Licensing Framework for Mobile Broadband Services (MBS) — 700 MHz Band

5. Bidder Participation — Affiliated and Associated Entities

5.1 Affiliated Entities

166. In its consultation, Industry Canada proposed that the definition of affiliated entities remain essentially as it was for the AWS auction.

Summary of Comments

167. None of the respondents to this issue suggested changes to this condition of licence.

Discussion

168. Upon review of the proposed wording, Industry Canada noted that changes could be made to clarify the definition without changing the substance. Specifically, reference to a "person" could be removed and the remaining text simplified.

Decision

169. Based on the above, the definition of affiliated entities will be modified as follows:

An entity will be deemed to be affiliated with a bidder if it controls the bidder, is controlled by the bidder, or is controlled by any other entity that controls the bidder. "Control" means the ongoing power or ability, whether exercised or not, to determine or decide the strategic decision-making activities of an entity, or to manage or run its day-to-day operations.

170. The participation rules with regard to affiliated entities will remain unchanged. Therefore, only one member of an affiliate relationship will be permitted to become a qualified bidder in the auction or the affiliated entities may apply to participate jointly as a single bidder. Affiliated entities must decide prior to the application deadline which entity will apply to participate in the auction. All affiliations must be disclosed at the time of the application.

5.1.1 Presumption of Affiliate Status

171. If a person owns, directly or indirectly, at least 20% of the entity’s voting shares (or where the entity is not a corporation, at least 20% of the beneficial ownership in such entity), Industry Canada will generally presume that the person can exercise a degree of control over the entity to establish a relation of affiliation. The ability to exercise control may also be demonstrated by other evidence. Under this rule, Industry Canada may, at any time, ask a prospective bidder for information in order to satisfy any question of affiliation.

172. Should the entities fail to provide the relevant information in a timely fashion to allow Industry Canada to complete its determination, the Department may make a ruling on eligibility, based on the above, that the entities in question are affiliated.

5.2 Associated Entities

173. In support of the stated policy objectives of competition, investment and timely deployment to rural areas, Industry Canada recognized that changes to the existing rules should be considered and proposed changes to the definition and treatment of associated entities in its consultation. The spectrum and network efficiencies that can be achieved through various forms of associations and arrangements may help to address the current scarcity of spectrum in the 700 MHz band, the high demand for capacity by customers and the high cost of network deployment, particularly in rural areas.

5.2.1 Definition of Associated Entities

174. Comments were sought on the following proposed definition of associated entities:

Any entities that enter into any partnerships, joint ventures, agreements to merge, consortia or any arrangements, agreements or understandings of any kind, either explicit or implicit, relating to the acquisition or use of any spectrum in the 700 MHz band will be treated as Associated Entities. Typical roaming and tower sharing agreements would not cause entities to be deemed associated.

Summary of Comments

175. Many respondents, including Bell, MTS Allstream, SaskTel, Sogetel, TELUS and WIND generally supported the proposed definition, with some requesting clarification on the scope.

176. Bell proposed that only relationships that are legally binding and would give rise to legal redress in the event of a breach be considered as associated. The BCBA suggested that the definition be limited to those engaged in consortia or partnership arrangements that include spectrum sharing to permit broadband services.

177. SSi and Mobilicity raised concerns regarding the clarity of the definition of roaming.

Discussion

178. The suggestion by Bell to only include legally binding agreements could simplify and clarify the process, but is not considered adequate, as agreements could be clearly set out, lacking only the final, legally binding signatures. Therefore, informal agreements, whether verbal or in writing, should also be captured by the definition.

179. In response to comments regarding the types of arrangements that should be included or disclosed, Industry  Canada confirms that under the proposed definition, entities are only deemed to be associated with respect to arrangements that relate to the acquisition or use of spectrum in the 700 MHz band. For example, significant joint equipment purchase agreements and joint backhaul networks would not be captured under the definition unless they relate to the 700 MHz spectrum.

180. Typical roaming agreements: In response to other clarification questions on what constitutes a typical roaming agreement, Industry Canada notes that roaming services can be provided through a variety of technical and contractual arrangements between the carriers of the home and the host networks. Before a subscriber can complete a call or data session, the subscriber must be authenticated. Under a typical roaming agreement, the host network identifies the subscriber’s home network by means of the subscriber’s mobile identity credentials, verifies that a roaming agreement exists with that carrier, and queries the home network to verify that the subscriber’s account is current (in some instances, to also obtain information about the subscriber, such as preferred service features). On the other hand, agreements with respect to more integrated networks (for example, where such subscriber authentication, and even the service provision, can be done directly from the core elements of the home network, such as a Multi-Operator Core Network (MOCN)) would not be considered a typical roaming agreement. Bidders that enter into such an agreement with respect to use of the 700 MHz spectrum would therefore be captured under the definition of associated entities.

Decision

181. In consideration of the above, associated entities will be defined as proposed:

Any entities that enter into any partnerships, joint ventures, agreements to merge, consortia or any arrangements, agreements or understandings of any kind, either explicit or implicit, relating to the acquisition or use of any spectrum in the 700 MHz band will be treated as Associated Entities. Typical roaming and tower sharing agreements would not cause entities to be deemed associated.

5.2.2 Eligibility to Participate Separately in the Auction

182. Given the above definition, Industry Canada proposed that depending on the nature of the association, associated entities could be permitted to apply to Industry Canada to participate in the auction separately. Along with their application, applicants would be required to submit a narrative description of the nature of the association, which would be assessed to determine whether permitting both entities to participate separately would negatively affect the integrity of the auction process.

Summary of Comments

183. Many respondents, including Bell, Quebecor, Sogetel, TELUS, WIND, SaskTel and Xplornet, generally supported the proposal that associated entities be permitted to bid separately with some suggested modifications or clarifications.

184. Cogeco, Eastlink, Mobilicity, PIAC, Public Mobile and Rogers did not support associated entities bidding separately. Cogeco and Public Mobile expressed concerns with regard to the impact of this proposal on competition and choice. Rogers also raised concerns that the proposed changes could allow a level of cooperation by bidders having in-depth knowledge of their combined spectrum needs, which could threaten the integrity of the auction.

185. Quebecor asked Industry Canada to clarify that the rules accommodate, in a non-discriminatory manner, potential associations that could be formed between national carriers, between regional carriers, and between national and regional carriers.

Discussion

186. In previous auctions, parties that were deemed to be affiliated or associated entities as a result of arrangements relating to the spectrum being auctioned were only permitted to participate in the auction as a single bidder. The intent of this restriction was to preclude a real or perceived cooperation between bidders which may not compete in the auction process and may have an advantage over other participants. In the consultation, Industry Canada proposed that associated entities could participate in the auction separately, as long as this would not have an adverse impact on the integrity of the auction.

187. In response to concerns regarding competition and choice, Industry Canada is aware that, in some cases, carriers have entered into spectrum sharing arrangements for technical and business reasons.

188. In response to Quebecor’s request for clarification that the rules apply in a non-discriminatory manner, it should be noted that the proposed rules allowed regional carriers, which are associated with carriers that plan to operate in different licence areas, to apply to participate in the auction separately without having to request that the aggregation limits apply separately as long as they comply with the anti-collusion rules. Furthermore, the proposed rules would also allow carriers to form a bidding consortium and participate in the auction as a single bidder if they wish to coordinate their bids. In such a case, the aggregation limits would apply jointly in each licence area.

189. It is Industry Canada’s view that real or perceived cooperation between associated entities prior to and during the auction could put auction integrity at risk. As a result, Industry Canada will permit separate participation by associated entities, but will preclude actions that could provide an unfair advantage through rules that prohibit collusion (i.e. discussions prior to and during the auction will be highly restricted). All auction participants must comply with the information disclosure rules and the anti-collusion rules set out in this Framework. It should be noted that the rules regarding prohibition of collusion, as set out in Section 5.4, differ from the rules proposed in the consultation and are more consistent with the collusion rules applied in previous auctions. These rules, together with the anonymous bidding rule outlined in Section 4 of this Framework, will serve to support and maintain auction integrity.

Decision

190. Based on the above considerations, Industry Canada is of the view that allowing associated entities to bid separately would not have an adverse impact on the integrity of the auction provided that auction participants comply with the information disclosure and anti-collusion rules as set out below (Section 5.3 — Auction Integrity and Transparency and Section 5.4 — Prohibition of Collusion). Associated entities may apply to participate in the 700 MHz auction separately. Industry Canada will review the applications and narratives, including responses to potential requests for additional information, in order to ensure that the published narratives provide the appropriate level of disclosure and transparency to all bidders.

5.2.3 Eligibility to have the spectrum aggregation limits apply separately

191. Industry Canada also proposed that associated entities could request that the spectrum aggregation limits apply individually as long as parties intend to compete separately in the applicable licence area(s) and continue to function as competitors to a level satisfactory to Industry Canada. Proposed assessment criteria included "the degree to which the entities would offer branded services, pricing and device selection that are unique." Comments were sought on the proposed approach and assessment criteria.

192. The consultation also provided details on the application of the spectrum aggregation limit for associated entities. The condition of licence on "Spectrum Aggregation Limits" stated that:

Where licensees establish an agreement to share spectrum such that another entity has control over the use of the spectrum, a subordinate licence is required. This requirement applies to all spectrum sharing arrangements, whether the arrangement is established post-auction or was established and disclosed prior to the auction. Subordinate licences may not count towards the licensee’s aggregation limit if the licensees demonstrate to the satisfaction of Industry Canada that they meet the criteria with respect to competing in the applicable service area.

Summary of Comments

193. Individual aggregation limits: Bell, TELUS, SaskTel and WIND largely favoured allowing spectrum sharing agreements with the aggregation limits being applied individually and the proposed assessment criteria.

194. Rogers, MTS Allstream, Eastlink, Mobilicity and Public Mobile opposed the policy change, citing concerns about spectrum aggregation and its impacts on downstream competition. Some respondents suggested alternatives. For example, Rogers suggested a cap of two prime blocks for spectrum sharers, a suggestion supported by MTS Allstream. Xplornet also proposed various aggregation limits for incumbents and non-incumbents, depending on the spectrum blocks.

195. Rogers raised some concerns that the proposed policy would negatively affect some entities with inter-carrier relationships in a small subset of a licence area.

196. Criteria to consider in determining whether entities are competing: Bell and WIND agreed with the proposed criteria. Eastlink, Mobilicity, Public Mobile, Rogers and SaskTel considered the criteria to be vague or insufficient.

Discussion

197. One of the major concerns identified was the potential that companies attempt to use spectrum sharing agreements in such a manner that would reduce overall competition in the marketplace.

198. Currently, spectrum sharing arrangements are permitted in any spectrum band, as long as the licensees, individually and jointly, continue to comply with the rules that are in place, including any relevant spectrum aggregation limits and set-asides.

199. Spectrum sharing arrangements support network and spectrum efficiencies, potentially resulting in better network speeds and coverage for Canadians. This is particularly important in the 700 MHz band, where a limited amount of spectrum is available.

200. However, one concern with respect to spectrum sharing is that it could result in associated entities not providing wireless services separately and actively. In order to address this risk, Industry Canada proposed in its consultation that should associated entities wish to have the spectrum aggregation limits apply separately, they must submit details of their arrangements for review and decision by Industry Canada.

201. Another concern is that spectrum sharing agreements could have negative implications for competition in the overall market. Under the Competition Act, the Competition Bureau may review any agreements between competitors that could result in preventing or lessening competition substantially in a market.

Decision

202. Based on the above considerations, associated entities participating in this licensing process are permitted to request that the spectrum aggregation limits apply individually prior to or post-auction. To obtain approval, entities will be required to demonstrate to Industry Canada’s satisfaction that they intend to separately and actively provide services in the applicable licence area, for at least the duration of the spectrum aggregation limits.

203. Where licensees establish an agreement to share spectrum such that another entity has control over the use of the spectrum, as defined in Section 6.2 — Spectrum Aggregation Limits and Section 6.3 — Licence Transferability, Divisibility and Subordinate Licensing of this Framework, Industry Canada will conduct reviews to determine if the associated entities intend to, and continue to, make use of the 700 MHz spectrum to actively and independently provide services in the applicable licence area. The onus will be on the associated entities to demonstrate to Industry Canada that this is the case.

204. Industry Canada’s review will not extend to an overall assessment of the effects of the agreement between associated entities on competition in the marketplace.

205. Assessment factors: Industry Canada will consider a broad range of criteria so as to determine the associated entities’ intent and actions to actively and independently provide wireless services. Assessment criteria may include, but will not be limited to:

  • the companies’ intent and actions to provide services (coverage) in the area in which the sharing occurs;
  • the level of investment, including in distribution, marketing and customer service, in order to acquire and serve customers; and
  • the companies’ demonstration of separate presences in the marketplace.

206. Documentation: Associated entities will be invited to provide all relevant documentation to Industry Canada in regard to the above-noted assessment factors. These may include, but will not be limited to:

  • all agreements relating to the transfer of, use of and access to the 700 MHz spectrum;
  • business plans for the area in which the agreement(s) will provide access to spectrum; and
  • business and financial results, including investments and customer acquisition.

207. Industry Canada may request additional documentation to complete its assessment and may require that documents be certified by an officer of the company.

208. For additional information on the application of the spectrum aggregation limits for associated entities, refer to the condition of licence entitled Spectrum Aggregation Limits in Section 6.2 of this document. It should be noted that agreements between associated entities may have an impact on obligations to serve rural areas (see Section 6.12 — Rural Deployment Requirements).

209. Industry Canada notes that requests to have the spectrum aggregation limits apply separately may be submitted at any time up to and including the final application deadline (refer to Section 7.2 — Submissions). However, parties may approach Industry Canada at any time for guidance or a determination as to how their arrangement or proposed arrangement would create an association under these rules.

210. Regardless of any approval by Industry Canada, associated entities are reminded that the provisions of the Competition Act apply independently of, and in addition to, the policy.

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5.3 Auction Integrity and Transparency (Information disclosure pre-auction)

211. In order to maintain the integrity of the auction while allowing associated entities to bid separately, the consultation proposed that, prior to the auction, bidders would be required to disclose all associations with other bidders through a narrative describing the key elements and the nature of their association. The submitted narrative would be made available to other bidders and to the public on Industry Canada’s Spectrum Management and Telecommunications website (http://www.ic.gc.ca/spectrum) prior to the auction. It was also proposed that communications between associated bidders not be permitted during the auction process.

Summary of Comments

212. Many respondents, including Bell, WIND, SaskTel, Xplornet and MTS Allstream, expressed concerns about the proposed public disclosure of information regarding the nature of the associations. Concerns included the potential negative impacts on companies’ strategies and potential influence on competitors’ bidding behaviour in the event that commercially sensitive information was disclosed.

213. Mobilicity and Tbaytel suggested that the documentation regarding associations be subject to a public comment process.

Discussion

214. Transparency is critical in order to ensure auction integrity. The availability of information related to the associations will provide other bidders with the opportunity to assess the level of competition to be expected during the auction, the potential post-auction scenarios, thus increasing their ability to assess the value of the spectrum and to develop bidding strategies.

215. Industry Canada considers that, in this instance, it is necessary to disclose information on the nature of the association in order to preserve auction integrity. However, the need to protect commercially sensitive information is also recognized. In order to balance these two considerations, only the narrative will be released publicly and a public comment process will not be undertaken. Associated entities may participate in the auction separately if they submit a narrative to Industry Canada and the Department determines that it provides sufficient information for other bidders to understand the nature of the relationship, for public release. For example, the narrative must disclose the parties to the arrangement, whether discussions are preliminary or whether a formal agreement is in place and the subject of the arrangement (joint backhaul network, etc.)

Decision

216. Based on the above considerations, associated entities wishing to participate in the 700 MHz auction separately are required to disclose the names of associated entities within their application, and to provide a narrative describing all key elements and the nature of the association in relation to the acquisition of the spectrum licences being auctioned and the post-auction relationships of the said entities. Companies may be asked to provide copies of related agreements. Confidential and commercially sensitive information regarding agreements between associated entities will not be disclosed by Industry Canada. However, the narrative will be made available on Industry Canada’s website prior to the auction.

5.4 Prohibition of Collusion

217. In the consultation, Industry Canada sought comments on the rules regarding prohibition of collusion as follows:

From the date of application until the deadline for the final payment on winning bids, each applicant is prohibited from cooperating, collaborating, discussing, negotiating or entering into agreements, arrangements or understandings with any competitors regarding the licences being auctioned, bids or bidding strategies in the auction, or the post-auction market structure. Each applicant is also prohibited from signalling its bidding intentions, either publicly or privately, from the application deadline until the end of the bidding process.

The application form to participate in the auction will include a declaration that the applicant will be required to sign certifying that the applicant has not entered into any agreements, arrangements or understandings of any kind with any competitor, other than those disclosed to Industry Canada, regarding the spectrum licences being auctioned or the post-auction market structure. The applicant must also certify that it will not discuss during the auction, any agreements, arrangements or understandings of any kind with any competitor, including its disclosed associated entities, regarding the spectrum licences being auctioned or the post-auction market structure. For the purposes of this certification, "competitor" means any entity, other than the applicant and/or its affiliates, which could potentially be a bidder in this auction based on its qualifications, abilities or experience.

Should a bidder fail to comply with this prohibition, it may be subject to disqualification from the auction and/or forfeiture penalties.

Summary of Comments

218. Rogers expressed concern that the proposal would allow sharing of bidding strategies in advance of the auction, which would be as damaging as if bidders were allowed to cooperate during the auction. Rogers also suggested that the proposed changes could provide bidders with in-depth knowledge of their combined spectrum needs, which could threaten the integrity of the auction. MTS Allstream and Xplornet noted the need to establish collusion rules leading up to and during the auction to prevent any sharing of information or bidding strategy.

219. Other respondents, including Bell, Mobilicity, Drs. Taylor and Middleton from Ryerson University, SSi, Sogetel, TELUS and WIND, expressed support for the option proposed in the consultation paper.

220. Conversely, Quebecor would like associated entities to be permitted to discuss bidding strategies prior to and during the auction in order to realize the full benefits of the association.

Discussion

221. Anti-collusion rules prohibit communications between bidders in order to prevent an unfair advantage for one or more bidders as a result of information sharing.

222. Under the proposal, associated bidders would have been able to share bidding strategies prior to the application date. Stakeholders suggested that this could provide a significant information and valuation advantage over other bidders.

223. Based on the above concerns, Industry Canada has determined that such an advantage could threaten the integrity of the auction. As a result, communications will be more restricted than proposed. Under the anti-collusion rules, any discussion between separate bidders prior to the auction that would provide insights into bidding strategies, including reference to preferred blocks, technologies or valuations, will be precluded. Conversely, two or more carriers forming a bidding consortium and participating in the auction as a single bidder would not be precluded from such discussions.

224. Although restricting discussions both prior to and during the auction process means that bidders would lose the full advantage of forming associations prior to the auction, it is necessary in order to maintain auction integrity. Furthermore, bidders can avail themselves of the full advantage of forming associations after the auction.

Decision

225. In consideration of the above, the rules on prohibition of collusion will apply as follows:

All applicants, including affiliated and associated entities, are prohibited from cooperating, collaborating, discussing or negotiating agreements with competitors, relating to the licences being auctioned or relating to the post-auction market structure, including frequency selection, bidding strategy and post-auction market strategy, until the deadline for the final payment.

Prospective bidders will note that the auction application forms contain 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, "competitor" means any entity, other than the applicant or its affiliates, which could potentially be a bidder in this auction based on its qualifications, abilities or experience.

Prospective bidders should note that the definition of "affiliate" for the purposes of this licensing process (defined by reference to "control in fact") differs from "affiliate" for the purposes of the Competition Act. The provisions of the Competition Act apply independently of, and in addition to, the policies contained in this Framework.

5.4.1 Communication During the Auction Process

226. In order to preserve the integrity of the auction process, any communications from an applicant, its affiliates, associates or beneficial owners or their representatives that discloses or comments on bidding strategies, including but not limited to the intent of bidding and post-auction market structures, shall be considered contrary to this Framework and may result in disqualification and/or forfeiture penalties. This will include communications with or via the media. This prohibition of communication applies until the deadline for the final payment on winning bids for each round.

5.4.2 Discussion Regarding Beneficial Ownership

227. Information regarding the beneficial ownership of each applicant will be made publicly available so that all bidders have knowledge of the identity of other bidders. Any discussions regarding an addition or a significant change of beneficial ownership, from the receipt deadline for applications until the deadline for the final payment on winning bids, involving two bidders or any of their affiliates or associates, would fall into the area of prohibited discussions and would be considered contrary to the auction rules.

228. However, an applicant may discuss changes in beneficial ownership with parties who are completely unrelated to other applicants, as long as:

  • any change to the beneficial ownership of the applicant which provides a new party with a beneficial interest or which significantly alters the beneficial ownership structure is effected at least 10 days before the commencement of bidding; and
  • the applicant informs the Minister of Industry immediately, in writing, of any change in beneficial ownership, which will be reflected in its published qualified bidder information on Industry Canada’s Spectrum Management and Telecommunications website (http://www.ic.gc.ca/spectrum).

229. Bidders must cease all such negotiations commencing 10 days before the commencement of bidding until the deadline for the final payment.

5.4.3 Discussions on Tower Sharing

230. The prohibition of communication includes discussions about tower and site sharing with respect to the licences that are the subject of this auction, from the receipt deadline for applications until the receipt deadline for payment of winning bids. Discussions concerning new arrangements or the expansion of existing sharing arrangements that relate to spectrum outside of the 700 MHz auction process are not prohibited.

5.4.4 Communication with Local Exchange Carriers

231. The prohibition of communication includes discussions regarding interconnection services with a local exchange carrier (LEC) that is a qualified bidder (or one of its affiliates/associates) in this auction, where the services relate to spectrum in the 700 MHz band.

5.4.5 Consulting Services, Legal and Regulatory Advice

232. Separate bidders may not receive consulting advice from the same auction consulting company. Separate bidders may receive legal and regulatory advice from the same law firm provided that the law firm complies with the conflict of interest and confidential information requirements of the applicable law society and that the applicants otherwise comply with the provisions set forth in this document.


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