Licensing Framework for the Auction of Residual Spectrum Licences in the 2300 MHz and 3500 MHz Bands

6. Auction Design and Rules

6.1 Key Features of the Sealed-Bid, Second-Price Auction Design

A sealed-bid, second-price auction will require applicants to submit their bid to the Department in a sealed envelope prior to the receipt deadline for sealed bids in order to apply for each Tier 4 licence. The day following the receipt deadline for sealed bids, departmental officials will open the sealed bids, rank them, and provisionally award a licence or licences to the highest bidder(s).

If the highest bidder for a particular licence is found eligible to be the licensee, that bidder will be required to pay an amount equal to the second highest bid or, should there be only one bidder for a particular licence, the posted reserve price.

In the event of a tie at the end of a round, 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.

6.2 Submission of Auction Bids

A completed auction bid formFootnote 4 must be placed in a separate, sealed, opaque 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 the Spectrum Auctions Manager by the receipt deadline for sealed bids specified for this licensing process. The amount of each bid must reflect the amount that the bidder is willing to pay for the associated licence. No bids will be accepted after 5:00 p.m., EDT, on the receipt deadline for sealed bids as specified in the timetable for each round of this licensing process. On the day of the determination of the provisional licence winners for a particular round, the Department will publish, on its website, a list of all bids received.

6.3 Determination of Provisional Licence Winners

The sealed envelopes will be opened and examined by departmental officials on the day following the receipt deadline for sealed bids, 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 deposit must be equal to or greater than the sum of the reserve prices of licences being bid upon; 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 5.6 will be considered the second highest bid.

Bids will be made per licence; the winning bid will be the highest for each licence.

To mitigate the possibility of a tie, bidders are 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. The Department will provide the details of the procedure to submit further bids required to break a tie to the bidders in question at that time, if required. 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.

On the day of the determination of the provisional licence winners, the Department will publish, on its website, a list of all bids received, the name of the provisional licence winner(s) and the licence(s), if any, that did not receive bids. At that time, the Department will also notify the provisional winning bidder(s) and inform them of payment requirements.

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

6.3.1 Example 1

Example 1
Spectrum Licence Reserve Price ($) Bidder 1's Bid ($) Bidder 2's Bid ($) Bidder 3's Bid ($)
4-036G 625 800 700 825

Let us assume that there are three bidders interested in licence 4-036G. Bidder 1 places a bid of $800, Bidder 2 places a bid of $700 and Bidder 3 places a bid of $825. Bidder 3 would be declared the provisional winner and would be required to pay the second highest bid value of $800.

6.3.2 Example 2

Example 2
Spectrum Licence Reserve Price ($) Bidder 1's Bid ($) Bidder 2's Bid ($) Bidder 3's Bid ($)
4-054F 2,500 2,500 3,000 3,000

Let us assume that there are three bidders interested in licence 4-054F. Bidder 1 places a bid of $2,500, Bidder 2 places a bid of $3,000 and Bidder 3 places a bid of $3,000. Bidders 2 and 3 have tied with a bid of $3,000 and are asked to re-bid.

6.3.3 Example 3

Example 3
Spectrum Licence Reserve Price ($) Bidder 1's Bid ($)
4-060G 625 800

Let us assume that there is only one bidder interested in licence 4-060G. Bidder 1 places a bid of $800. Bidder 1 would be declared the provisional winner. Since there no other bids on the licence, Bidder 1 would pay the reserve price of $625.

7. Post-Round Process

7.1 Bid Payment

Within 10 business days following the close of a round, 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 7.2, Forfeiture Penalties).

All payments must be made by certified cheque, bank draft, or wire transfer, payable to the Receiver General for Canada, drawn on a financial institution that is a member of the Canadian Payments Association.

It is important to note that these bid payments for the initial 10-year term are in lieu of any fees fixed for the radio authorization under the Radiocommunication Act or any other Act.

7.2 Forfeiture Penalties

Following the closure of a round, bidders who have submitted the highest bid on a licence but fail to comply with the specified payment schedule as outlined in Section 7.1, or fail to come into compliance with the eligibility requirements of the Radiocommunication Regulations, will forfeit their bids and will no longer be deemed to be a provisional licence holder.

In such an event, the provisional 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 that the first bidder would have paid and the ultimate selling price of the licence in the round, and must be paid by the first bidder. Should this licence not sell during the round, 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.

7.3 Eligibility Documentation

Bidders who are declared provisional licence winners will be required to submit two copies of documentation related to their compliance with the eligibility licence condition found in Appendix A – Licence Conditions. Documentation must be submitted by the provisional winners within 10 business days of being notified that they are the winning bidders.

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 must be provided within 60 days. This would normally transpire only if a significant period of time has passed since the close of the round. 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 7.2.

7.4 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, such a determination may take several months to complete depending on the complexity of the provisional winners' ownership and control structures and the responsiveness of the winners in providing any required additional documentation.

7.5 Close of the Auction

This phase of the auction process will close when all licences have been assigned or upon notice of a modification in the competitive bidding process by Industry Canada. The Department may reopen the auction or modify the licensing framework if one or more licences are returned.

8. Further Information

All spectrum-related documents referred to in this paper are available on Industry Canada's 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: 613-990-8881
Fax: 613-991-3514
E-mail: ic.spectrumauctions-encheresduspectre.ic@canada.ca

Appendix A — Licence Conditions

1. Licence Term

This licence is issued for a 10-year term. The process for issuing licences after this term and any issues relating to renewal will be determined by the Minister of Industry following a public consultation.

2. Licence Transferability and Divisibility

The licensee may apply, in writing, to transfer its licence in whole or in part (divisibility) in both the bandwidth and geographic dimensions. Departmental approval is required for each proposed transfer of a licence, whether the transfer is in whole or in part. The transferee(s) must also provide an attestation and other supporting documentation demonstrating that it meets the eligibility criteria and all other conditions, technical or otherwise, of the licence.

The Department may define a minimum bandwidth and/or geographic dimension (such as the grid cell) for the proposed transfer. Systems involved in such a transfer shall conform to the technical requirements set forth in the applicable standard.

The licensee may apply to use a subordinate licensing process.

For more information, refer to Client Procedures Circular CPC-2-1-23, Licensing Procedure for Spectrum Licences for Terrestrial Services, as amended from time to time.

3. Eligibility

A licensee operating as a radiocommunication service provider or radiocommunication user must meet the eligibility criteria in section 9(1) of the Radiocommunication Regulations.

A licensee operating as a radiocommunication carrier must meet and 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 Client Procedures Circular CPC-2-0-15, Canadian Ownership and Control, as amended from time to time.

4. Displacement of Incumbents

The licensee must comply with the transition policy outlined in Appendix 3 of the Policy and Licensing Procedures for the Auction of Spectrum Licences in the 2300 MHz and 3500 MHz Frequency Bands (Revised July 2004).

5. Radio Station Installations

Although site-specific radio licences are not required for each radio station, licensees must ensure that each radio station is installed and operated in a manner that complies with Client Procedures Circular CPC-2-0-03, Radiocommunication and Broadcasting Antenna Systems, as amended from time to time.

6. Provision of Technical Information

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

7. Compliance with Legislation, Regulations and other Obligations

The licensee is subject to, and must comply with, the Radiocommunication 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 relation to this licence are all true and complete in every respect. The licensee must use the assigned spectrum in accordance with the Canadian Table of Frequency Allocations and the stated spectrum policy.

8. Technical Considerations

The licensee must comply on an ongoing basis with the technical aspects of the appropriate Radio Standards Specifications and Standard Radio System Plans, as amended from time to time. The licensee must also comply with the technical requirements outlined in sections 5.3 and 5.4 of the Policy and Licensing Procedures for the Auction of Spectrum Licences in the 2300 MHz and 3500 MHz Frequency Bands.

9. International and Domestic Coordination

The licensee must comply with the current and future agreements established with other countries. Although frequency assignments are not subject to site licensing, the licensee may be required to furnish all necessary technical data for each relevant site.

The licensee should use its best efforts to enter into mutually acceptable sharing agreements with other parties, which will facilitate the reasonable and timely development of their respective systems, where applicable, and to coordinate with other licensed users in Canada and internationally, where applicable.

10. Lawful Interception

A licensee operating as a radiocommunication carrier and using this 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.

The licensee 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.

11. Research and Development (R&D)

A licensee operating as a radiocommunication carrier must invest, as a minimum, 2 percent of its adjusted gross revenues resulting from its operations in this spectrum averaged, over the 10-year term of the licence, in eligible R&D activities related to telecommunications. Eligible R&D activities are those which 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 R&D expenditure requirements, except where they have affiliations with licensees that hold other licences with the R&D condition of licence and where the total annual gross revenues of the affiliated licensees are greater than $5 million.

To facilitate compliance with this condition of licence, the licensee should consult the Department's Guidelines for Compliance with the Radio Authorization Condition of Licence Relating to Research and Development (GL-03).

12. Mandatory Antenna Tower and Site Sharing

The licensee must comply with the mandatory antenna tower and site sharing requirements set out in Client Procedures Circular CPC-2-0-17, Conditions of Licence for Mandatory Roaming and Antenna Tower and Site Sharing and to Prohibit Exclusive Site Arrangements, as amended from time to time.

13. Implementation of Spectrum Usage

The licensee must demonstrate to the Department that its spectrum is being put to use, at a level acceptable to the Department, within five years of receipt of the licence(s). The establishment of coverage to 50% of the population within the licensed service area, or some other indicator of usage that is acceptable to the Department, such as the plans the licensee has for developing the spectrum and/or how accommodating the licensee has been in facilitating the development of the spectrum through the secondary market, will be required. The Department recognizes that a variety of different business plans and technologies may be employed in these bands across markets of various sizes.

In the event that the spectrum obtained in this auction has not been put to use within five years of receipt of the licence(s), the Department may begin a process to afford the licensee the opportunity to demonstrate why its licence should not be revoked. The Department may also facilitate discussions between holders of the spectrum who have not deployed services and potential local service providers wanting to provide Wireless Communication Services or Fixed Wireless Access service to unserved or under-served areas through spectrum in the secondary market. The Department will consider the level of service coverage and spectrum development by the end of year five as important criteria in deciding whether the licensees should continue to have an expectation of licence renewal.

Supporting documentation should be submitted to the Manager, Emerging Networks, Radiocommunications and Broadcasting Regulatory Branch, at the address provided below.

14. Annual Reporting

The licensee must submit an annual report for each year of the licence term, including the following information:

  • a statement indicating continued compliance with all conditions of licence;
  • an update on the implementation and spectrum usage within the area covered by the licence;
  • existing audited financial statements with an accompanying auditor's report;
  • a report of the R&D expenditures for licensees operating as radiocommunication carriers whose annual gross operating revenues exceed $5 million (the Department reserves the right to request an audited statement of R&D expenditures with an accompanying auditor's report);
  • supporting financial statements where licensees are claiming an exemption based on an annual gross revenue of less than $5 million; 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 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 section 20(1) of the Access to Information Act.

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

15. Amendments

The Minister of Industry continues to have the power to amend the terms and conditions of spectrum licences (paragraph 5(1)(b) of the Radiocommunication Act).

Appendix B – Checklist of Forms

Did you remember to complete and enclose each of the following documents?

  • Application Form
    • Deed of Acknowledgement (Attachment A)
    • Beneficial Ownership information (Part I, Section 8 of Application Form)
    • Pre-auction deposit (refer to Attachments B and C)
    • Declaration Ownership and Control or Declaration of Eligibility (refer to Attachment D or E)

The documents can be obtained on Industry Canada's Spectrum Management and Telecommunications website at http://www.ic.gc.ca/spectrumauctions.

Important Note:

It is in the interest of applicants to seek independent legal, financial and engineering advice before deciding to participate in this auction. Furthermore, applicants are urged to familiarize themselves with the provisions contained in the following documents:

  • Radiocommunication Act;
  • Radiocommunication Regulations;
  • Framework for Spectrum Auctions in Canada;
  • Canadian Ownership and Control (CPC-2-0-15);
  • Telecommunications Act;
  • Canadian Telecommunications Common Carrier Ownership and Control Regulations; and
  • Competition Act (see, in particular, sections 45 (conspiracy) and 47 (bid-rigging)).

The Department reserves the right to request additional information regarding this application. The following are to be physically delivered to the address below by 5:00 p.m., EDT, on the receipt deadline for applications to participate in each round of the auction, in a form acceptable to the Department: the application form; the Deed of Acknowledgement; any other associated document that may be required (as per the instructions provided on the various forms); and the accompanying financial deposit, which must be an irrevocable standby letter of credit (see Attachments C and D of the Application Form).

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

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