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

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 PriceFootnote 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:

Table 1: Reserve Prices
Block Frequency Band Amount of Spectrum Reserve Price
(10-year Licence)
A 849-850.5/894-895.5 MHz 3 MHz $1,700,000
B 850.5-851/895.5-896 MHz 1 MHz $400,000
A+B 849-851/894-896 MHz 4 MHz $2,100,000

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.

The Department seeks comments on the reserve prices and on whether the names of the qualified bidders and/or the deposit amounts should be made public prior to the submission of sealed bids.

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.

Table 2
Licence Reserve Price ($) Bidder 1's Bid ($) Bidder 2's Bid ($) Bidder 3's Bid ($)
A 90 90 115  
B 10 12    
A + B 100 120   110

(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).

Table 3
Licence Reserve Price ($) Bidder 1's Bid ($) Bidder 2's Bid ($)
A 90 130  
B 10    
A + B 100   125

(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.

Table 4
Licence Reserve Price ($) Bidder 1's
Bid ($)
Bidder 2's
Bid ($)
Bidder 3's
Bid ($)
Bidder 4's
Bid ($)
A 90       100
B 10   20    
A + B 100 120   110  

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.

The Department seeks comments on the proposed auction process for the Air-Ground Services band.

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.

The Department seeks comments on the post-auction process for unassigned licences for the Air-Ground Services spectrum.

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

Incumbent Licences
Licensee Latitude Longitude Station Location Transmit
Frequency
Receive
Frequency
NATIONAL DEFENCE HEADQUARTERS 812121 742806 Victor, NU 895.9 934.7
NS Dept of Transportation & PW 460327 602710 Rear Boisdale, NS 895.9 934.7
Northwestel Inc. 605325 1284747 Murray, YT 895.9 934.7
TÉLÉBEC S.E.C. (Pierrette Brazeau) 492715 781926 Joutel, QC 895.9 934.7
           
NATIONAL DEFENCE HEADQUARTERS 810234 765628 Whiskey, NU 934.7 895.9
Northwestel Inc. 612334 1280946 Tyers, YT 934.7 895.9
NS Dept of Transportation & ; PW 463550 602348 Cape Smokey, NS 934.7 895.9
TÉLÉBEC S.E.C. (Pierrette Brazeau) 494901 785705 Brouillan, QC 934.7 895.9

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