Spectrum Utilization Policy and Consultation on a Framework to Auction Spectrum in the Bands 849–851 MHz and 894–896 MHz or Air-Ground Services

November 2008

Contents

Intent

The following paper is divided into two parts. Part A outlines decisions resulting from the 2006 consultation process published in Canada Gazette Notice DGTP-011-06, Consultation on Air-to-Ground Services in the Bands 849-851 MHz and 894-896 MHz, and announces changes to Industry Canada's policy on the use of air-ground spectrum in these bands and the band plan.

Part B of this document proposes an auction licensing process for Air-Ground Services in the bands 849-851 MHz and 894-896 MHz, and provides an opportunity for interested parties to comment on this process, as well as technical and operational considerations and licence conditions.

Background

In October 2006, Industry Canada released a consultation paper through Canada Gazette Notice DGTP-011-06 (hereafter referenced as "the consultation") proposing policy and regulatory changes for the above-mentioned frequency bands in order to permit the provision of new enhanced Air-Ground^{Footnote 1} Services, taking into account the benefits of regional harmonization.

In its consultation, the Department noted that its technical requirements were established in Telecommunications Regulation Circular 81.^{Footnote 2} It was further noted that the frequency sharing conditions in border areas with the United States were established in a cross-border sharing arrangement (TRAA)^{Footnote 3} between Industry Canada and the U.S. Federal Communications Commission (FCC).

The Department received only one response to the consultation. The comments generally supported the proposed policy modifications, including band plan and technical requirements.

Part A: Allocation, Designation and Utilization of the Various Bands to be Licensed

Having received no submissions suggesting substantial change to its proposed policy modifications, Industry Canada hereby announces its decision to adopt all of the policy changes proposed in the above-mentioned consultation.

1. Allocation and Band Plan

As per footnote 5.318 to the Canadian Table of Frequency Allocations, the bands 849-851 MHz and 894-896 MHz are allocated to the aeronautical mobile service on a primary basis, for public correspondence with aircraft.

The current band plan was designed to support analog modulation and the transfer of data using modems operating at low speeds, which was the technology available in the late 1980s. The band plan design included a precise channelling plan with communication and control channels, as well as guard bands. Although the total amount of spectrum available in the bands 849-851 MHz and 894-896 MHz can support new digital technologies to provide broadband services, the current band plan designation focuses on the provision of telephony services through interconnection to the terrestrial public switched telephone network.

More recent band planning has moved away from a technically prescriptive approach. Instead, only minimum technical requirements necessary for the adequate management of interference between allocated bands are prescribed. This has provided the flexibility needed by service providers when choosing equipment and planning their networks. In considering the future of this spectrum, Industry Canada is of the view that there is a need to accommodate new technologies for applications requiring high data rates such as Internet access.

The use of a regionally harmonized band plan in Canada and the United States has historically proven to be advantageous for airline travellers, permitting them to place aircraft telephone calls over the North American continent.

The Department notes that the United States has modified its band plan to enable the provision of broadband services. This plan includes a wider 1.5 + 1.5 MHz block pair and a narrower 0.5 + 0.5 MHz block pair as follows:

Figure 1 — Industry Canada's mission and mandate

Both block pairs are expected to accommodate an array of spectrally efficient digital technologies. The adoption of such a band plan in Canada supports the provision of enhanced services, fosters interoperability and continues to yield the benefits of regional harmonization.

2. Block Licences

The proposed new band plan provides for two block pairs. Given the new focus on broadband services and the network design needs, it is appropriate to make the spectrum available as one licence per block pair on a national basis.

3. Spectrum Aggregation Limit

Comments received indicated that Industry Canada should reserve its determination as to whether a spectrum aggregation restriction should be adopted in Canada until after the Department has sought expressions of interest for each of the block pairs.

However, the Department believes that interest in the air-ground market will be limited in scope and size, relative to the United States, and that alternatives exist (e.g. satellite), such that the application of an aggregation limit is not warranted in this case.

4. Transition Plan

In Canada Gazette Notice DGTP-011-06 of October 20, 2006, Consultation on Air-to-Ground Services in the Bands 849-851 MHz and 894-896 MHz, the Department proposed a transition plan whereby the incumbent air-to-ground licensee would be directed to terminate transmissions in the bands 849-850.5 MHz and 894-895.5 MHz by June 30, 2008. As part of this transition period, the Department also proposed to award a licence to the incumbent air-to-ground licensee for the sole purpose of continuing to provide service to existing customers in the bands 850.5-851 MHz and 895.5-896 MHz during the transition. The existing air-to-ground incumbent indicated that no interim measures or transition processes were needed, as the service had been discontinued and the licences were subsequently cancelled. At the time of licensing the analog air-to-ground systems in 1990, a transition policy was developed to deal with the fixed systems that were in the band.

The Department notes that there are still some fixed systems in the band, located mostly in rural areas. The transition policy provisions will continue to apply to these fixed systems, and the Department will treat any remaining fixed systems as non-standard in accordance with the provisions of SP-Gen - General Information Related to Spectrum Utilization and Radio Systems Policies. These fixed systems would not be displaced unless they prevent the deployment of new air-to-ground systems. The locations of these fixed licences can be found in Annex A.

5. International Coordination

Licensees must respect the ITU's Radio Regulations pertaining to the bands 849-851 MHz and 894-896 MHz, and abide by any future agreements established with other countries.

In the current layout of base stations, the ground station locations and channel block assignments are predetermined in order to promote interoperability and to manage interference. These locations and assignments were consistent with a cross-border arrangement between the FCC and Industry Canada, which allowed equitable access to the spectrum by both countries. This arrangement ultimately enabled service providers in Canada and the United States to set up networks to provide service with interoperable equipment.

Industry Canada has held discussions with the FCC to update the existing arrangement, with a view to enabling efficient spectrum use of the band, while ensuring equitable access to spectrum in border areas. It is expected that coordination will be carried out by licensees, and licensees will be encouraged to enter into agreements that can facilitate coordination and the reasonable, timely development of their respective systems in the border area. Further details regarding the technical and operational requirements of this new draft of Arrangement N can be found at http://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf08966.html. The draft Arrangement is not binding on the Agencies and is subject to review and possible modification prior to being formally adopted. Consequently, licensees are advised that all stations deployed under the draft Arrangement are subject to compliance with the final provisions, as formally adopted between Canada and the United States.

6. Technical Consideration

6.1 Maximum ERP

In examining the technical and operational limits for this paired band, and in the context of the provision of new broadband services to aircraft using new spectrum-efficient technologies, the Department recognizes that revised power limits may be desirable.

Industry Canada notes that the United States has modified its technical requirements. The Department consulted on regional harmonization and, in order to foster interoperability of systems to create a North American seamless network, the Department suggested adopting technical requirements that are similar to those of the United States. Increased transmitter power to 500 W ERP was proposed for ground stations and reduced transmitter power to 12 W ERP was proposed for airborne stations. It should be noted that a change in technical requirements will require updating or revoking TRC-81.

The Department will establish these technical limits for systems in this paired band in a Standard Radio System Plan (SRSP).

6.2 Further Considerations

Under the Radiocommunication Act, certification of radio apparatus may be required. If the Department decides that this certification is needed, details will be provided at a later date in a Radio Standards Specification document, which will be developed in consultation with the industry.

Part B: Consultation on Licence Conditions and the Licensing Process

1. General Attributes

The following attributes are proposed:

• spectrum licences, which are defined as authorizations "in respect of the utilization of specified radio frequencies within a defined geographic area", as per subparagraph 5(1)(a)(i.1) of the Radiocommunication Act, will be issued;
• a licence term of 10 years, with a high expectation of renewal for subsequent additional terms of up to 10 years each;
• available on a national (Tier 1) basis;
• transferability and divisibility privileges in the secondary market, in accordance with CPC-2-1-23, Licensing Procedure for Spectrum Licences for Terrestrial Services; and
• maximum possible flexibility in determining the technologies that will be employed.

2. Conditions of Licence

The conditions of licence will be clearly stipulated prior to the auction. Industry Canada proposes the following conditions for the Air-Ground Services block licences.

2.1 Licence Term and Renewal

To date, spectrum licences auctioned by Industry Canada have 10-year licence terms.

In the United States, the FCC set the licence term for Air-Ground Services to 10 years, with the possibility of 10-year terms for licence renewal.

The Department is of the view that 10-year licence terms are sufficient and will provide bidders with greater certainty of the period in which they will be able to recover the costs associated with delivering services.

As a result, the Department offers the following proposal for public comment.

The licence will be issued for a 10-year term from the date of issuance. For subsequent terms, the Department will consult two years before the end of the licence term to deal with the specifics of the renewal process, including whether licence fees should apply. The nature and details of the renewal process will be developed through a separate consultation to be initiated by the Department in the context of the Framework for Spectrum Auctions in Canada. The renewal process developed through this consultation may apply to all long-term spectrum licences, including licences obtained through this licensing process.

It should be noted that the licence is subject to relevant provisions in the Radiocommunication Act and the Radiocommunication Regulations. As a result, the Minister has the power, at any time, to amend the terms and conditions of the spectrum licence and to suspend or revoke a radio authorization pursuant to paragraphs 5(1)(b) and 5(2) of the Radiocommunication Act.

2.2 Licence Transferability, Divisibility and Subordinate Licences

The licensee may apply to transfer its licence(s) in whole or in part (divisibility), in both the bandwidth and geographic dimensions. The Department may define a minimum bandwidth and/or geographic dimension (such as the grid cell^{Footnote 4}) to the proposed transfer. Systems involved in such a transfer shall conform to the technical requirements set forth in the applicable standards mentioned in previous sections. It should be noted that geographic divisibility should take into consideration the very large radio signal footprint of aircraft at high altitudes.

A subordinate licence is related to a primary licence and is conditional on the primary licence meeting all regulatory requirements, including the terms and conditions of the licence. Primary licensees may apply to the Department jointly with a third party requesting a subordinate licence. The request would be reviewed and, subject to being satisfied with the application, the Department may approve the request and issue the third party a subordinate licence. The subordinate licence would include a subset of the primary licence conditions, as well as additional terms and conditions that may vary from those on the primary licence. The primary and subordinate licence would be concurrent licences (i.e. they would both exist at the same time).

For more information, refer to Industry Canada's Client Procedure Circular, Licensing Procedure for Spectrum Licences for Terrestrial Services (CPC-2-1-23), available at http://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf01875.html.

2.3 Eligibility Criteria

A licensee that intends to become a radiocommunication carrier must comply on an ongoing basis with the eligibility criteria 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 Industry Canada's Client Procedure Circular, Canadian Ownership and Control (CPC-2-0-15), available at http://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf01763.html.

A licensee that intends to become a radiocommunication service provider or radiocommunication user must comply on an ongoing basis with the eligibility criteria in section 9(1) 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.

2.4 Radio Station Installations

Although site-specific radio licences will not be required for each radio station, licensees must ensure that each aeronautical radio station (ground station) is installed and operated in a manner that complies with Industry Canada's Client Procedures Circular, Radiocommunication and Broadcasting Antenna Systems (CPC-2-0-03), as amended from time to time, and which can be found at http://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf08777.html.

2.5 Provision of Technical Information

When Industry Canada requests technical information on a particular station or network, the information must be provided by the licensee to the Department according to the definitions, criteria, frequency and timelines specified by the Department. For more information, refer to Client Procedures Circular, Licensing Procedure for Spectrum Licences for Terrestrial Services (CPC-2-1-23).

2.6 Compliance with Legislation, Regulations and Other Obligations

Licensees are subject to, and must comply with, the Radiocommunication Act, the Telecommunications Act, the Radiocommunication Regulations and the International Telecommunication Union's Radio Regulations 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. The licensees must use the assigned spectrum in accordance with the Canadian Table of Frequency Allocations and the stated spectrum policy for the provision of air-ground services.

2.7 International and Domestic Coordination

Licensees 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. Although frequency assignments are not subject to site licensing, licensees may be required to furnish all necessary technical data for each relevant site in order to support Canada-U.S. coordination. Should submission of data 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.

2.8 Lawful Intercept

Licensees using spectrum for circuit-switched voice telephony systems must, from the inception of service, provide for and maintain lawful interception capabilities as authorized by law. The requirements for lawful interception capabilities 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 Public Safety Canada and licensees. Licensees may request the Minister of Industry to forbear from enforcing certain assistance capability requirements for a limited period. The Minister, following consultation with Public Safety Canada, may exercise the power to forbear from enforcing a requirement or requirements where, in the opinion of the Minister, the requirement is not reasonably achievable. Requests for forbearance must include specific details and dates indicating when compliance to the requirement 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 Public Safety Canada and the Department of Justice on this initiative and will provide licensees with appropriate guidance until such time as any new legislation is enacted.

2.9 Research and Development (R&D)

All licensees must invest, as a minimum, two percent of their adjusted gross revenues resulting from their operations in this spectrum, averaged over the duration of the licence, in eligible research and development 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. Businesses with less than $5 million in annual gross operating revenues are exempt from these R&D expenditure requirements.

To facilitate compliance with this condition of licence, the licensee should consult Industry Canada's Guidelines for Compliance with the Radio Authorization Condition of Licence Relating to Research and Development (GL-03), which can be found on the Spectrum Management and Telecommunications website at http://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf01638.html.

2.10 Mandatory Antenna Tower and Site Sharing

Licensees operating as radiocommunication carriers must comply with the mandatory antenna tower and site sharing requirements set out in Industry Canada’s Client Procedures Circular, Conditions of Licence for Mandatory Roaming and Antenna Tower and Site Sharing and to Prohibit Exclusive Site Arrangements (CPC-2-0-17), as amended from time to time.

2.11 Annual Reporting

Licensees must submit an annual report for each year of the licence term, indicating continued compliance with all licence conditions and including the following information:

• an update on the implementation of Air-Ground Services, including coverage of civil air routes;
• existing audited financial statements with an accompanying Auditor's Report;
• Statement of Research and Development Expenditures. (Where licensees are claiming an exemption based on an adjusted gross revenue of less than $5 million, supporting financial statements must be provided.); and
• a copy of any existing corporate annual report for the licensee's fiscal year with respect to the authorization.

The reports are to be certified by an authorized officer of the company and submitted, in writing, to Industry Canada at the address below within 120 days of the licensee's fiscal year-end. Where a licensee holds multiple licences, the reports should be broken down by service area. Confidential information provided will be treated in accordance with subsection 20(1) of the Access to Information Act.

Manager, Wireless Networks
Radiocommunications and Broadcasting Regulatory Branch
Industry Canada
300 Slater Street, 15th floor
Ottawa, Ontario
K1A 0C8

3. Licensing Process

As indicated in Canada Gazette Notice No. DGTP-011-06, Consultation on Air-to-Ground Services in the Bands 849-851 MHz and 894-896 MHz, the Department proposed to make this spectrum available using an auction.

A spectrum auction is a market-based tool that allows the government to identify those entities who value the spectrum the most and who will therefore be expected to put that spectrum to the most efficient use. In this context, the Department proposes to use an auction mechanism to assign block licences A and B in the bands 849-851 MHz and 894-896 MHz.

Auctions offer several advantages, such as their ability to promote economically efficient use of spectrum; their openness and objectivity as an assignment mechanism; their procedural efficiency; and their ability to provide fair compensation to the Canadian public for the use of the spectrum resource. Auctions represent a valuable spectrum management tool for those situations where there is excess demand. Auctions also rely on market forces and result in a more timely and efficient assignment of licences than would be possible under alternative licensing procedures.

In its ongoing effort to promote reliance on market forces to provide a timely and efficient assignment of spectrum, the Department has examined various auction models for the assignment of the licences in the 800 MHz band for Air-Ground Services.

In past auctions, Industry Canada has employed the Simultaneous Multiple Round Ascending (SMRA) auction design as the method to offer large numbers of interrelated licences. These auctions were carried out electronically over the Internet, usually over a period of several weeks.

Although the SMRA is an excellent tool when there are a large number of licences, there are only two spectrum licences being offered in the Air-Ground Services. Furthermore, the Department intends to offer the licences such that the bidders will have the option of bidding on the individual licences and/or on both licences as a package. As package bidding is not supported by the Department's SMRA design, and having carefully considered other auction designs, the Department is proposing a simple, expeditious, sealed-bid, second-price auction process, known as a Vickrey auction.

A sealed-bid, second-price auction will require applicants to submit their bid for each licence or package of licences to the Department in a sealed envelope prior to the deadline for submission of bid applications. The day following the bid application deadline, departmental officials will open the sealed bids, rank them, and provisionally award a licence or licences to the highest bidder(s).

The highest bidder will be required to pay the second highest bid or, should there be only one bidder for a particular licence, the posted reserve price.

The auction will be a single-round auction in which there will be no second round. In the event of a tie, tied bidders will be requested to enter a second sealed bid in an attempt to break the tie. Should there be a third tie, bidders will be requested to enter a third sealed bid in an attempt to break the tie and so on until there is no tie.

4. Sealed-Bid, Second-Price Auction Rules

The following outlines the proposed rules that will apply to the sealed-bid, second-price auction process. The majority of the rules are the same as those used by Industry Canada in the previous SMRA auctions, with the main difference being the method of placing bids.

4.1 Submission of the Application and Financial Deposit

To participate in the auction, all applicants must submit a completed application form^{Footnote 5} accompanied by a financial deposit. In order to enhance the integrity of the auction, the Department requires that all bidders participating in this auction submit a financial deposit equal to the Reserve Price^{Footnote 6} of the licence(s) on which they intend to bid. The deposit is to be in the form of an irrevocable standby letter of credit. Instructions will be provided in advance of the auction on the required elements of an irrevocable standby letter of credit. The submission must be physically delivered to Industry Canada's Auction Manager by the due date for submission of applications specified for this licensing process^{Footnote 7}. No applications will be accepted after 5:00 p.m. (EST) on the due date for applications as specified in the timetable for this licensing process.

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 confirm the amount of the deposit (see Section 4.2 Reserve Prices) that has been submitted. This notice does not 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 that 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 Auction Manager by 5:00 p.m. (EST) on the due date for application submission as specified in the timetable for this licensing process.

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 does not mean that the amended form(s) or the additional deposit have been approved.

Financial deposit(s) will be returned to: any applicant not found to be a qualified bidder; any applicant who provides written notification to the Department of its withdrawal from the process as specified in Section 4.4; and any bidder who is not potentially liable for any forfeiture penalties as specified below in Section 4.5.

4.2 Reserve Prices

Industry Canada is of the view that the spectrum being offered in this auction is of significant value. The Department is confident that the revenues generated will cover the relevant spectrum management costs and provide fair compensation to the Canadian public for the use of the spectrum resource for commercial gain. After analyzing the corresponding auction for the Air-Ground Services in the United States, and factoring in the difference between Canadian and U.S. populations and air-travel passenger figures, the Department proposes the following reserve prices:

4.3 Bidder Qualification

Industry Canada will 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 irrevocable standby letters of credit.

Following the initial review period, the Department will provide applicants with an opportunity to correct any errors or inconsistencies in their application or the irrevocable standby letter of credit that have been identified by the Department. 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 Industry Canada's Auction Manager at the address provided in Section 8, 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 that 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 confirmation letter that they are considered a qualified bidder.

4.4 Withdrawal Without Penalty

Applicants wishing to withdraw their application materials and have their irrevocable standby letters of credit withdrawn may do so, without prejudice, by physically delivering a written request to the Auction Manager at the address provided in Section 8, prior to 5:00 p.m. (EST) on the due date for sealed bids.

4.5 Forfeiture Penalties

Following the auction's close, bidders who have submitted the highest bid on a licence but fail to comply with the specified payment schedule as outlined in Section 4.10, or fail to come into compliance with the eligibility requirements of the Radiocommunication Regulations, will forfeit the licence.

Following that, the licence will be offered to the next highest bidder, who will be able to acquire it at the bid price of the third highest bidder or, if there is no third highest bidder, at the reserve price for the licence in question.

The forfeiture penalty will be the difference between the price the first bidder would have paid and the ultimate selling price of the licence in this licensing process, and must be paid by the first bidder. Should this licence not sell during this licensing process, the ultimate selling price will be deemed to be zero.

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 or has expired, then the difference will be owing and payable to the Receiver General for Canada.

Neither a bidder who forfeits on a licence nor any of that bidder's Affiliates and Associated Entities will be eligible to bid on it in any subsequent licensing process for this band.

4.6 Prohibition of Collusion

Applicants are prohibited from cooperating, collaborating, discussing or negotiating settlement agreements with competitors, relating to the licences being auctioned or relating to the post-auction market structure, until after the deadline for the final payment on high bids. The above prohibition also relates to any form of signalling their bid intentions using any means, including the media, until after the deadline for the final payment on high bids.

Prospective bidders should note that the auction application form will contain 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, that 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 licensing process (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.

4.7 Submission of Auction Bids

A completed auction bid form ^{Footnote 8} must be placed in a separate, sealed, non-transparent envelope with only the bidder's name, complete mailing address, email address, and the name of this licensing process clearly identified on the front of the envelope and physically delivered to Industry Canada's Auction Manager by the due date for sealed bids specified for this licensing process. The amount of each bid should reflect the amount the bidder is willing to pay for the associated licence.

No bids will be accepted after 5:00 p.m. (EST) on the due date for sealed bids as specified in the timetable for this licensing process.

4.8 Determination of Provisional Licence Winners

The sealed envelopes will be opened and examined by departmental officials on the day following the due date for the bid submissions, and valid bids will be used to determine the provisional winning bid(s), using the rule that winners pay the bid of the second highest bidder(s). To be considered valid, a bid must be equal to or greater than the reserve price; the bid form must be completed correctly and legibly; and the bid must be submitted by a qualified bidder. Note that, in all instances where there is no second bid, the Reserve Prices noted in Section 4.2 will be considered the second highest bid.

Bids can be made on a package bid of both licences and/or on individual licences. The winning bid will be the greater of either the package or the sum of the individual licences.

If the winning bid is a package bid, the bidder will pay the greater of: (1) the bid of the second highest package; or (2) the sum of bids of the second highest combination.

If the winning bid is based on individual licences, the winning bidder(s) will pay the greater of: (1) the second highest package bid, in proportion to the individual highest bids; or (2) the amount(s) of the second highest bids on individual licences.

To mitigate the possibility of a tie, bidders will be encouraged not to bid in round figures. In the event of a tie, bidders involved in the tie will be requested to enter a second sealed bid in an attempt to break the tie. Should there be a third tie, bidders will be requested to enter a third sealed bid in an attempt to break the tie and so on until there is no tie.

Example(s)

(1) Let us assume there are three bidders (see Table 2). Bidder 1 wishes to win the package but, failing that, still wants the opportunity to win a single licence so submits three bids: $90 for licence A, $12 for licence B and $120 for a package of both licences. Bidder 2 submits one bid of $115 for licence A, and Bidder 3 submits one bid of $110 for a package of both licences. In this case, Bidder 1's package bid of $120 is greater then Bidder 3's package bid of $110, but the sum of Bidder 2's bid for the A licence and Bidder 1's bid for the B licence with total bids of $127 ($115 + $12) wins. Bidders 1 and 2 would pay the next highest bid ($120) proportionately (i.e. Bidder 2 would pay $108.66 ($115 / $127 x $120) and Bidder 1 would pay $11.34 ($12 / $127 x $120).

Note: If the proportion of the next highest bid is less than the reserve price, the payment for that bidder is set at the reserve price and the payment on the other licence will be adjusted so that the sum will equal the next highest bid of the package.

If there is a single bid for a particular licence and a package bid, and the single bid is greater than the package bid, the single bidder will pay the package bid minus the reserve price of the other licence, and this licence will remain unassigned.

(2) Bidder 1 submits one bid of $130 for licence A, and Bidder 2 submits one bid of $125 for a package of two licences (see Table 3). The reserve price for licences A and B are $90 and $10 respectively. Bidder 1 pays $115 ($125 minus the $10 reserve price for the B licence, which remains unsold).

(3) Bidder 1 submits one bid of $120 for the package, Bidder 2 submits one bid of $20 for licence B, Bidder 3 submits one bid of $110 for the package, and Bidder 4 submits one bid of $100 for licence A (see Table 4). Bidder 1's bid beats Bidder 3's package bid, but ties with the sum of bids placed by Bidders 2 and 4, so Bidders 1, 2 and 4 are asked to re-bid.

Should there be a second tie, bidders will be requested to enter a second sealed bid in an attempt to break the tie and so on until there is no tie.

On the day of the determination of the provisional licence winners, the Department will publish the names of all bidders, their deposits and bid amounts, the name of the provisional licence winners and the licence(s), if any, that did not receive bids on Industry Canada's website. The Department will notify the provisional winning bidder(s) and inform them of any additional payment, over and above their original deposit, that is due within 10 days.

The auction will be considered closed upon publication of the notification of the provisional winning bidder(s).

4.9 Eligibility Documentation

Bidders who are declared provisional licence winners will be required to submit documentation related to their compliance with licence condition 2.3 Eligibility Criteria of this document. Documentation must be submitted by the provisional winners within 10 business days of being notified that they are the winning bidders.

Provisional licence winners who intend to operate as radiocommunication carriers (as defined in the Radiocommunication Regulations, January 2002) must comply on an ongoing basis with the Canadian ownership and control requirements of section 10(2) of the Radiocommunication Regulations, and will be required to submit documentation related to their compliance with the eligibility criteria. Provisional licence winners must submit The Declaration of Ownership and Control for Provisional Winners of Spectrum Licences in the Bands 849-851 MHz and 894-896 MHz for Air-Ground Services (to be provided to qualified bidders in advance of the auction).

Provisional licence winners who intend to operate as a radiocommunication service provider or a radiocommunication user (as defined in the Radiocommunication Regulations, January 2002) must comply on an ongoing basis with the eligibility criteria in section 9(1) of the Radiocommunication Regulations, and will be required to submit documentation related to their compliance with the eligibility criteria (e.g. certificate of incorporation).

Industry Canada will review these documents expeditiously. The Department will then notify each provisional winner regarding compliance with the eligibility requirements. In the event that a provisional licence winner does not, in the opinion of the Department, comply with the eligibility requirements, the Department will require that the provisional licence winner make changes in order to become compliant. At any point in time, the Department may formally notify a provisional winner that outstanding documents be provided within 60 days. This would normally transpire only if a significant period of time has passed since the close of the auction. If the provisional winner fails to comply within 60 days following a formal notification by the Department, the provisional winner may be deemed ineligible to hold a licence. In such a case, licences will not be issued and the provisional winner would also be subject to the penalties outlined in Section 4.5.

4.10 Bid Payment

Within 10 business days following the close of the auction, each licence winner will be required to submit payment in full (100 percent) for all the licences provisionally won. Failure by the winning bidder to make this final payment in a timely fashion will result in the licence not being issued and the bidder will be subject to the applicable forfeiture penalty (see Section 4.5 Forfeiture Penalties).

4.11 Issuance of Licences

Industry Canada will issue spectrum licences to provisional winners upon completion of the following: (1) payment of the sum of their bids and the sum of their penalties, if any; and (2) a determination by the Department that the eligibility requirements have been met. If a Canadian Ownership and Control review is required, 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.

5. Post-auction Process for Unassigned Licences

A licence that does not receive a bid either as an individual licence or as part of a package will remain unassigned. A licence that does not receive an individual bid but is part of a non-winning package will remain unassigned.

The Department may consider making any unassigned licences available for licensing through an alternative process, which could include a re-auction at a later date following the close of the auction. The timing and form of such a process will depend on the demand for the available licences and will be preceded by a consultation process.

6. Consultation Process

Instructions for submitting comments can be found in Canada Gazette Notice DGRB-004-08. After having reviewed all the input received, the Minister of Industry will make final policy decisions. A notice will be published in the Canada Gazette announcing the availability of the call for applications.

7. Submitting Comments

7.1 Instructions for Filing

The instructions for filing comments are provided in Canada Gazette Notice DGRB-004-08.

7.2 Public Access

All submissions received in response to this consultation paper will be made available for viewing on the Spectrum Management and Telecommunications website, soon after the qualification of winning bidders, at the following address: http://www.ic.gc.ca/spectrum.

8. Further Information

All spectrum-related documents referred to in this paper are available on the Spectrum Management and Telecommunications website at http://www.ic.gc.ca/spectrum.

For further information concerning the process outlined in this document or related matters, contact:

Manager, Spectrum Auctions
Radiocommunications and Broadcasting Regulatory Branch
Industry Canada
300 Slater Street, 15th floor
Ottawa, Ontario
K1A 0C8

Telephone: 613-998-9707
Fax: 613-991-3514
E-mail: ic.spectrumauctions-encheresduspectre.ic@canada.ca

Annex A – Incumbent Licences