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

10. Amendments and Supplements and Clarification Questions to the Policy and Licensing Procedures for the Auction of Spectrum Licences in the 2300 MHz and 3500 MHz Bands

10.4 Licence Conditions

10.4.1 Responses to Clarification Questions Related to Licence Transferability and Divisibility

Question 22:

"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." (Reference Section 6.2.)

Provide details as to this planned consultation including timing and whether this will be completed before the commencement of the auction.

Answer:

The Department intends to consult on a proposal wherein holders of spectrum licences that have transferability and divisibility privileges would be able to enter into lease-type arrangements with respect to their spectrum-usage privileges.

The consultation paper is expected to be released in the next few months, but it is not anticipated that the consultation will be completed prior to the commencement of the auction. However the Department will consider granting an interim authority for lease-type arrangements on a case-by-case basis. Any interim authorities would be subject to the outcome of the consultation.

Question 23:

"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.

  1. Please advise whether spectrum leases/sub-leases and other non-ownership arrangements will be permitted.
  2. Comment on whether it would be possible for a firm already holding 100 MHz of spectrum to enter into a non-ownership arrangement for additional spectrum (leases, third party arrangements, etc.). If not, please advise as to the mechanisms that will be implemented to detect and prevent this and the penalties assessed if it does occur.

Answer:

As noted above in the response to Question 22, the Department intends to consult on a proposal wherein holders of spectrum licences with transferability and divisibility privileges would be granted further flexibility to enter into lease-type arrangements with respect to their spectrum-usage privileges. The Department is considering whether this will apply to this licensing process and future licensing processes.

If the Department's proposal is implemented, it is anticipated that any company gaining access to spectrum either through a lease-type arrangement, a transfer or other third party arrangement, would be required to be in compliance with any Canadian ownership and control requirements and/or spectrum aggregation limits that apply to the licence. It is also anticipated that the same mechanisms which are in place for ensuring compliance and the same penalties for non-compliance will apply to both the primary licensee and any subordinate licensee associated with that licence.

10.4.2 Responses to Clarification Questions Related to Radio Installation

Question 24:

"...prior to installation of significant antenna structures, consultation with the appropriate land-use authorities has taken place. 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...:

Provide details on the maximum time required by the Department for this referenced "review". (Reference Section 6.6.)

Answer:

Industry Canada has recently undertaken a review of its antenna tower policy and siting procedures. As part of this review, the Department anticipates an update of Client Procedures Circular 2-0-03 Environmental Process, Radiofrequency Fields and Land-use Consultation (CPC-2-0-03). The current version of CPC-2-0-03 states:

"When Industry Canada becomes aware of a land-use authority objection to a site-specific station, issuance of the licence will be delayed for a period of time sufficient for negotiations between the parties. While individual circumstances will vary, Industry Canada generally considers that once a participating land-use authority is contacted, it should make its views known to the applicant within 60 days. Further, the consultation process should be completed within 120 days."

Bidders are reminded that the current antenna tower policy is the subject of a review and these time limits may change.

10.4.3 Responses to Clarification Questions Related to the Spectrum Aggregation Limit

Question 25:

Does the 100 MHz spectrum aggregation limit pertain to the combined total spectrum held in the two bands or to the total spectrum held in each band?

Answer:

The spectrum aggregation limit of 100 MHz per service area will apply to the combined total spectrum held in the two bands. 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.

Question 26:

Please confirm our understanding, pursuant to section 3.4 of the Policy, that the spectrum aggregation limit will apply on a service area basis?

Answer:

The spectrum aggregation limit will apply on a service area basis. The service areas in the auction are Tier 4 service areas and post-auction may be Tier 4 or on a grid cell basis.

10.4.4 Responses to Clarification Questions Related to Research and Development

Question 27:

Will the "Small Business" determination be made for an individual licensee, or will it also include that licensee's affiliates, or individual members of a bidding association/consortium? (Reference Section 6.12.)

Answer:

As outlined in Section 6.12 of the Policy, the Department has decided that licensees that are small businesses with less than $5 million in annual gross operating revenues will not be required to meet the R&D expenditure requirement. The combined annual gross operating revenues of the entity, its Affiliates and/or any Associated Entities will be included in determining whether the small business definition applies.

10.4.5 Responses to Clarification Questions Related to Implementation of Spectrum Usage

Question 28:

Does the Department intend to reward those licensees that have not adequately utilized their licensed spectrum by granting them "landlord" rights? (Reference Section 6.13.)

Answer:

Spectrum is a public resource which should be used in ways that serve the public interest.  As outlined in Section 6.13, in the event that spectrum obtained in the auction of the 2300 MHz and 3500 MHz bands has not been put to use within five years of the receipt of the licence(s), the Department may begin a suspension or revocation process to afford the licensee the opportunity to demonstrate why its licence should not be revoked or suspended.

Question 29:

"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 license renewal." (Reference Section 6.13.)

Given that the license renewal occurs 5 years after the initial 5 year implementation requirement, is the above noted statement to suggest that non-compliance with this section and revocation of the licence may only occur or could occur at the end of the 10 year licensing period?

Answer:

In Section 6.13 of the Policy, the Department outlines the implementation requirements for spectrum licenses obtained in the auction. Licensees are 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). 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 or suspended. The timing of such a review is left to the discretion of the Department. In addition, 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.

The following questions are closely related and will be answered together.

The following questions relate to Section 4 – Overview of Attributes of 2300 MHz and 3500 MHz Licenses.

"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."

Question 30:

In the event that the spectrum is used for transport, or point to point applications, advise as to the measurements that the Department will use with respect to determining whether the implementation requirement has been met.

Question 31:

Please advise of the process for conducting this evaluation.

Question 32:

When will this evaluation take place?

Question 33:

Please advise as to the penalties for non-compliance.

Question 34:

Please advise whether parties will be provided an opportunity to correct any short comings in this area. If so, what period of time will be provided?

Question 35:

Advise whether the compliance review process will be public. If not, why not?

Answer:

As described in Section 6.13 of the Policy, 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). For example, the establishment of coverage to 50% of population within the service area, or some other indicator of usage that is acceptable to the Department, will be required.

The evaluation of other indicators acceptable to the Department for other technologies such as point-to-point transport will be done on a case-by-case basis. In the event that spectrum obtained in this auction process 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. At the discretion of the Department, opportunity will generally be provided for licensees to correct short comings in this area. It should be noted that while the compliance review process is not public, the results of such a review may be made public.

10.5 Licensing Process

10.5.1 Financial Deposits

It has been brought to the Department's attention that the current calculation of the financial deposit (under Section 7.3.1 of the Policy) is not in keeping with the Department's objective to not disadvantage those applicants who may only be interested in obtaining spectrum in a few areas. As such, please note the replacement of:

"Therefore, the Department has decided that the financial deposit will be equal to $500 per eligibility point for the first forty (40) points and $3,000 per eligibility point requested thereafter."

"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."

10.5.2 Participation in the Auction

Under Section 7.2 of the Policy, the Department outlines the participation in the auction by Affiliated and Associated entities. Specifically, it should 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. 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.

In addition to the information provided in the Policy, please note that if more than one Affiliated and Associated entity apply for the same service area(s), the Department will provide the entities a period of five days within which to notify the Department which one of them will participate in that service area(s). If the entities fail to notify the Department within the period specified, then the Department will qualify only the bidder that otherwise satisfies all bidder qualifications and that submitted the largest financial deposit.

10.5.3 Responses to Clarification Questions Related to Participation in the Auction

Question 36:

Can an unincorporated group or association of Canadian companies bid as a single entity?  Will the 100 MHz cap apply to each member individually or to the association or group as a whole? What other conditions would apply to such a group?

Answer:

A joint venture or partnership of Canadian companies can bid as a single entity. However, as outlined in Section 7.2, 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. Only one member of an Affiliate or Associated Entity will be permitted to become a qualified bidder in the same service area. 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.

The 100 MHz spectrum aggregation limit jointly applies to all Associated Entities and Affiliates, per service area. Given that only one member of an Associated Entity or Affiliate will be permitted to become a qualified bidder in the same service area, the 100 MHz aggregation limit will apply to that member for that service area. Other Affiliates or Associated Entities will not be permitted to become qualified bidders in that service area, therefore the application of the aggregation limit is not relevant.

Question 37:

"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". (Reference Section 7.2.2)

Please clarify:

  1. That this condition applies from the application deadline until the deadline for final payment on high bids.
  2. That this condition will continue to apply even if the start of the auction is postponed after the application date has passed.
  3. That all entities involved in the association will be disqualified, rather than a sufficient subset of the entities such that the remaining entities are no longer associated.

Answer:

As outlined in Section 7.2.2 of the 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.

This condition applies from the application deadline until the deadline for final payment on high bids and will continue to apply even if the start of the auction is postponed after the application date has passed. Should changes be made after the application deadline which create an Association with another applicant, the applicant(s), and all associated entities, who have formed such an association will be disqualified from participating in the auction.

Question 38:

Please confirm our understanding, pursuant to section 7.2 of the Policy, that alternate members of an Affiliated Relationship or Associated Entity would be eligible to apply to participate in the auction in alternate service areas?

Answer:

Yes, alternate members of an Affiliate or Associated Entity will be eligible to apply to participate in the auction in alternate service areas. As outlined in Section 7.2, only one member of an Affiliate or Associated Entity will be permitted to become a qualified bidder in the same service area. Affiliates and Associated Entities must decide prior to the application deadline which entity will apply to participate in specific service areas in the auction. Therefore, alternate members of an Affiliate or Associated Entity are eligible to apply to participate in the auction as long as they are not applying for the same areas.

Question 39:

Please confirm our understanding, pursuant to section 7.2.2 of the Policy, that for the purposes of the Policy the "Associated Entity" relationship is determined solely with regard to the 2300 MHz and 3500 MHz licences being auctioned or relating to the post-auction market structure for the 2300 MHz and 3500 MHz bands?

Answer:

Yes, the Department has defined "Associated Entity" in Section 7.2.2 of the Policy for the 2300 MHz and 3500 MHz auction. For the purposes of the 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. It should be noted that a similar definition was used for the PCS auction and that a similar definition may be used for other licensing processes.

10.5.4 Responses to Clarification Questions Related to Submissions

Question 40:

It is indicated that the department reserves the right to request additional financial deposits during the auction. (Reference Section 7.3.1.)

  1. Identify all circumstances under which the Department would exercise this right.
  2. Explain what will occur if the bidder is unable to comply with the request for additional deposits within the 2 full business day limit prescribed by the Department.

Answer:

The Department reserves the right to use its discretion when requesting additional financial deposits during the auction. The Department will ensure that bidders are notified, should additional financial deposits be required, as quickly as possible.

If the bidder is unable to comply with the Department's request for additional financial deposits, the bidder will not be permitted to continue bidding. The bidder will be fully responsible for their high bids on any licence(s) and any penalties that they may have incurred.

Question 41:

Please describe all circumstances under which the Department would accept applications and associated documentation after the revised deadline of November 24, 2003. (Reference Section 7.3.3.)

Answer:

Please note that the deadline for receipt of applications (and financial deposits) to participate in the auction has been extended to December 8, 2003. As outlined in Section 7.3.3 of the Policy, the Department reserves the right, but only under exceptional circumstances, to accept applications and associated documentation after the deadline, but prior to publication of the list of applicants. The Department will exercise its discretion in determining whether or not such an application will be accepted.

Question 42:

Advise whether the Department could change the date of the auction start after financial deposits are submitted on November 24, 2003.

  1. If so, advise whether the financial deposits would be returned to the applicants and then applicants would then be asked to resubmit at a date closer to the start.
  2. If not, what financial compensation will be made to the applicants in terms of interest payments?
  3. What is the maximum period of time that would elapse between submission of deposit and the start of the auction?

Answer:

Yes, the Department has the right to change the date of the auction after the financial deposits have been submitted on December 8, 2003.

It is unlikely that the Department would return the financial deposits in the event of a delay in the auction, however, the length of the delay would be taken into consideration by the Department.

The Department would not provide any financial compensation to the applicants in terms of interest payments in the event of a delay in the auction.

The Department is unable to provide specifics on the maximum period of time between the submission of a deposit and the start of the auction, however typically this time is less than three months.

Question 43:

Will the Department provide interest payments to the successful bidder for the period of time between the payment of the fees and actual receipt of the spectrum licence?

Answer:

The Department will not provide interest payments to the successful bidder for the period of time between the payment of the fees and actual receipt of the spectrum licence. As outlined in Section 9.6 of the Policy, "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." This determination may take several months to complete, depending on the complexity of the provisional winners' ownership and control structures and the responsiveness of the winners in providing any required additional documentation.

Question 44:

Please advise exactly what information will be made publicly available regarding the following:

  1. The ownership structure of applicants, including the identity of any significant shareholders and, where the immediate shareholders are holding companies, the ownership structure of the holding companies;
  2. Any agreements between applicants and other entities regarding the possible transfer or use of a licence (whether by sale or lease or any other mechanism) after the auction;
  3. The identity of any bidders that have been designated as 'affiliates' or 'associated bidders' and
  4. The reasons why particular bidders have been designated as 'affiliates' or 'associated bidders'.

When will this information be released? (Reference Section 7.2.2/3.)

Answer:

  1. As outlined in Section 7.3 of the Policy, 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 the 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. The relationships will be disclosed to other bidders and made public at the time that the list of qualified bidders is posted on the Spectrum Management and Telecommunications Web site.
  2. Agreements between applicants and other entities regarding the possible or actual transfer or use of a licence after the auction will not be publicly available. However, as outlined in Section 6.2 of the Policy, the Department will maintain a publicly accessible database listing all auctioned licences and respective licensees. The Department will update the database upon a licence transfer, and, in the event that the Department introduces spectrum leasing, any leasing arrangements.
  3. The Department believes that bidders should have knowledge of the real identity of the other bidders, as well as any Affiliate or Associated Entity relationships that may exist, in order that the auction remains an open and fair process. Therefore, once the Department has reviewed the documentation submitted by applicants, and has identified those entities that have Affiliate or Associated Entity relationships, this information will be disclosed to other bidders and to the public, at the time that the list of qualified bidders is posted on the Spectrum Management and Telecommunications Web site.
  4. As outlined in Section 7.2 of the Policy, 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. As further detailed in Section 7.2.1 the Department defines an Affiliate, for the purposes of this policy, to mean a person who controls the entity, 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. In Section 7.2.2 the Department defines Associated Entities as 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. The Department will use the above definitions in determining whether or not an Affiliate or Associated Entity relationship exists. The Department will disclose entities that are Associated Entities and Affiliates, but will not identify why particular bidders have been designated as such.

Question 45:

Please confirm our understanding, pursuant to section 7.3.1 and Appendix 4 of the Policy, that applicants are not required to identify, in their application to participate in the auction, the specific service areas for which they intend to bid for licences?

Answer:

Applicants are not required to identify the specific service areas for which they intend to bid in their application to participate in the auction, unless they and one of their Affiliates or Associated Entities are bidding in the auction. As described in Section 7.2 of the Policy, only one member of an Affiliate or Associated Entity will be permitted to become a qualified bidder in the same service area. The Department must be notified in writing at the time of application which specific Tier 4 service areas each member of an Affiliate or Associated Entity will apply to bid on.

As outlined is Section 8.3 of the Policy "each of the 848 licences have been assigned a specific number of eligibility points ("points") that are approximately proportionate to the population covered by the licence. In their application each applicant must indicate, the total number of "points worth" of licences on which they wish to bid in any round. This number defines the initial level of bidder eligibility points of an applicant and is also used to determine the financial deposit that must be submitted with the application. Bidder eligibility points may not be increased."

Question 46:

Will the Department publish a list of Affiliates and Associate Entities? If so, please advise when.  (Reference Section 7.2.2/3).

Answer:

The Department believes that bidders should have knowledge of the real identity of the other bidders, as well as any Affiliate or Associated Entity relationships that may exist, in order that the auction remains an open and fair process. Once the Department has reviewed the documentation submitted by applicants, and has identified those entities that have Affiliate or Associated Entity relationships, the relationships will be disclosed to other bidders, and to the public, at the time that the list of qualified bidders is posted on the Spectrum Management and Telecommunications Web site.

10.5.5 Responses to Clarification Questions Related to Qualified Bidders

Question 47:

'Qualified Bidders' may participate in Mock Auctions and a WebCast presentation. (Reference Section 7.4.)

What restrictions will there be on participation in these events by representatives of the Qualified Bidders?

Answer:

As defined in Section 7.4 of the Policy, qualified bidders are applicants who have submitted acceptable application materials. As described in Section 8.12 of the Policy, applicants are requested to designate up to three individuals who will have the authority to place bids on behalf of the applicant. The Department encourages all designated bidders to participate in the mock auction. Mock auctions will be run exclusively for qualified bidders to allow bidders to better familiarize themselves with the auction system.

The Department is planning to provide on-line, on-demand audio/video Internet streaming presentations (Webcasts) to further explain the licensing policies and procedures. These presentations will be made available to the public at large.

10.5.6 Responses to Clarification Questions Related to the Publication of the Amendments and Supplements

Question 48:

"...bidders may submit written questions." (Reference Section 7.7)
Please clarify whether:

  1. the identity of entities submitting questions will be released;
  2. whether the identity of the authors of specific questions will be identified;
  3. whether questions will be published in the order submitted, or rearranged under subject headings.

Answer:

While the Department does not intend to publish the identity of the authors of the questions, requests for such information will be subject to the Access to Information Act and the Privacy Act.

The written questions, and their answers, are grouped into like subjects and may be answered either individually or as a group.


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