Final Policy and Licensing Procedures for the Auction of the 24 and 38 GHz Frequency Bands

6. Licensing Process

The comments received in the consultation process indicated a general agreement with the department's proposed steps for licensing the 24 and 38 GHz bands. Therefore, as proposed in the consultation paper, a simultaneous multiple round auction will be employed. The process by which interested parties may apply to participate in the auction and the design and rules of the auction are laid out below.

The department makes no representations or warranties about the use of this spectrum for particular services. Applicants should be aware that this auction represents an opportunity to become a licensee, subject to certain conditions and regulations. An Industry Canada auction does not constitute an endorsement by the department of any particular services, technologies or products, nor does a spectrum licence constitute a guarantee of business success. Applicants should perform their individual due diligence before proceeding as they would with any new business venture.

The department expects that the actual bidding will commence in early October, 1999. A summary of key dates associated with this licensing process is located in Appendix 2. Interested parties are advised to check for updates on this schedule of events from the department's Strategis Web site (http://strategis.ic.gc.ca/spectrum).

Public information sessions to provide a general overview of this licensing process will be held in the weeks following the publication of this document. These sessions are for information only. The policies and rules associated with this licensing process are set out in their entirety in this document, and in any written amendment or supplement that may be issued by the department. These sessions are scheduled between June 4 and June 23, 1999. Interested parties are invited to visit the department's Strategis Web site (http://strategis.ic.gc.ca/spectrum) to get further information on the location and scheduling of these sessions and to register for them.

6.1 Application Process

6.1.1 Submission of Applications

Copies of the forms that must be submitted to apply to participate in the auction are contained in Appendices 3 and 4 of this document. Additional copies of the forms can be obtained electronically from Industry Canada's Strategis Web site, http://strategis.ic.gc.ca/spectrum, or in hard copy, for a fee, from:

Tyrell Press Ltd.
2714 Fenton Road
Gloucester, Ontario
K1T 3T7
Canada toll-free no.: 1–800–267–4862
U.S. toll-free no.: 1–800–574–0137
Worldwide tel. no.: 613–822–0740
Fax number: 613–822–1089

or

Canada Communication Group Inc.
45 Sacré-Coeur Blvd.
Hull, Quebec
K1A 0S9
Toll-free no.: 1–888–562–5561
Worldwide tel. no.: 819–779–4335
Fax number: 819–779–2858

These forms, any associated documents 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 in a form acceptable to the department (see Appendix 3)—must be physically delivered to the Manager, Wireless Networks (address given in section 1) by 5:00 p.m., Eastern daylight time (EDT), August 6, 1999. Application materials (forms, documents and/or financial deposits) received after this deadline will not be accepted.

More information on the calculation of the amount of the required deposit is provided in section 7 of this document and in the Application to Participate in the Auction of the 24 and 38 GHz Frequency Bands form in Appendix 3.

Upon receipt of application materials, the department will send notification to the applicant that the application materials have been received and confirming the amount of the deposit that has been submitted. This notice will in no way 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 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 to the address listed above 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 must be physically delivered by the application deadline noted above.

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 and stating 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 will in no way mean that the amended form(s) or the additional deposit has been approved.

6.1.2 Review of Applications

The department will begin to review the forms (and any associated documents) and the accompanying irrevocable standby letters of credit after the closing date for the submission of applications, 5:00 p.m. (EDT), August 6, 1999. The department's initial review will be completed approximately one week later.

An application to participate in the auction will be rejected if the eligibility criteria set out in section 2.3 of this document have not been met or if the required financial deposit has not been provided.

After the initial review period, the department may request further information related to affiliates.

The department will also provide applicants with an opportunity to make clerical corrections, e.g., to correct typographical errors, to add missing signatures, or to submit a missing form. Applications that are rejected for clerical problems will be returned to the applicant with a brief statement as to the discrepancy(ies) and/or omission(s) and the applicant will be invited to resubmit a corrected form.

Any additional information requested and/or corrected forms must be physically delivered to the Manager, Wireless Networks (address given in section 1) by the date specified in the statement sent by the department. Applicants who do not comply with this request will have their applications to participate in the auction rejected. If resubmitted forms are still found to be unacceptable, they will be rejected and no further opportunity for resubmission will be provided.

Applications that are rejected, including those for which an opportunity has been provided to correct clerical errors but are still found to be defective, will be returned to the applicants with a letter stating the problem(s). The applicant's irrevocable standby letter of credit will also be returned along with the letter of non-acceptance.

Applicants who have submitted acceptable forms and accompanying financial deposits will receive a Qualified Bidder Certificate and the necessary software, instructions, and codes to allow them to utilize the department's automated bidding system. This will include encryption software that will allow bids to be submitted securely over the Internet.

Qualified bidders will also receive information on mock auctions and/or bidder information sessions that will be held (in mid to late September, 1999) to allow bidders to better familiarize themselves with the auction system. The initial schedule of the actual auction will also be provided at this time. (The auction is expected to open in early October, 1999.)

A list of all qualified bidders, the licences on which they are eligible to bid, and their initial level of eligibility pointsFootnote 26 will be made public via the department's Strategis Web site in late August.

Copies of the list will also be available in hard copy, for a fee, from Tyrell Press Ltd. or Canada Communication Group Inc.

6.1.3 Withdrawal of Application Forms

Applicants wishing to withdraw their application materials and have their irrevocable standby letters of credit returned may do so, without prejudice, by sending a written request to the Manager, Wireless Networks (address given in section 1). This request must be physically delivered to the Manager, Wireless Networks prior to 5:00 p.m. (EDT) on the business day preceding the opening of the auction.

6.1.4 Change of Information

Prior to the close of the auction, qualified bidders must notify the Manager, Wireless Networks (address given in section 1) of any material changes in the information submitted in their application documents. Such notification must take place within five business days of such change.

6.2 Prohibition of Collusion

Prospective bidders will note that the auction application form contains 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 or its affiliates, who 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 policy (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 bid is made.

6.3 Notifications of Interest

The department has found in the past that the publication of a simple list of interested parties early in the licensing process has been helpful. Therefore a voluntary "Notification of Interest" process will be facilitated.

A copy of the form that must be submitted to participate in this process is contained in Appendix 5 of this document. Additional copies of this form can be retrieved electronically from Industry Canada's Strategis Web site or in hard copy, for a fee, from Tyrell Press Ltd. or Canada Communication Group Inc. To participate in the "Notification of Interest" process, the form must be submitted to the Manager, Wireless Networks (address given in section 1) by 5:00 p.m. (EDT), July 9, 1999. The form may be submitted by fax or email, provided it is received by the specified deadline.

Shortly after this date, a list will be prepared which will contain the name, address and phone number of those who participated in the "Notification of Interest" process. The list will be sent to all those who participated in the process and will be made available in electronic format on the department's Strategis Web site and in hard copy, for a fee, from Tyrell Press Ltd. or Canada Communication Group Inc.

6.4 Amendments and Supplements

The department may amend or supplement the policies and rules contained in this document. Any such amendment or supplement will be published on the department's Strategis Web site (http://strategis.ic.gc.ca/spectrum) and will be sent to all qualified bidders.

Written questions asking for clarification of rules or policies will be accepted. It should be noted that no confidential questions will be accepted and that all questions received and the department's written answers to these questions will be made public. Such answers will be considered as amendments or supplements to the policies and rules set out in this document.

Written questions must be submitted to the Manager, Wireless Networks (address given in section 1) by 5:00 p.m. (EDT), July 9, 1999. These written questions may be submitted by fax or email, provided that they are received by the specified deadline. The department will publish the questions and its responses on the department's Strategis Web site as soon as possible after the deadline for receipt. Copies of the questions and answers will also be available in hard copy, for a fee, from Tyrell Press Ltd. or Canada Communication Group Inc.

6.5 Auction Design and Rules

The department notes the general support in the consultation comments for the use of a simultaneous multiple round auction and thus will use this auction design.

Respondents were divided on the question of whether multiple-increment bidding should be introduced for this first spectrum auction. While the department recognizes the potential benefits offered by the multiple-increment format, it believes greater overall benefits will be derived by proceeding quickly to licensing using its existing software system. Therefore, single-increment non-discretionary bidding will be used.

As auction theory advances and as more experience is gained worldwide with the operation of simultaneous multiple round auctions, the department continues to monitor "best practices". New developments that have come to the department's attention since the August 1998 release of the consultation paper on the 24 and 38 GHz bands have led the department to make some changes to the auction rules regarding activity rule waivers (more waivers will now be provided) and bid withdrawals (additional penalties will be assessed to bidders who makelarge numbers of bid withdrawals). Prospective bidders are advised to carefully read the relevant sections below.

The auction will be run electronically and bidders will be able to participate remotely from their premises using a secure Internet connection. The key features of the simultaneous multiple round auction are listed below.

  • The rules for the simultaneous multiple round auction call for a related set of licences to be offered at the same time. Bidding is organized into a series of rounds. The identities of all bidders, the licences on which they are qualified to bid, and their initial levels of eligibility points will be made public prior to the commencement of bidding. As well, full information on the bids placed by all bidders will be made available after each round.
  • New bids for a licence are non-discretionary. The department will state the exact level of an acceptable new bid. The new bid will typically be determined by raising the standing high bid by some pre-established bid increment. Bidders will have no discretion to choose a higher bid; rather they will simply choose whether or not to submit the new bid. This non-discretionary format allows rounds to be more brief and more frequent, both because the mechanics of entering and checking bids are simpler and because the prices never "jump" by unexpected amounts, making them more predictable. This also reduces the need for frequent executive oversight during the bidding, saving costs for the bidders.
  • 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" (defined in section 6.5.2), which penalizes bidders who are inactive by reducing their "bidder eligibility points" (defined in section 6.5.1).
  • The rounds continue until there is a round in the third stage (auction "stages" are defined in section 6.5.2) in which no new bids or pro-active waivers (see section 6.5.7) are submitted on any licence. The standing high bidders on each licence at the auction's close will be deemed the provisional winners of those licences.
  • When two or more bids are submitted on the same licence in the same round, the bidder whose bid was received first will be granted the status of standing high bidder in the next round.

All these details of the auction format are discussed more fully below.

6.5.1 Bidder Eligibility Points

Each licence has been assigned a number of points approximately proportionate to the bandwidth and population covered by that licence (see Appendix 6 for a listing of all licences). Each potential bidder must indicate in its application materials the total number of "points-worth" of licences that it may wish to bid on in any round. This number, which also determines the amount of the pre-auction deposit required from the applicant (i.e. the required deposit will be calculated on a dollar per point basis – see section 7.2), defines the initial level of "bidder eligibility points". The total number of eligibility points associated with all licences available in this auction is 3852. Hence the maximum level of eligibility points that may be requested is 3852 and the maximum deposit that could be required is $9,630,000.

In the event that an applicant's requested level of eligibility points does not correspond with the amount of the deposit submitted, then that applicant's level of eligibility points will be determined by the value of the deposit submitted.

6.5.2 Activity Rule

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 a bid in that 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 some percentage of the bidder's level of eligibility points. The department expects this figure to be in the range of 60% to 80% in stage one. In the second stage the percentage will be increased (to, say, 80% or 90%), and in the final stage bidders must be active on 100% of their eligibility point levels. The precise figure for the initial required activity level will be communicated to all qualified bidders well before the auction begins.

If a bidder falls short of the required activity level, the bidder's eligibility point level shrinks proportionately: the number of eligibility points for the next round is equal to the bidder's actual activity level in the current round multiplied by the reciprocal of the required activity level (e.g. 1/60% in stage one). It is important to note that where the activity level percentage results in a required activity level that is not a whole number, the bidder should round this number up to determine the minimum activity level that will result in the level of eligibility points remaining the same in the next round. Similarly, when determining the level of eligibility points for the next round, if the product of the actual activity level and the reciprocal of the activity level factor is not a whole number, then this number is rounded down.


Examples

  1. Bidder X has 180 eligibility points. The auction is in stage one and the required activity level is, say, 60% – which means 108 points for Bidder X . Bidder X is active on 110 points worth of licences. Since the actual activity (110) level exceeds the required activity level (108), Bidder X will maintain its full 180 eligibility points for the next round.
  2. Bidder Y has 39 eligibility points. The auction is in stage two and the required activity level is, say, 80%. Multiplying 39 by 80% gives 31.2. To maintain its eligibility level of 39 points, Bidder Y must be active on 32 points worth of licences (rounded up from 31.2) in the current round. If Bidder Y is active on only 17 points worth of licences, then its eligibility in the next round will be 21 points: (17 * (1/80%)) = 21.25, which is rounded down to 21.
  3. Bidder Z has 12 eligibility points. The auction is in stage three, so the required activity level is 100%. Bidder Z is active on 8 points worth of licences. In the next round, Bidder Z will have only 8 eligibility points: (8 * (1/100%)) = 8.

It is also important to note that a bidder will not add to its activity level by topping its own standing high bid on a licence. The bidder will be considered active on that licence by virtue of being the standing high bidder on it. The bidder will not be credited for additional activity by topping its own standing high bid.

6.5.3 Stage Changes

The auction will begin and continue in stage one until bidding activity declines to a low level (for example, three consecutive rounds in which new bids are placed on licences representing ten percent or less of the total eligibility points associated with all licences up for bidding). At this point, the auction will move to stage two - and similarly to stage three later in the auction.

The department will retain the discretion throughout the auction as to when a stage change will occur, but bidders will always be notified in advance, through the message function of the automated auction system, before a stage change is implemented.

Bidders are advised to be especially careful about checking their required activity levels after a stage change has occurred.

6.5.4 Withdrawal of Bids and Related Penalties

Bidders will be given the opportunity to withdraw their standing high bids. To encourage meaningful bids and to ensure that no loss of revenue occurs as a result of such withdrawals, 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—either in that auction or in a subsequent re-auction—for more than the withdrawn bid, then generally 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.

When a standing high bid is withdrawn on a licence, and assuming that no new bids are submitted on that licence in that round, the status of standing high bidder on that licence will revert to Industry Canada in the next round and the acceptable bid for the next round will be equal to the value of the withdrawn bid. The department reserves the right to lower the amount of the acceptable bid in later rounds if there is no bidding activity on that licence.

If no new bids are submitted on the licence, then the licence will be offered in a re-auction that will begin between six and twelve months after the close of the initial auction.Footnote 27

In order to deter the potential misuse of withdrawals as a signalling mechanism or as a means of unduly delaying the auction's close, the department will impose additional penalties on a bidder once that bidder has withdrawn standing high bids in more than five rounds of the auction. This penalty will be equal to the greater of (a) 2% of the value of the withdrawn standing high bid and (b) $10,000 for each withdrawn standing high bid, and will be in addition to the withdrawal penalties described above. This penalty will be assessed regardless of whether the ultimate selling price of the licence is above or below the withdrawn bid.

These additional penalties will serve to cover the administrative expenses the department will incur if the auction's close is delayed due to a series of repeated withdrawals by a bidder.


Examples:

Bidder X has made no withdrawals in the first seven rounds of the auction. In round 8, Bidder X withdraws a bid of $10,000 on Licence I. Licence I eventually is sold for $8000. Since the ultimate selling price of the licence is below the withdrawn bid, Bidder X owes a "standard" withdrawal penalty of $2000.

Bidder Y withdraws one or more standing high bids in each of five different rounds, say, rounds 4, 7, 12, 19 and 24. The penalties for these withdrawals will be calculated as the difference between the withdrawn bids and the eventual final selling prices of these licences, assuming the former is greater than the latter. Any withdrawals made by Bidder Y in round 25 and beyond will now be subject to the "standard" withdrawal penalty that applied to the withdrawals made in the previous rounds, and also the additional 2%/$10,000 penalty.


6.5.5 Bid Increments

Bid increments, like activity rules, are necessary to help hasten the auction's progress. The offered bid price on a licence will be equal to the current standing high bid plus the bid increment.

Bid increments will be calculated in both percentage and absolute terms and will vary with the auction stages, as outlined below. When a licence receives a new bid, the larger of the two increments will be applied to determine the offered bid price for the next round. The new offered bid price for that licence will be rounded up to three significant digits.

In stage one of the auction, the percentage increment will be set at 15% of the standing high bid and the absolute increment will be set at $1000/eligibility point. As the auction progresses, these increments will be changed to allow bidders greater precision in their bids and to keep the auction moving forward at an acceptable pace. Contemplated changes to the bid increment levels will be announced to bidders well ahead of their implementation.

6.5.6 Activity Rule Waivers

Activity rule waivers are designed to prevent a bidder from losing eligibility points 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, to allow them to maintain eligibility point levels in the case of technical or communication problems, or to provide them with a "time-out" during which senior management can be consulted on bidding strategy issues.

When a bidder attempts to submit bids such that its actual activity level is below the required activity level, a warning message will appear advising the bidder that it may either submit these bids along with one of its waivers and thus maintain its full level of eligibility points for the next round, or the bidder may choose not to use a waiver and accept a reduction in its total level of eligibility points for the next round.

The use of the waiver is the default setting in the automated auction system, thus if technical problems prevent a bidder from accessing the auction system, a waiver will automatically be submitted on the bidder's behalf and the bidder's level of eligibility points will remain unaffected for the next round. If a bidder uses all its waivers, then the "use a waiver" option will not appear, nor will an automatic waiver be submitted on the bidder's behalf.

To provide bidders with the possibility to take a reasonable "time-out", bidders will be given more waivers as the number of rounds per day increases. The department expects that for the first day or two of the auction, only one or two rounds per day will be held. As the auction progresses, up to ten or fifteen rounds may be held per day. Each bidder will be given five waivers at the beginning of the auction. Waivers will be added as indicated below.

Activity rule waivers
When number of rounds
per day becomes:
Each bidder will be given this
many waivers in addition to the
number it has remaining:
6 to 8 3
9 to 10 2
11 to 15 5

Example:

At the opening of the auction all bidders begin with five waivers. During the first week of the auction, only two rounds of bidding are held per day.

Bidder X uses one waiver during the first week and thus begins week two with four waivers. Bidder Y uses no waivers during the first week and thus begins week two with five waivers.

During week two there are five rounds of bidding per day. Neither Bidder X nor Bidder Y use any waivers during week two. It is announced that during week three there will be seven rounds of bidding per day. Thus all bidders are given an additional three waivers. Bidder X will begin week three with seven waivers and Bidder Y will begin week three with eight waivers.


Bidders are advised to use their activity rule waivers judiciously.

6.5.7 Pro-Active Waivers

Bidders will also be able to submit "proactive" waivers to prevent the auction from closing. Once in stage three, the auction will tentatively close when a round goes by without any bids having been submitted on any licences. (See section 6.5.9.) After the end of such a round, bidders will be advised via the automated auction system that the auction will close unless a proactive waiver is submitted to keep the auction open for another round. Bidders who have waivers remaining may submit such a proactive waiver by calling a specified telephone number within a specified time period.

All bidders who call within the specified time period to submit a proactive waiver will have one of their waivers deducted and the auction will continue. If no proactive waivers are submitted within the specified time period, then the auction will close.

6.5.8 Withdrawal from the Auction

A bidder may have its irrevocable standby letter of credit returned to it upon presentation of a written request to the Manager, Wireless Networks (address given in section 1) if:

  • the eligibility points of the bidder are reduced to zero during the auction;
  • the bidder is not potentially liable for any withdrawal penalties; and,
  • the bidder is not the standing high bidder on any licence.

Upon receipt of such a request, the department will confirm that the conditions outlined above have been met and will then return the irrevocable standby letter of credit to the bidder.

6.5.9 Closure of the Auction

The auction will not close until stage three has been reached. Once stage three has been reached, the auction will close when a round concludes without (a) any bids having been submitted on any licences and (b) without any proactive waivers having been submitted. Entering a bid and then removing that same bid within a single round will not prevent the auction from closing.

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.

The standing high bidders on each licence at the auction's close will be declared the provisional winners of those licences.

Licences which go unsold will be offered in a re-auction that will begin between six and twelve months after the close of the initial auction.Footnote 28

6.6 Post-Auction Procedures

6.6.1 Bids and Withdrawal Penalties

After the auction's close, the sum of the standing high bids and the sum of any withdrawal penalties incurred will be calculated for all bidders. If the value of any withdrawal penalties cannot be calculated at that time because one or more licences remain unsold at the auction's close, the full value of the withdrawn bid will be used as an interim proxy for the value of the withdrawal penalty.Footnote 29 For each bidder, one of the scenarios laid out below will apply.

  • If the sum of a bidder's standing high bids equals zero and the sum of its withdrawal penalties equals zero, then that bidder's irrevocable standby letter of credit will be returned to it.
  • If the sum of a bidder's standing high bids equals zero and the sum of its withdrawal penalties is greater than zero, then that bidder will be required to submit a certified cheque for the full amount of the withdrawal penalties within ten business days of the auction's close. If a certified cheque for the full amount of the withdrawal penalties is not received by the department within ten business days of the auction's close, then the bidder's irrevocable standby letter of credit will be drawn upon for the full amount of the withdrawal penalties. If the full amount of the irrevocable standby letter of credit is less than the full amount of the withdrawal penalties, then the difference will be owing and payable to the Receiver General for Canada.Footnote 30
  • If the sum of a bidder's standing high bids is greater than zero and the sum of its withdrawal penalties is equal to zero, then that bidder will be required to: (1) submit a certified cheque with a value equal to twenty percent of the sum of the standing high bids within ten business days of the auction's close; and (2) submit a second certified cheque with a value equal to eighty percent of the sum of the standing high bids within thirtyFootnote 31 business days of the auction's close. If either of the required certified cheques is not received by the department within the specified time-frames, then the bidder's irrevocable standby letter of credit will be drawn upon for the amount in question. If the value of the irrevocable standby letter of credit is less than the required amount, then the bidder will forfeit its right to have the licence issued to it and will be subject to the forfeiture penalties discussed in section 6.6.2.
  • If the sum of a bidder's standing high bids is greater than zero and the sum of its withdrawal penalties is greater than zero, then that bidder will be required to: (1) submit a certified cheque with a value equal to twenty percent of the sum of the standing high bids plus one-hundred percent of the sum of the withdrawal penalties within ten business days of the auction's close; and (2) submit a second certified cheque with a value equal to eighty percent of the sum of the standing high bids within thirtyFootnote 32 business days of the auction's close. If either of the required certified cheques is not received by the department within the specified time-frames, then the bidder's irrevocable standby letter of credit will be drawn upon for the amount in question. If the value of the irrevocable standby letter of credit is less than the required amount, then the bidder will forfeit its right to have the licence issued to it and will be subject to the forfeiture penalties discussed in section 6.6.2.

Example:

Bidder X withdrew a bid of $15,000 on Licence I which was eventually won by Bidder Y for $13,000. Bidder X withdrew a bid of $12,000 on Licence II which remained unsold at the auction's close. At the auction's close, Bidder X was the standing high bidder on Licence III for $25,000 and Licence IV for $30,000. In a re-auction six to twelve months after the close of the initial auction, Licence II sold for $9000.

At the auction's close, the sum of Bidder X's standing high bids is $55,000 and the sum of Bidder X's withdrawal penalties is $14,000 (withdrawn bid of $15,000 less final selling price of $13,000 equals withdrawal penalty of $2000 for Licence I and withdrawn bid of $12,000 equals interim proxy withdrawal penalty of $12,000 for Licence II).

Within ten business days of the auction's close, Bidder X must submit a certified cheque for $25,000: 20% of the value of the standing high bids equals $11,000 and 100% of the value of the withdrawal penalties equals $14,000, which totals $25,000. Within thirty business days of the auction's close, a certified cheque for an additional $44,000 will be required.

When the re-auction for Licence II is held, the correct withdrawal penalty for Bidder X can be calculated as $3000. Bidder X will then be refunded $9000.


6.6.2 Bid Forfeiture and Related Penalties

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.Footnote 33 If the licence is not sold in the re-auction, then the re-auction price will be deemed to be zero and the penalty will be calculated accordingly. An additional amount of 3% of the original forfeited bid will be charged, regardless of the re-auction price, to account for the administrative expenses associated with the re-auction.

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, then the difference will be owing and payable to the Receiver General for Canada.Footnote 34

Any bidder who forfeits on a licence will be ineligible to bid on it in the re-auction of that licence.

6.6.3 Eligibility Documentation

Bidders who are provisional licence winners will be required to submit documentation related to their compliance with Condition of Licence 4, "Eligibility Criteria", discussed in section 5.1 of this policy document. The following documents must be submitted within ten business days of the auction's close.

  • A declaration as to whether the provisional licence winner will or will not be acting as a radiocommunication carrier.
  • Eligibility documents, e.g., certificate of incorporation, if the provisional licence winner indicates it will not be acting as a radiocommunication carrier.
  • The Declaration of Ownership and Control (see Appendix 7), as well as all documents listed therein, if the provisional licence winner indicates that it will be acting as a radiocommunication carrier.Footnote 35

    The department will review these documents on an expeditious basis. The department will then notify each provisional winner whether it complies with the Canadian ownership and control requirements. In the event that a provisional licence winner does not, in the opinion of the department, comply with the Canadian ownership and control requirements, the department will require that the provisional licence winner make changes in order to become compliant.

6.6.4 Enforcement of Spectrum Aggregation Limits

The spectrum aggregation limits discussed in Sections 2.3.4 and 2.3.5 of this document will be enforced as described below.

  • During the course of the auction, bidders may place bids on licences whose total bandwidth exceeds the spectrum aggregation limit. However, any bidder who at the auction's close is the standing high bidder on licences such that it and its affiliates will exceed the aggregation limit in any service area 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 6.6.2 will apply.
  • At the auction's close, if any entity who holds 28 GHz LMCS licences is the standing high bidder on 24 and/or 38 GHz licences such that this spectrum, in addition to its LMCS holdings, puts it and its affiliates in violation of the spectrum aggregation limit for an area, then it must forfeit, subject to the forfeiture penalties discussed in section 6.6.2, bids on the 24 and/or 38 GHz spectrum for that area, and/or divest sufficient LMCS spectrum for that area to ensure that its total 24 GHz, 28 GHz and 38 GHz holdings do not exceed the aggregation limit. The licensee may return LMCS spectrum to the department, or it may apply to the department for permission to transfer some or all of its LMCS spectrum to an eligible third party. Transfer of spectrum will be considered in 100 MHz blocks for one or more of the original areas for which the department granted a licence, with emphasis on the retention of the capability to use all the LMCS spectrum efficiently.

In the case of a request to transfer any of the LMCS spectrum, all the required paperwork from both parties (the LMCS licensee and the eligible third party), must be submitted to the department within thirty business days of the auction's close, along with the required payment for the bid amounts on the 24 and 38 GHz licences as outlined in section 6.6.1. Failure to submit all the paperwork required for the department to render a decision on the transfer within this thirty-day time limit will result in the LMCS licensee being deemed to have forfeited on all of its high bids for licences covering the service area(s) in question. The forfeiture penalties discussed in section 6.6.2 will apply.

6.7 Software Requirements

The department's automated auction system features a user-friendly web browser interface. The auction will be run over the Internet and bids will be encrypted and digitally signed to ensure security. Each entity that is qualified to participate in the auction will designate up to three individuals to submit bids on its behalf.

The results of each round will be accessible to bidders through the auction system. These results will also be posted on the department's Strategis Web site so that anyone who is interested may monitor the auction's progress. Bid tracking software that can be used to analyse round results will be made available to the public.Footnote 36 It is important to note, however, that the department will not be providing any form of user support for this bid tracking software.

To access and run the department's auction software with maximum performance, the following are recommended:

  • a Pentium 133 (or better) CPU;
  • at least 32 MB of RAM;
  • a CD-ROM drive;
  • Windows 95, or Windows NT;
  • a 56 kbps (or faster) modem; and,
  • a reliable Internet Service Provider (ISP).

The required Web browser and encryption software will be provided to all bidders.

6.8 Back-up Procedures

Bidders are strongly advised to prepare contingency plans and back-up facilities and locations, including multiple means of accessing the Internet, in the event of technical difficulties at their primary bidding locations. As discussed above, all bidders will also receive a number of activity rule waivers which will protect their eligibility point level for several rounds in case they are unable to access the auction system.

In the Application to Participate in the Auction of the 24 and 38 GHz Frequency Bands form (see Appendix 3), applicants are requested to designate at least three individuals who will have authority to place bids on behalf of the applicant. Each designated bidder will receive separate software packages and codes to participate in the auction. Having more than one individual designated as "bidders" will strengthen back-up contingency plans for applicants in case there are unforeseen problems.

As a last resort, the department will also provide a limited back-up facility for bidders who experience technical difficulties which prevent them from accessing the auction system. Bidders will call a "bidder help line" in order to have departmental staff submit bids on their behalf. Only the individuals listed on the bidder's Qualified Bidder Certificate will be able to submit back-up bids using this procedure.

Departmental resources available for this task will be limited and hence it is possible that bidders may have to wait to have their bids submitted. Bidders must call early enough in the round to ensure that there is sufficient time for their bids to be submitted. Rounds will not be extended to provide extra time for the submission of back-up bids. While the department will use its best efforts to submit bids on behalf of bidders, the department assumes no responsibility if such bids are not submitted.

The departmental representative taking such calls will use a prepared script and bidders must adhere to this script in giving the required information to the departmental representative. All telephone transactions will be recorded.

The department will prepare lists of one-time transaction code keys which will be used to authenticate the back-up bids transmitted by telephone. Each bidder will be issued a list of transaction code keys, each of which will be made up of eight randomly generated numbers. No two lists will be the same. Bidders will be bound by any bid made with their transaction code keys as agreed to in the Deed of Acknowledgment (contained in Appendix 4 of this document).


Footnotes

  1. back to footnote reference 26 Discussed in section 6.5.1.
  2. back to footnote reference 27 Other assignment processes may be considered for 24 and 38 GHz spectrum in certain areas, e.g. remote and rural areas of Canada, if it can be determined that there are no mutually exclusive demands for spectrum that was left unassigned at the close of the auction.
  3. back to footnote reference 28 Other assignment processes may be considered for 24 and 38 GHz spectrum in certain areas, e.g. remote and rural areas of Canada, if it can be determined that there are no mutually exclusive demands for spectrum that was left unassigned at the close of the auction.
  4. back to footnote reference 29 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 withdrawal penalty until the re-auction.
  5. back to footnote reference 30 If a re-auction results in the calculated values of final withdrawal penalties being different from the interim proxy values, then the difference will be refunded to the bidders in question.
  6. back to footnote reference 31 Note that this has been reduced from the forty-five business days suggested in the consultation paper.
  7. back to footnote reference 32 Note that this has been reduced from the forty-five business days suggested in the consultation paper.
  8. back to footnote reference 33 Suppose that a bid of $100,000 was forfeited on licence X after the auction. The ultimate selling price of licence X will not be known until a re-auction and hence the value of the forfeiture penalty cannot be calculated until that time. The full value of the forfeited bid plus 3% ($103,000 in this example) would be used as the interim proxy forfeiture penalty until the re-auction.
  9. back to footnote reference 34 If a re-auction results in the calculated values of final forfeiture penalties being different from the interim proxy values, then the difference will be refunded to the bidders in question.
  10. back to footnote reference 35 See Industry Canada (April 1, 1999), Canadian Ownership and Control (CPC-2-0-15) (available on the Strategis Web site at http://strategis.ic.gc.ca/spectrum), as amended from time to time.
  11. back to footnote reference 36 On the department's Strategis Web site (http://strategis.ic.gc.ca/spectrum).
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