"


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