Decisions on a Band Plan for Broadband Radio Service (BRS) and Consultation on a Policy and Technical Framework to License Spectrum in the Band 2500-2690 MHz

Part B – Consultation on a Policy and Technical Framework on New BRS Licences (Continued)

4. Promoting Competition

Industry Canada will use an auction mechanism to select entities eligible to be issued spectrum licences in both the 700 MHz and the 2500 MHz bands. Auctions are a transparent, fair and efficient spectrum assignment mechanism. The Framework for Spectrum Auctions in Canada notes that there are various measures available in an auction to promote a competitive marketplace if required, notably spectrum caps and set-asides.

Developments in the 700 MHz and the 2500 MHz bands demonstrate that both are suitable for the deployment of advanced mobile/broadband networks and services to meet growing user demands. In the recent consultation DGSO-001-10, it is noted that BRS comprises a wide range of applications, primarily data, multimedia, Internet Protocol (IP)-based applications and broadband Internet access using post third generation (3G) technologies.

Those participating in the 700 MHz and 2500 MHz auctions may see a benefit in acquiring a combination of spectrum in both bands to complement existing networks and/or deploy new networks and services, whereas others may not. Measures involving spectrum in both the 700 MHz and 2500 MHz bands could be adopted either in a combined auction format or separately if the two auctions are conducted individually.

To this end, general policy-related issues, such as drivers for spectrum demand, the possible need to promote competition in the Canadian wireless services market and specific mechanisms applicable to both the 700 MHz and 2500 MHz auctions, are addressed in the 700 MHz consultation document. Interested parties are encouraged to provide their comments pertaining to these issues through the 700 MHz consultation process.Footnote 21 Comments for the 700 MHz consultation are due on February 28, 2011, and reply comments are due on March 30, 2011. Issues, including the consideration of any mechanisms that may be required to address competition specifically in the 2500 MHz band, will be addressed within this paper.

As part of the current consultation, the Department seeks views on the mechanisms specifically related to the 2500 MHz band, in light of the band plan decisions announced in Part A of this paper.

4.1 Spectrum Aggregation Limits and Spectrum Set-Asides

Recognizing that there are various mechanisms in a licensing process that can be used to promote competition, the Department has intervened in the past by using mechanisms such as spectrum aggregation limits (spectrum caps) and spectrum set-asides to foster competition. The same options could be considered should the Department decide that specific measures are necessary to promote competition in the wireless service market.

4.1.1 Spectrum Aggregation Limits (Spectrum Caps)

Spectrum aggregation limits (spectrum caps) restrict the amount of spectrum that any eligible bidder and its affiliates can purchase in a particular geographical region.

A spectrum cap was set for the 2001 PCS auction, effectively allowing for the entry of two new licensees. The cap had been applied to the combination of cellular (800 MHz), PCS (at 2 GHz) and other similar high-mobility radiotelephony services in the 800 MHz range, such as enhanced specialized mobile radio (ESMR), in order to ensure that new entrants had access to sufficient spectrum to effectively compete with the existing carriers. The cap was subsequently removed in 2004 due, in large part, to the opening of several other mobile bands and the convergence occurring with similar services and technologies.

Spectrum caps have also been used to prevent excessive concentration of spectrum at the time of opening new bands for competitive services. Such an aggregation limit was employed in the licensing of the 2.3 GHz and 3.5 GHz bands and remained in effect for a period of two years following the close of the auction.

Setting the right cap amount is critical. If the limit is too low, there may not be enough spectrum to satisfy the business needs of some companies. If it is set too high, it might fail to fulfill the goal of preventing spectrum concentration. Another factor to be considered when applying a spectrum cap is how it should be applied, e.g. whether the cap should apply only to the spectrum being auctioned, to spectrum that is held across one or more bands, or whether it should apply differently across various bidders. How it is applied could constrain the efficient allocation of the spectrum.

Possible options for implementation of a spectrum cap may include:

  1. spectrum to be licensed in individual bands (700 MHz separately from 2500 MHz);
  2. a combination of spectrum to be licensed in both bands (700 MHz and 2500 MHz); and
  3. a combination of spectrum to be licensed, as well as spectrum assigned by existing licences in bands available for commercial mobile systems (Cellular, PCS, AWS, BRS), e.g. spectrum below 1 GHz.

Industry Canada recognizes that different licensed service areas for Cellular, PCS, AWS and BRS may raise difficulties for the possible implementation of spectrum caps involving more than one spectrum band.

4.1.2 Spectrum Set-Aside

A spectrum set-aside as part of an auction occurs where eligibility to bid for a specific block is limited to entities that meet predefined criteria. A set-aside was used in the 2008 AWS licensing process where only new entrants, defined as participants holding less than 10% of the national wireless market, were permitted to bid on three (3) of the available eight (8) blocks of spectrum. Restrictions were also imposed to ensure that the licences arising from set-aside spectrum would not be transferred to companies that did not meet the "new entrant" criterion for a period of five (5) years from the date of issuance.

A set-aside mechanism is established in the context of specific block(s) sizes and geographic dimension of the licences. Ideally, where there is more than one set-aside block, they should be side by side so that eligible bidders could acquire contiguous spectrum, both spectrally and geographically. Having a set-aside block(s) ensures that one or more designated entities will be a successful bidder; however, qualified entities still have to bid competitively among themselves for the set-aside spectrum. The size of the set-aside is also a consideration in that it should be a sufficient amount of spectrum so that a designated entity could provide competitive services to Canadians. Restrictions on secondary market transactions and transferability on set-aside spectrum may need to be imposed for a specific time frame to limit opportunities for economic arbitrage of spectrum licences.

Should the Department decide to implement one of these measures, it will need to determine who should be subject to the spectrum aggregation limit or who would be eligible to access the set-aside spectrum during the auction, for example, solely the bidder, or also the bidders' affiliates and associated entities.

The following questions seek comments as to which mechanisms could be used to promote competition specifically in the 2500 MHz band.

Consultation:

3-1 If the Department determines that there is a need for measures to promote competition in the wireless services market, which of the above mechanisms would be most appropriate in the 2500 MHz band and why should this mechanism be considered over the other? Comments should also indicate if further restrictions should apply.

In light of your response above, and recognizing that pending decisions on block sizes and tier sizes could influence your response:

3-2

  1. If the Department were to implement spectrum aggregation limits (caps), should a cap apply to the 2500 MHz band? If a cap is necessary:
    1. What should be the size of the cap and should this be specific to either the paired and/or unpaired spectrum bands?
    2. Should bidders and their affiliates or associates share the cap?
    3. How long should the cap remain in effect?
  2. If the Department were to implement a set-aside in the 2500 MHz auction:
    1. Who should be entitled to bid in the set-aside block(s), and should the entitled bidders be restricted to bidding on the set-aside only?
    2. How much spectrum should be set-aside and which block(s) should be set-aside?
    3. If the set-aside were to include multiple blocks of spectrum, should these blocks be contiguous?
    4. What restrictions should be put in place to ensure that policy objectives are met (for example, should trading of the set-aside be restricted for a given time period)?

3-3 Are there other mechanisms that should be considered in the 2500 MHz band to promote competition? If so, how should such mechanisms be applied in this band?

3-4 The Government of Canada has undertaken a consultation on potential changes to the foreign investment restrictions that apply to the telecommunications sector. How would the adoption of any of the proposed changes affect your responses to the questions above?

Please provide supporting evidence and rationale for all responses.

3-5 The Department is seeking specific spectrum usage information from current commercial mobile licensees and entities interested in acquiring commercial mobile spectrum:

Do you plan to use the 2500 MHz spectrum acquired in the auction with, or on behalf of, another entity, which may participate in the auction? If yes, with which entity?

Your comments to this question will be treated as confidential provided that they are submitted separately (e.g. in an appendix) and clearly marked as "Confidential."

4.2 Promoting Service Deployment in Rural Areas

One of the objectives of the Telecommunications Act is to promote the availability of reliable and affordable telecommunications service to all regions of Canada. However, Canada's geography and widely dispersed population can render it difficult to make a business case for the deployment of advanced, innovative services in some rural and remote areas of the country. Consequently, some sparsely populated areas of the country may not have access to the advanced broadband services needed to prosper in today's digital economy.

Several government initiatives have been developed to promote and advance the availability of advanced services, or broadband connectivity in rural and remote areas.

As a component of Canada's Economic Action Plan, the Broadband Canada: Connecting Rural Canadians program aims to support the provision of essential broadband connectivity infrastructure to Canadians in remote and rural areas by providing an incentive to Internet service providers to extend their networks. The program's goal is to extend broadband service to as many unserved and underserved Canadian households as possible. In addition, the CRTC recently approved the use of deferral accounts towards investments for deployments of broadband services in unserved communities.Footnote 22

The recent Consultation Paper on a Digital Economy Strategy for Canada sought views on how the government could best ensure that rural and remote communities are not left behind in terms of access to advanced networks, as well as views on the suggested priority areas for attention in these regions.

Industry Canada continues to seek advice and consider options for promoting deployment in rural, remote and low-density areas, both within specific auction processes and within a broader policy context, noting that the challenges encountered in such areas can vary based on several factors, including geography, population density and the state of the marketplace.

Through other consultations initiated by Industry Canada, some respondents have identified access to spectrum as an impediment to the deployment of advanced services in rural areas. Since 1999, the Department has used auctions to assign spectrum in situations where spectrum demand exceeds supply. In addition to the auction process, there exist several options for stakeholders to access spectrum in rural or remote areas. For example, a spectrum licensee may apply to transfer its licence(s) in whole or in part (divisibility), in both the bandwidth and geographic dimensions. This creates an opportunity for those interested in providing service in rural areas to approach current licensees to discuss a mutually beneficial commercial arrangement for access to spectrum already licensed. There has been some secondary market activity in the PCS, 2500 MHz and 3500 MHz bands, as well as in the 24 GHz and 38 GHz bands in the past where the Department approved applications for licence transfers and divisions, as well as subordinate licence applications. Upon receipt of an application signed by both interested parties, the Department verifies that the licensee and transferee meet the eligibility criteria and all other conditions of licence, technical or otherwise, prior to consideration for ministerial approval. Upon approval, the necessary changes to the related licences are implemented.

Within an auction process, an opportunity exists where parties wishing to serve various rural or remote communities within a tier area can form a bidding consortium and enter the auction with the goal of obtaining a licence and then having each consortium member provide service to a portion of the licensed tier area.

In the Consultation on the Revisions to the Framework for Spectrum Auctions in Canada and Other Related Issues, some stakeholders provided comments in favour of the development of a smaller tier that separates rural and urban areas. They suggested that this would reduce barriers to the provision of rural service. However, most argued that Tier 4 should be the smallest subdivision, further noting that smaller tier sizes would not facilitate a viable and sustainable business case and would increase the complexity of frequency coordination issues.

Another option for accessing spectrum is outlined in Radio System Policy RP-19, Policy for the Provision of Cellular Services by New Parties.Footnote 23 This policy allows for new parties who propose services in areas that are unserved or underserved to apply for a licence for spectrum already licensed to a cellular incumbent. Where mutually agreeable arrangements cannot be established between the two parties, new parties may apply through the RP-19 process for consideration. In addition, some PCS spectrum remains available for licensing on a first-come, first-served basis.

In the 700 MHz consultation, the Department is seeking comments on the challenges and specific problems affecting the deployment of broadband services in low-density rural and/or remote areas, as well as comments on whether there is a need for further regulatory measures or changes to existing regulatory rules to facilitate service deployment in these areas that remain unserved and/or underserved. Should participants in the 2500 MHz consultation wish to submit comments in response to those questions (which are included in Section 8 of the 700 MHz consultation, "Promoting Service Deployment in Rural Areas"), they should do so in the 700 MHz consultation. Comments in that consultation are due on February 28, 2011, and reply comments are due on March 30, 2011.

The Department notes that several incumbent operators have already deployed systems in rural areas using the 2500 MHz band. The following question seeks comments on whether specific measures could be adopted within the 2500 MHz spectrum auction process to ensure further deployment of BRS in rural and/or remote areas.

Consultation:

4-1 Comments are sought on specific measures that could be adopted within the 2500 MHz spectrum auction process to ensure further deployment of BRS in rural and remote areas (e.g. roll-out conditions, tier structure, etc.).

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