PCS-2 GHz - Consultation on the Proposed Policy and Licensing Procedures for the Auction of Additional PCS Spectrum in the 2 GHz Frequency Range

8. Financial Aspects

8.1 Opening Bids

The Department believes that the spectrum being offered in this auction has a significant value and 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 their spectrum resource. Therefore, the establishment of irreducible reserve prices is likely unnecessary. In order to "kick-start" the auction and avoid unnecessary delays in ultimately assigning licences, however, the Department proposes to establish minimum opening bids. These opening bids are conceptually linked to the revenue generated by licences for similar spectrum in the 800 MHz cellular and 2 GHz PCS bands. The Department has calculated an estimate of the total amount of licence fees which the 'C' and 'E' blocks would provide over the licence term if they were licensed by traditional means.

Opening bids are proportional to the bidder eligibility points³² associated with each licence. Bidder eligibility points are related to the population and bandwidth covered by a licence. As discussed in section 4.3.2, if sub-national licences are to be offered, the Department proposes to use Tier 2 service areas. Table 2 below provides a list of the Tier 2 service areas and their population, eligibility points, and opening bids. For each spectrum block of 10 MHz, a population of approximately 100,000 corresponds to 1 point. Opening bids have been calculated at $100,000 per point.

Table 2 - Proposed Opening Bids

Licence	Service Area	Population	Points	10 MHz
2-01	Newfoundland/Terre-Neuve & Labrador	551,792	5	$500,000
2-02	Nova Scotia & P.E.I./Nouvelle-Écosse & Î.-P.-É.	1,043,839	10	$1,000,000
2-03	New Brunswick/Nouveau-Brunswick	738,133	10	$1,000,000
2-04	Eastern Quebec/Québec-Est	1,609,690	15	$1,500,000
2-05	Southern Quebec/Québec-Sud	5,035,827	50	$5,000,000
2-06	Eastern Ontario/Ontario-Est & Outaouais	2,047,352	20	$2,000,000
2-07	Northern Quebec/Québec-Nord	194,810	2	$200,000
2-08	Southern Ontario/Ontario-Sud	8,179,887	80	$8,000,000
2-09	Northern Ontario/Ontario-Nord	824,802	10	$1,000,000
2-10	Manitoba	1,115,900	10	$1,000,000
2-11	Saskatchewan	980,770	10	$1,000,000
2-12	Alberta	2,704,291	30	$3,000,000
2-13	British Columbia/Colombie-Britannique	3,724,500	40	$4,000,000
2-14	Yukon, N.W.T./T.N.-O.	95,168	1	$100,000
	National Total	28,846,761	293	$29,300,000

Note: The total amount for 40 MHz of spectrum is $117.2 million.

The Department's most important objective is of course to see spectrum assigned so that Canadians may ultimately receive services. Therefore, the Department would reserve the right to reduce the minimum opening bids on licences which received no bids during the initial rounds of the auction.

Comments are sought on the absolute and relative level of opening bids.

8.2 Pre-Auction Deposits

The Department feels that the integrity of an auction is enhanced by requiring all bidders to submit a pre-auction deposit. The deposit should be large enough to dissuade frivolous bidders from trying to enter the auction process while not so large that sincere bidders are unable to participate; additionally, the deposit should be large enough so that it covers all of a bidder's likely bid withdrawal and forfeiture penalties.³³ A pre-auction deposit must be submitted in the form of an irrevocable standby letter of credit.

The Department proposes to determine the amounts of pre-auction deposits on the basis of the opening bid per point. If, for example, a prospective bidder indicated that it wished to be able to bid on licences totalling 100 points, it would be required to submit a deposit of $10,000,000 ($100,000*100).

The pre-auction deposit will be returned to any applicant that is found not to be a qualified bidder, to any applicant that provides written notification to the Department of its withdrawal from the process prior to the auction's commencement, and to any bidder whose eligibility is reduced to zero during the auction and who is not potentially liable for any withdrawal penalties.

Comments are sought on the proposed deposit amounts.

8.3 Bid Payment

Winning bidders will be required to submit 20 percent of their high bids and 100 percent of any withdrawal penalties incurred within 10 business days of the auction's close. This payment will be non-refundable. If the winning bidder fails to make this initial payment in a timely manner, the licence will not be issued and the bidder will be subject to the applicable forfeiture penalty. The remaining 80 percent of the high bids will be due within 30 business days of the auction's close. Failure by the winning bidder to make this final payment in a timely fashion will also result in the licence not being issued, and again, the bidder will be subject to the applicable forfeiture penalty.

It is also important to note that beyond the payment of the winning bid, no other licence fees or payments will be required for the duration of the licence term.³⁴

9. Submitting Your Comments

All comments should refer to "Comments - Canada Gazette notice DGRB-018-99" and should be submitted electronically (in either WordPerfect, Microsoft Word, Adobe PDF or ASCII TXT format) to:

pcs.scp@ic.gc.ca

To ensure that all comments are duly considered, submissions must be received no later than February 16, 2000. These comments will be posted on the Industry Canada spectrum Web site by February 21, 2000.

Reply comments should refer to "Reply Comments - Canada Gazette notice DGRB-018-99" and should be submitted electronically (in either WordPerfect, Microsoft Word, Adobe PDF or ASCII TXT format) to:

pcs.scp@ic.gc.ca

To ensure that all reply comments are duly considered, submissions must be received no later than March 8, 2000. These reply comments will be posted on the Industry Canada spectrum Web site by March 13, 2000.

Printed copies of submissions may be obtained from:

ByPress Printing and Copy Centre Inc.
300 Slater Street, Unit 101A
Ottawa, Ontario
K1P 6A6
Phone: 613-234-8826
FAX: 613-234-9464

Costs of duplication will be charged.

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

Earl Hoeg
Manager, Wireless Networks
Phone: 613-990-7176
FAX: 613-991-3514
hoeg.earl@ic.gc.ca

Foototes

¹ See the Minister's News Release and Canada Gazette Notice No. DGTP-008-99, Revision to the PCS Spectrum Cap and Timing for Licensing Additional PCS Spectrum on the Department's Web site (http://www.ic.gc.ca/spectrum).

² Available on the Department's Strategis Web site (http://www.ic.gc.ca/spectrum).

³ Available on the Department's Strategis Web site (http://www.ic.gc.ca/spectrum).

⁴ "Affiliate" means a person who controls the entity, or who is controlled by the entity or by any person who controls the entity. If a person owns, directly or indirectly, at least 20% of an entity's voting shares, where the entity is a body corporate, or where the entity is not a body corporate, at least 20% of the beneficial ownership in such entity, this will result in a rebuttable presumption that the person controls the entity.

⁵ Available on the Department's Strategis Web site (http://www.ic.gc.ca/spectrum).

⁶ Regarding recent changes at Mobility Canada allowing competition among members, the Department has chosen not to intervene with measures to preserve national service. At present, the companies involved have developed resale/roaming arrangements to ensure continuation of national service for their customers.

⁷ Available on the Department's Strategis Web site (http://www.ic.gc.ca/spectrum).

⁸ Available on the Department's Strategis Web site (http://www.ic.gc.ca/spectrum).

⁹ Available on the Department's Strategis Web site (http://www.ic.gc.ca/spectrum).

¹⁰ Amendments to the Microwave Spectrum Utilization Policies in the 1-3 GHz Frequency Range (SP 1-3 GHz), available on the Department's Strategis Web site (http://www.ic.gc.ca/spectrum).

¹¹ Available on the Department's Strategis Web site (http://www.ic.gc.ca/spectrum).

¹² Spectrum Grid cells are defined in the Industry Canada (Spectrum Management) Client Procedures Circular 2-1-16 (CPC-2-1-16), Licensing Procedure for Local Multipoint Communications Systems (LMCS), (February 1, 1997), available on the Strategis Web site at http://www.ic.gc.ca/spectrum. Spectrum Grid cells are six-sided figures with an area of 25 km² that fit together in an interlocking pattern over the geography of Canada.

¹³ Available on the Department's Strategis Web site (http://www.ic.gc.ca/spectrum).

¹⁴ Spectrum grid cells are defined in the Industry Canada (Spectrum Management) Client Procedures Circular 2-116 (CPC-2-1-16), Licensing Procedure for Local Multipoint Communications Systems (LMCS), February 1, 1997 (available on the Strategis Web site at http://www.ic.gc.ca/spectrum), as amended from time to time.

¹⁵ Available on the Department's Strategis Web site (http://www.ic.gc.ca/spectrum).

¹⁶ See Industry Canada (April 1, 1999), Client Procedures Circular 2-0-15 (CPC-2-0-15), Canadian Ownership and Control (available on the Strategis Web site at http://www.ic.gc.ca/spectrum), as amended from time to time.

¹⁷ Available on the Department's Strategis Web site (http://www.ic.gc.ca/spectrum).

¹⁸ Industry Canada (June 24, 1995), Client Procedures Circular 2-0-03 (CPC-2-0-03), Environmental Process, Radiofrequency Fields and Land-Use Consultation (available on the Strategis Web site at http://www.ic.gc.ca/spectrum), as amended from time to time.

¹⁹ Available on the Department's Strategis Web site (http://www.ic.gc.ca/spectrum).

²⁰ As reported in the prior licensees' audited Statements of Research and Development Expenditures which would have been submitted annually to the Department.

²¹ Available on the Department's Strategis Web site (http://www.ic.gc.ca/spectrum).

²² This document will be made available on the Department's Strategis Web site (http://www.ic.gc.ca/spectrum).

²³ Available on the Department's Strategis Web site (http://www.ic.gc.ca/spectrum).

²⁴ It should be noted that prospective bidders may be required to make full disclosure of any communications, agreements, arrangements or affiliations which they have entered into with any other potential bidder regarding the auction in question.

²⁵ For example, suppose that a bidder wished to be able to bid on licence X (two points), licence Y (three points), and licence Z (five points). This bidder could ask to have up to ten points-worth of initial eligibility. If the bidder knew that it would not wish to be actively bidding on all three licences at the same time, it might choose to have a lower level of initial eligibility, for example eight points, and thus be required to submit a smaller pre-auction financial deposit.

²⁶ And has not withdrawn that standing high bid.

²⁷ Since bid levels would increase each round by only the established increment, bidders will be able to exactly forecast the maximum possible values that the price for any particular licence could reach by the end of the currently announced schedule. The bid schedule will be updated regularly so that bidders will always be able to make rolling forecasts for, for example, one or two weeks in advance.

²⁸ Under the non-discretionary bidding scenario, all bids on the same licence in a given round would, of course, be tie bids. It was proposed that the first bidder (all bids would be electronically time-stamped as they were received) to place a bid on a licence be given the status of standing high bidder on that licence for the next round. Other administrations have used the same tie-breaking rule with discretionary bidding, but the incidence of tie bids under that scenario has tended to be quite low.

²⁹ It is worth noting, however, that unless the difference between two bidders' valuations for a licence is so small as to fall within the margin of a single bid increment, the relative speed of bidders' computers or telecommunications links will not be a factor in the eventual outcome. As bid levels rise, the bidder with the lower valuation will drop out, allowing the bidder with the higher valuation to win at a price just above the lower bidder's drop-out point.

³⁰ Suppose that a bid of $100,000 was withdrawn on licence X during the auction, and that no new bids were placed on that licence thereafter. The ultimate selling price of licence X will not be known until a subsequent re-auction and hence, the value of the withdrawal penalty cannot be calculated until that time. The full value of the withdrawn bid, $100,000, would be used as the interim proxy penalty until the re-auction.

³¹ See Industry Canada (April 1, 1999), Canadian Ownership and Control (CPC-2-0-15) (available on the Strategis Web site at http://www.ic.gc.ca/spectrum), as amended from time to time.

³² See discussion of bidder eligibility points in section 7.7.1 of this document.

³³ See the discussion of withdrawal and forfeiture penalties in section 7.7.3 of this document.

³⁴ As per subsection 5(1)(1.3) of the Radiocommunication Act.