Consultation on the 24 and 38 GHz Frequency Bands: Proposed Policy and Licensing Procedures
Auctions promote economically efficient use of spectrum, provide an open and objective assignment mechanism, are procedurally efficient, and have the ability to yield an appropriate return to the people of Canada. In addition to these general advantages, the following factors suggest that an auction would be the most appropriate licensing mechanism for the 24 GHz and 38 GHz bands:
- it is anticipated that the demand for spectrum in these bands will exceed the available supply, at least in some geographic areas; and,
- an auction will allow for the effective and efficient assignment of the large number of localized licences that will be made available.
After the closing date for receipt of comments to this consultation paper, copies of all the comments received will be made available to the public through Industry Canada's web site, Industry Canada libraries and a commercial printing and copying service. Respondents are strongly encouraged to provide their comments in electronic format to facilitate posting on the Department's web site.
A reply comment period of approximately 21 days will be opened shortly after the close of the initial comment period (up to 14 days may be required to allow for publication of comments on the web). During this second period, respondents may comment on the initial comments of others. Again, the submission of comments in electronic format is strongly encouraged. After the closing date of this second period these reply comments will also be made available to the public.
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 final policy paper. The following elements will be described:
- the licences to be auctioned;
- the terms and conditions attached to the licences;
- the reserve price for each licence;
- the rules of the auction; and,
- the eligibility criteria and application procedures to participate in the auction.
Prospective bidders will be invited to submit the following:
- a voluntary "Notification of Interest"21;
- written questions asking for clarification of rules or policies; and,
- their auction application22 (including a financial deposit).
It should be noted that no "confidential" questions will be accepted. All questions submitted and the Department's answers to them will be made public. The various deadlines for receipt of the "Notifications of Interest", written questions, and the auction application materials (including the financial deposit), and the address to which they should be sent, will be specified in the Gazette Notice and the final policy paper. The "Notifications of Interest" and the Department's responses to the questions received will be made public after their respective deadlines for receipt.
Once the deadline for receipt of applications to participate in the auction has passed, all applications received will be reviewed to assess whether or not all eligibility criteria have been satisfied. (An opportunity may be provided for applicants to make minor corrections to the materials they have submitted.) Those who have submitted acceptable applications will then receive bidder packages (which will include items such as the instructions required to use the Department's automated bidding system and the initial bidding schedule). A listing of which applicants have and have not been qualified as bidders will be made public. Should there be any licences for which only one qualified bidder has indicated an interest, then that qualified bidder will be immediately offered that licence at the specified reserve price.
Seminars and/or mock auctions will be held to allow bidders to better familiarize themselves with the bidding system and software.
The auction will then commence and proceed until it ends according to the specified stopping rule. High bidders at the auction's close will be issued their licences provided that their bid amounts are paid in full by the deadline specified in the auction rules. Should any licences remain unassigned after the auction, the Department's preferred approach will be to offer them in a subsequent re-auction within a reasonable period of time.
The Department proposes the use of a simultaneous multiple round auction. The auction will be run electronically and bidders will be able to participate remotely from their offices.
The rules for the simultaneous multiple round auction call for a related set of licences to be offered for sale at the same time. Bidding is organized into a series of rounds. At the beginning of each round, bidders are provided with information that includes the standing high bids on each licence and information about the bidder's own eligibility for bidding. New bids for a licence are required to exceed the standing high bid by at least some pre-established increment. In each round bidders are offered an opportunity to withdraw bids made in previous rounds, subject to a penalty. A minimum pace of bidding in the auction is established by the "activity rule," which penalizes bidders who are inactive by reducing their "bidder eligibility points". The rounds continue until there are no new bids on any licence. All these details of the auction format are discussed more fully below.
Each licence will be assigned a number of points approximately proportionate to the bandwidth and population covered by that licence. As part of the application package to participate in the auction, each prospective bidder will be asked to indicate which licences it may want to bid on during the course of the auction and to indicate the total number of "points-worth" of licences that it may wish to bid on in any round.23 This number, which will also determine the pre-auction deposit required from the bidder (i.e. the required deposit will be calculated on a dollar per point basis - see section 8.1), will define that bidder's initial level of "bidder eligibility points". The purpose of this information is to assist in the development of activity rules (discussed in more detail below) which are used to hasten the speed of the auction.
Before the auction, each bidder will have to specify which licences it wishes to bid on (as per the discussion on bidder eligibility points above). A bidder is defined to be active on a particular licence in a given round if either it has the standing high bid from the previous round or if it submits an acceptable bid in that current round. There will be three stages, each containing an unspecified number of bidding rounds. In the first stage bidders must be active on licences whose corresponding points add up to a certain percentage of the bidder's eligibility level (the Department proposes something in the range of one-half); in the second stage the percentage is increased (to three-quarters); and in the final stage bidders must be active on one-hundred per cent of their eligibility levels. If a bidder falls short of the required activity level, the bidder's eligibility point level shrinks proportionately. The auction will begin and continue in stage one until bidding activity declines to an unacceptable level (for example, three consecutive rounds in which new bids are placed on ten percent or less of the licences available). At this point, the auction will move to stage two - and similarly to stage three later in the auction.
In the event that a bidder makes a bid which it later wants to change, that bidder will be given the opportunity to withdraw it. To encourage meaningful bids, however, a bid withdrawal penalty will be imposed. This penalty will correspond to the potential loss in revenue caused by the withdrawn bid. If the licence for which the bid has been withdrawn ends up selling for more than the withdrawn bid, then no penalty will be charged to the bidder. If the licence ultimately sells for less than the withdrawn bid, then the penalty will be the difference between the withdrawn bid and the eventual final selling price. As a measure to reduce the overall time of the auction, while not compromising the auction's efficiency, the Department will allow bidders to place new bids and/or withdraw previously submitted bids at the same time during a round, as opposed to having two distinct phases - one for bid submission and one for bid withdrawal - during each round.
Bid increments, like activity rules, are necessary to help hasten the auction's progress. For a bid to be acceptable it must be larger than the current standing high bid by the bid increment. Increments will be set in percentage terms (x percent of the standing high bid) and/or in absolute dollar amounts. Bid increments will be changed during the course of the auction. For example, at the beginning of an auction when bidding activity is likely to be high, bid increments will be relatively large (for example 10% to 15%). As the pace of the bidding falls below a certain threshold, bid increments will be reduced (perhaps down to 1% by stage three). The rules for changing bid increments will be laid out with a fairly high degree of precision prior to the auction; however, to ensure the auction closes in a reasonable amount of time, there will be flexibility to "override" the rules regarding bid increments. Of course, all bidders will be given prior notice of any proposed changes to the size of the bid increments.
Waivers are designed to prevent a bidder from losing eligibility when it does not satisfy the activity requirements in a given bidding stage. The purpose of waivers is to protect bidders against possible mistakes they might make during the course of the auction or to allow them to maintain eligibility in the case of technical or communication problems. Each bidder will be given five waivers.
The auction will close when a round goes by without any acceptable bids on any licences or any waivers having been submitted. In exceptional circumstances, and after all participants have been notified in advance, any round can be declared as the final round. Similarly, exceptional circumstances such as a natural disaster, for example, may result in the auction being delayed, suspended or cancelled.
After the conclusion of the auction, any bidder who has submitted the high bid on a licence but fails to comply with the specified payment schedule will forfeit its right to have the licence issued to it. Furthermore, the bidder will be required to pay a penalty in the amount of the difference between the forfeited bid and the eventual selling price of the licence (in a subsequent re-auction), if the re-auction price is lower than the forfeited bid. An additional amount of 3% of the original forfeited bid will be charged to account for the administrative expenses incurred to reassign the licence.
The August 1997 consultation paper on auction implementation issues proposed the use of non-discretionary bidding. What this means is that rather than being offered the opportunity to enter any amount that exceeds the standing high bid by at least some minimum bid increment, bidders would instead have the choice of giving either a "Yes" or "No" response as to whether they wish to bid an exact amount equal to the standing high bid plus a predetermined bid increment. Non-discretionary bidding has a number of potential advantages, as outlined below.
- It drastically simplifies submission of bids, eliminating the errors that sometimes occur when a bidder must fill dozens (or even hundreds) of boxes with potentially quite large numbers.
- It allows rounds to be more brief and more frequent, both because the mechanics of entering and checking bids are simpler and because the prices, which never jump24 in the revised design, are more predictable. This also reduces the need for frequent executive oversight during the bidding, saving costs for the bidders.
- It removes opportunities for bidders to send potentially collusive messages through the trailing digits of their bid amounts.
Relatively few comments were received on the issue of discretionary versus non-discretionary bidding and differing views were expressed by those who did specifically address this issue. Concerns about the use of non-discretionary bidding focused primarily on the proposed time-stamp tie-breaking rule.25 Some respondents felt that a time-stamp tie-breaking rule might favour those bidders who, for example, had the fastest computers.26 There is also the possibility that non-discretionary bidding with a time-stamp tie-breaking rule could be more susceptible to certain types of collusive behaviour.
Since the release of the August 1997 consultation paper new developments in auction theory and design have occurred and the United States Federal Communications Commission has completed both an auction featuring non-discretionary bidding27 and an auction featuring "multiple increment bidding".28 The multiple increment bidding format is a variation on the non-discretionary bidding format which allows bidders to increase high bids by up to, in the case of the LMDS auction, nine increments.
The multiple increment bidding format would appear to preserve the previously mentioned benefits of non-discretionary bidding while at the same time reducing the incidence of tie bids and any possible related problems. Multiple increment bidding should also lead to the faster conclusion of an auction than would single-increment non-discretionary bidding. The Department is investigating the use of multiple increment bidding and seeks the views of prospective bidders as to whether it represents a superior auction design.
The Department proposes that the identities of all bidders, the licences on which they are qualified to bid, and their initial eligibility levels be made public prior to the commencement of bidding. As well, the Department proposes that full information on the bids placed by all bidders be made available after each round.
In section 3.3 of this document, a proposal was made regarding the use of a spectrum aggregation limit for the 24 GHz and 38 GHz bands. In terms of the auction process, the aggregation limits will be enforced as described below.
- Any bidder who at the auction's close is the standing high bidder on licences such that it will exceed the aggregation limit in any market must forfeit bids on sufficient licences to bring itself into alignment with the aggregation limit before any licences will be issued to it. The forfeiture penalties discussed in section 6.2.7 will apply.
- Should an existing LMCS licensee
end up at the auction's close as the standing high bidder on 24 GHz and/or
38 GHz licences such that this spectrum in addition to
its LMCS holdings puts it in
violation of the spectrum aggregation limit for any area, it must:
- forfeit, subject to the forfeiture penalties discussed in section 6.2.7, all the bids on the 24 GHz and 38 GHz spectrum for that area; or,
- return to the Department one or both (block A and/or B) of its 28 GHz licences for that area and ensure - by forfeiting, subject to the forfeiture penalties discussed in section 6.2.7, bids on 24 GHz and/or 38 GHz spectrum for that area if necessary - that its total 24 GHz, 28 GHz and 38 GHz holdings do not exceed the aggregation limit.
Industry Canada has always operated on the principle that all spectrum users should contribute to covering the cost of spectrum management in Canada. This can be accomplished by establishing reserve prices which are conceptually linked to the cost of managing the spectrum in question for the whole term of the licence. The Department has calculated an estimate of the proportion of its spectrum management costs which will be attributable to the 24 GHz and 38 GHz bands.
Reserve prices are proportional to the bidder eligibility points29 associated with each licence. Bidder eligibility points are related to the population and bandwidth covered by a licence. As discussed in section 4.2, the Department proposes to use Tier 3 service areas. Table 4 below provides an example of eligibility points and reserve prices associated with some licences. For each spectrum block of 100 MHz, a population of approximately 100,000 corresponds to 1 point. Reserve prices have been calculated at $4700 per point.
|Service area||Population||Each 400 MHz licence at 38 GHz or 24 GHz||300 MHz licence at 38 GHz||200 MHz licence at 38 GHz|
|Points||Reserve price||Points||Reserve price||Points||Reserve price|
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 penalties30. A pre-auction deposit must be submitted in the form of an irrevocable letter of credit.
In their application materials to participate in the auction, bidders will be required to identify all the licences on which they may wish to bid. The total number of points associated with these licences will define the maximum level of bidder eligibility points that the prospective bidder may request. The eligibility level is the maximum number of points associated with licences on which the bidder can bid simultaneously in a given round.
The Department proposes to determine the amounts of pre-auction deposits on the basis of the reserve price per point. If, for example, a prospective bidder indicated that it wished to be able to bid on licences totalling 100 points it could ask to have an initial level of eligibility which is equal to or less than 100 bidder eligibility points. The choice of 100 bidder eligibility points would require a deposit of $470,000 ($4700*100) and would allow the bidder to actively bid on all the licences in which it had indicated interest. Alternatively, the same bidder might ask for an initial level of only 50 bidder eligibility points. This would require a deposit of only $235,000, but would also limit the bidder to actively bidding on a maximum of only 50 points-worth of licences in a round.
For licence winners, the deposit will be credited toward payment of their winning bids. For unsuccessful participants, the deposit will be refunded less any penalties they have incurred. If the penalties exceed the deposit, any outstanding amount will be owed to the Crown.
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.
Winning bidders will be required to submit 20 percent of their high bids 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 then the licence will not be issued and the bidder will be subject to the applicable forfeiture penalty. The remaining 80 percent will be due within 45 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.31top of page
The instructions for filing comments are provided in the following sections. All comments submitted as part of this consultation should cite the following:
Canada Gazette Notice reference number DGRB-003-98
Respondents may submit comments electronically or in written format.Interested parties are strongly encouraged to provide their comments in electronic format to facilitate posting on the Department's web site. The Department requests that electronic submissions be in of the following formats if possible: WordPerfect; Microsoft Word; Adobe PDF; or ASCII TXT. Please indicate in the covering note the software format used, the version number and the operating system.
Comments submitted via the Internet are to be sent to the following e-mail address:
Written comments, or comments on a diskette or CD ROM are to be sent to:
Consultation on 24 GHz and 38 GHz
Radiocommunications and Broadcasting Regulatory Branch
Room 1559 D - Jean Edmonds Tower North
300 Slater Street
To ensure that all comments are duly considered, submissions must be received at one of the above addresses no later than December 4, 1998. Comments submitted should be prefaced by the statement "Comments in response to the consultation on 24 GHz and 38 GHz".
Every effort will be made to post all comments on the Industry Canada spectrum web site by December 18, 1998. Copies of all written submissions will be available for viewing at the locations indicated in section 8.2.
To ensure that all reply comments are duly considered, submissions must be received at one of the above addresses no later than January 15, 1999. Reply comments submitted should be prefaced by the statement: "Reply comments in response to the consultation on 24 GHz and 38 GHz".
Every effort will be made to post all reply comments on the Industry Canada spectrum web site shortly after the close of the reply comments period. Copies of all written submissions will be available for viewing at the locations indicated in section 8.2.
All submissions received in response to this consultation paper will be made available for viewing on the Internet, at the following address:
The responses will also be available for viewing by the public during normal business hours at the Industry Canada Library, 235 Queen Street, West Tower, Third Floor, Ottawa, Ontario, and at the offices of Industry Canada in Moncton, Montreal, Toronto, Winnipeg and Vancouver, for a period of one year from the close of comments.
Printed copies of submissions may also be obtained from: ByPress Printing and Copy Centre Inc. 300 Slater Street, Unit 101A, Ottawa, Ontario, K1P 6A6 Tel.:613-234-8826 Fax.:613-234-9464 (Reasonable costs of duplication will be charged.)top of page
Links to all documents quoted in this discussion paper will be displayed on our Spectrum Web site at http://www.ic.gc.ca/spectrum, under the "Spectrum Auctions" heading.
For further information concerning the process outlined in this document or related matters, contact the Wireless Networks Manager at 613-998-3780 or by facsimile at 613-991-3514.
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