# Responses to Clarification Questions on the Licensing Framework for Mobile Broadband Services (MBS) — 700 MHz Band

Posted on Industry Canada website: May 21, 2013

June 25, 2013: Q1.8; Q2.17; and Q4.12

October 15, 2013: Q2.18; Q2.19

October 22, 2013 - Q2.14 Updated

The following are responses to clarification questions received subsequent to the release of DGSA-001-13, Licensing Framework for Mobile Broadband Services (MBS) — 700 MHz Band (hereinafter referred to as "the Framework").

Questions may have been rephrased and in some cases, similar questions have been consolidated.

Some of the questions regarding bidding procedures or the functionality of the software will be addressed during the information session, as well as in mail-out packages that will be sent to qualified bidders.

Industry Canada has not responded to questions regarding bidding strategies, auction formats or results in other countries, or to submissions that suggested changes to the decisions and rules included in the Framework and in SMSE-002-12, Policy and Technical Framework: Mobile Broadband Services (MBS) — 700 MHz Band, Broadband Radio Service (BRS) — 2500 MHz Band.

This document may be updated from time to time, as additional questions arise. Interested parties are encouraged to check for updates regularly.

For ease of reference, the clarification questions and responses have been grouped under the following themes:

## 1. Auction Format / Combinatorial Clock Auction (CCA)

Q1.1 Can Industry Canada provide clarification on the weighting approach used in the determination of prices?

The determination of prices will be based on the formulation as indicated in Mathematical Formulations for Winner and Price Determination in the Combinatorial Clock Auction for Mobile Broadband Services (MBS) — 700 MHz Band and as described in the Framework.

In the event that an additional payment above Vickrey prices is required, each winning bidder will, in general, be required to pay an additional amount that will be weighted based on the winning package sizes as evaluated at the opening bid prices. Bidders will never be required to pay more for a package than their actual bid amount. The mathematical interpretation is as follows:

$\min \sum_{j \notin C^n} \frac {( p^{n+1}_j − p^0_{j})^2} {o(S_{j})}$

The above equation is used to determine the set of base prices that minimizes the weighted sum of squares of differences between the updated base prices (pn+1), where the updated base prices are those that sum to the minimum revenue required to unblock all coalitions and the Vickrey prices (p0) and where the weighting o(Sj) is relative to the price of the bidder j's winning package as evaluated at the opening bid prices.

The additional payment for an individual bidder can be determined by subtracting its Vickrey price from its updated base price.

The Mathematical Formulations document has been amended to clarify this point.

Q1.2 In general, for a supplementary round bid on a package of licences that was previously expressed in the clock rounds, the minimum bid amount for that package will be the highest clock round bid and the maximum bid amount will be higher. However, given the activity rules, under some circumstances it is possible that a bid amount for a package submitted in the clock rounds could exceed the maximum allowable bid amount for that same package in the supplementary round. How will this situation be dealt with in the auction?

All bids placed in the clock rounds continue to be valid in the supplementary round and are included in the determination of winning bidders and prices at the end of the allocation stage. Under this situation, the clock round bid would be accepted.

Q1.3 When will bidders be provided with detailed information on the bid increments?

Further information on the calculation of bid increments will be included in the information package provided to qualified bidders, including an example of how bid increments will be applied (see Table of Key Dates). As stated in the Framework, the bid increments for the 700 MHz auction will be in the range of 1-20% of prices from the previous round and will be based on the level of excess demand for each product (rounded to the nearest thousand dollars).

Q1.4 Will the reserve bidder approach be used in the clock rounds as well as in the supplementary round?

The reserve bidder approach is only used in the determination of winning bidders and prices at the end of the allocation stage.

Q1.5 Will the supplementary round be held if there are no unallocated licences at the end of the clock rounds?

The supplementary round is a fundamental part of the CCA format and is critical in ensuring that the licences are allocated to the bidders that value them the most and that winning bidders pay an amount that is sufficient to ensure that no other bidder or group of bidders was willing to pay more for the licences.

Therefore, the supplementary round will still be held even when all licences are allocated at the end of the clock rounds.

Q1.6 Can Industry Canada provide more information regarding the limit on the number of supplementary round bids? Does the limit include bids for packages submitted in the clock rounds?

For practical reasons, it is necessary to limit the number of supplementary bids submitted by each bidder. The limit will be determined after the bidder qualification process has taken place, but will be set at no lower than 500 bids. Depending on the number of qualified bidders, it may be possible to increase the number of different packages for which a bidder will be allowed to place supplementary bids.

The limit on the number of different packages for which a bidder can submit supplementary bids includes bids for packages that were submitted in the clock rounds. For example, with a limit of 500 supplementary bids, if a bidder submits bids for 20 different packages during the clock rounds, then the bidder can increase its bid amounts for any of the 20 clock round packages and, in addition, will be able to submit bids for a further 480 packages in the supplementary round.

Q1.7 Will the aggregate demand information from the final clock round be revealed to bidders prior to the supplementary round? If not, how will a bidder know the bid amount necessary to secure its final clock package?

Aggregate demand from the final clock round will not be provided to bidders until after the auction.

By withholding the aggregate demand information, bidders have an increased incentive to bid for the packages of licences that they are interested in, and there is less opportunity for bidders to place risk-free supplementary bids that have no chance of winning and that serve only to increase competitors' prices. As a result of this change in information policy, bidders will not know whether there are any unallocated licences in the final clock round and therefore will not know the exact amount that they need to bid to ensure that they win their final clock packages.

Q1.8 Could you please explain how assignment bids are submitted and how winning assignment bids are determined?

There will be up to three assignment rounds in the auction, one for each category of generic licences (i.e. blocks B and C; blocks D and E; and blocks C1 and C2). In each assignment round, bidders that have won generic licences can submit multiple top-up bids for packages that include the specific licence that they most prefer in each service area where they have won generic licences. The block selection may be consistent across all service areas or may vary.

A solver will be used to identify the combination of specific assignments of generic licences that result in the highest bid amount subject to the requirements that each bidder wins one set of specific licences in each assignment round.

## 2. Affiliated and Associated Entities / Prohibition of Collusion Rules

Q2.1 Carriers A and B have a conditional arrangement to share 700MHz if they win side-by-side blocks in the auction. It is our understanding that Carriers A and B would be defined as associated entities within the 700 MHz auction. Carrier B also wishes to participate in a bidding consortium with other Carriers C and D on 700 MHz spectrum in licence areas outside of the area that Carrier B shares with Carrier A. Would Carriers C and D be considered to be associated with Carrier A even if the consortium agreement among Carrier B, C and D does not include Carrier A?

Prospective bidders will generally only be considered to be associates of competitors with which they have tentative or formal agreements. Two carriers will not be considered associated only by virtue of having separate agreements with the same third party.

(Refer to Question 2.6 for clarification on the types of discussions that are not permitted in accordance with the prohibition of collusion rules).

Q2.2 In reference to Section 5.1.1Presumption of Affiliate Status of the Framework, Industry Canada will make a general presumption regarding control in certain circumstances.
A) Can an applicant rebut the presumption of affiliated status when a person owns 20% or more of an entity's voting shares by demonstrating either that a different person controls that entity or that no person controls the entity?
B) Will other parties have an opportunity to rebut the Department's findings with respect to other applicants?

A) Applicants may provide information to Industry Canada to rebut the presumption of affiliate status. On or prior to the application deadline date, applicants must notify Industry Canada in writing if they are rebutting the presumption and must file material that will enable Industry Canada to review the question and make that determination. It is the responsibility of the applicant to file the appropriate material. Such material may include copies of the relevant corporate documentation relating to both entities; a description of their relationship; copies of any agreements and arrangements between the entities and affidavits or declarations, signed by officers from the two entities, dealing with the control as outlined in the definition of "affiliate" in paragraph 169 of the Framework.

Upon receipt of this material, Industry Canada will either make a ruling based on the materials submitted or ask the applicant for further information (and provide a timeline within which to do so).

B) Industry Canada does not intend to seek extra evidence or submissions from other parties in making its rulings on applicant eligibility.

Q2.3
A) In the case where associated entities request to have the spectrum aggregation limits apply separately, and consequently must demonstrate that they intend to separately and actively provide services in the applicable licence area, how much time will be required for Industry Canada to provide a ruling?
B) Will applicants be permitted to meet with Department officials to discuss the proposed arrangement?

A) Based on the prohibition of collusion rules, it is likely that associated entities that want to participate in the auction separately and to have the aggregation limits apply separately will only be able to have very limited discussions prior to the conclusion of the auction.

Therefore, based on the information provided by the applicants prior to the auction, Industry Canada will conduct a review to determine whether the associated entities will be permitted to participate in the auction separately and, where requested, to have the aggregation limits apply separately during the auction. This ruling for the purpose of the auction will not predetermine the result of any subsequent reviews that may be required post-auction.

Associated entities that become licensees may also be subject to further reviews post-auction, in order to demonstrate to Industry Canada's satisfaction that they separately and actively provide services in the applicable licence area and that they remain eligible to have the spectrum aggregation limits apply separately.

The time required to provide a ruling will depend on the complexity of the association and on the completeness of the material submitted. Industry Canada may require further material from the relevant bidders, in which case the Department will contact the bidders and set a deadline for submission of further information with a view to making a ruling before the 95% deposit is required.

B) Before the application deadline, companies may submit questions about their associations to Industry Canada. Meetings with applicants to discuss associations or potential associations may be permitted; however, rulings will only be made after — and will be based solely on — the written submissions from the application materials.

Q2.4 What process will be followed to assess the eligibility of associated entities to participate in the auction separately?

As stated in the Framework, 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.

During the assessment period, if Industry Canada determines that the applicants in question are ineligible to participate in the auction separately, the affected applicants will be advised immediately. The list of provisionally qualified bidders will be made public on the date specified in the Table of Key Dates.

(See Section 7.5Bidder Qualification of the Framework for further details on the qualification process.)

Q2.5
A) What is the application process for multiple parties applying to participate jointly in the auction as a single bidder?
B) What is the application process for associated entities that want to participate separately and have the aggregation limits apply separately?
C) Will any of the information submitted be made public and if so, when?

A) In the case where multiple parties agree to participate together as a single bidder (e.g. consortium), the applicant must make the relevant representations on behalf of all of the associated entities within this consortium in one single application. In addition, each associated entity within the consortium will be required to submit certain parts of the application forms individually.

B) Associated entities applying to participate separately and have the spectrum aggregation limits apply to them separately must indicate this in their auction application.

C) The list of applicants, beneficial ownership information and the narratives related to associated entities will be made public.

Refer to the Table of Key Dates for additional information regarding the dates of events associated with the auction process. Application forms are available on request by sending an email to the following address: ic.spectrumauctions-encheresduspectre.ic@canada.ca.

Q2.6 The prohibition of collusion rules stipulate that prospective bidders cannot communicate with "competitors" regarding the licences being auctioned or relating to the post-auction market structure, including frequency selection, bidding strategy and post-auction market strategy. Based on these rules, what types of discussions are permitted where separate entities are considering potential arrangements such as agreements to share spectrum in the future, entering into joint builds if they are successful in the auction, having a joint equipment purchasing agreement or forming a consortium to bid as a single bidder in the auction?

As noted in the Framework, a "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.

Discussions regarding the mere intent to participate in the auction will not be deemed to have contravened the collusion rules. Prior to the auction, an applicant who wishes to participate separately in the licensing process may approach another potential bidder to discuss a joint infrastructure build, a joint equipment purchasing agreement or a potential spectrum sharing agreement under the following circumstances:

Once a consortium has been established and if the entities within that consortium have had communications that contravene the anti-collusion rules, these entities would no longer be eligible to participate separately in the auction. The same entities would therefore no longer be deemed competitors for the purpose of the auction, and discussions regarding issues such as bidding strategies could then take place. Should the consortium be dissolved prior to the auction, only one of the entities would be eligible to participate in the auction, and all parties would continue to be subject to the prohibition of collusion rules.

The same restrictions apply to entities that have had unsuccessful discussions regarding the formation of a consortium to bid as a single bidder. Where communications that fall within the definition of associated entities have taken place, the nature of the association must be disclosed. Entities applying to participate separately are required to make a declaration that they have 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 competitor will or will not bid. In the case where discussions that contravene the prohibition of collusion rules have occurred, the entities would only be permitted to participate in the auction as one single bidder, or only one of the entities could participate.

In each case, Industry Canada will examine the nature of the association and the agreements/discussions in order to determine eligibility to participate in the auction.

Q2.7
A) Where multiple entities apply to participate in the auction as a single bidder (e.g. consortium), will all entities be bound by a single spectrum cap?
B) Where parties to a consortium would be subject to different spectrum caps if they were bidding individually, which spectrum cap would apply to the consortium?

A) Entities that bid together in the auction (e.g. as a consortium) will be bound by a single spectrum cap.

B) In the case where the entities participating jointly include a Large Wireless Service Provider (LWSP), the LWSP cap will apply. For instance, where the consortium includes an entity that is considered a LWSP based on national subscriber market share, the cap for LWSP will apply across the country. In the case where the consortium includes a non LWSP and an entity that is considered a LWSP based only on its provincial market share, then the LWSP cap would only apply in the tier areas in that province.

Q2.8 When considering a request between associated entities to have spectrum aggregation limits apply separately, how would the Department assess a case where two carriers intend to share spectrum in a licence area in which their network coverage will not overlap?

Prior to the auction, Industry Canada will conduct a review to determine whether the associated entities will be permitted to participate in the auction separately and, where requested, have the aggregation limits apply separately during the auction. This ruling for the purpose of the auction will not predetermine the result of any subsequent reviews that may be required post-auction.

Associated entities that become licensees may also be subject to further reviews post-auction, in order to demonstrate to Industry Canada's satisfaction that they separately and actively provide services in the applicable licence area, and that they remain eligible to have the spectrum aggregation limits apply separately. Geographic overlap is one of the criteria that the Department will consider when reviewing spectrum sharing agreements. Each situation will be considered on its own facts.

Q2.9 When determining whether two entities are associated, how will Industry Canada treat scenarios such as a network sharing agreement between bidders, a jointly operated network, or a joint equipment purchasing agreement?

In the Framework, the definition of "associated entities" includes a broad scope of agreements or arrangements, including those that explicitly or implicitly relate to the use of the 700 MHz band. Each situation will be considered on its own facts. Where an applicant is unsure as to whether they would be deemed to be associated with another potential bidder, they are encouraged to submit the pertinent information to Industry Canada for guidance.

Q2.10 In reference to the prohibition of collusion rules and the potential agreements between potential associated entities, please provide clarification on the following:
A) The earliest date that bidders can seek guidance or a predetermination on affiliated and associated entities;
B) Whether predetermination decisions are binding;
C) If other carriers will be allowed to see requests for guidance or predeterminations, and if so, when they will be allowed to see these requests, and also indicate which details will be disclosed publicly; and
D) If other carriers will have any input into predetermination decisions.

A) At any time prior to the application date, entities may request guidance as to whether an agreement or proposed agreement between specific entities gives rise to a finding of association by submitting all relevant documentation to Industry Canada for review.

B) Any guidance or predetermination will not constitute a binding decision; however, potential applicants will benefit from an early opportunity to approach Industry Canada with their proposed arrangements.

In the case where associated entities have requested to participate in the auction separately and to have the aggregation limits apply separately, Industry Canada will conduct a review. The ruling for the purpose of the auction will not predetermine the result of any subsequent reviews that may be required post-auction.

Associated entities that become licensees may also be subject to further reviews post-auction, in order to demonstrate to Industry Canada's satisfaction that they separately and actively provide services in the applicable licence area and that they remain eligible to have the spectrum aggregation limits apply separately.

C) Industry Canada will treat requests for guidance and predeterminations of whether an agreement or proposed agreement gives rise to an association as confidential business information, noting that such information is subject to the Access to Information Act.

D) Industry Canada will not seek input from the public on guidance and predetermination requests.

Q2.11 If separate bidders in the auction are not competing for licences in the same licence area, are they considered to be competitors in the auction? Given the response, what collusion rules apply to these bidders? Would it be permissible for these bidders to discuss bidding strategies?

Regardless of the areas in which bidders are seeking to acquire licences, they are considered to be competitors in the auction process. The same collusion rules apply to all participants in the auction, unless they are bidding together as one bidder.

(Refer to Question 2.6 for clarification on the types of discussions that are not permitted in accordance with the prohibition of collusion rules).

Q2.12 Is it permissible for an auction consulting company to provide consulting advice to one bidder while at the same time licensing its auction software platforms (simulation tools, tracking tools, etc.) to other bidders? Is it permissible for an auction consulting company to provide consulting advice to one bidder while at the same time offering generic auction information workshops (with no strategic advice) to other bidders?

In order to preserve the integrity of the auction process, bidders are prohibited from receiving advice from the same auction consultants.

Therefore, bidders should ensure that auction consultants being approached to provide consulting services or workshop sessions are not employed by another participant in the 700 MHz auction.

Participants of a workshop that provides general information should carefully consider the potential for discussions of specific fact situations that take place during such events, so as not to be found in violation of the prohibition of collusion rules.

However, it is Industry Canada's view that the use of generic auction software platforms — such as simulation tools, tracking tools or others — to more than one bidder in an auction would not result in a finding of collusion in and of itself.

In all cases where there is an alleged breach of the rules of the auction, Industry Canada would look carefully at the particular facts of the situation.

Q2.13 In reference to Section 5.4.1Communication During the Auction Process, please clarify the following questions:
A) When is the "auction process" considered to have started?
B) What is meant by the wording "until the deadline for the final payment on winning bids for each round"?

A) Any communications from an applicant and its affiliates, associates or beneficial owners or their representatives that discloses or comments on the amount to be bid; bidding strategies; licence selection, including but not limited to the intent of bidding, post-auction market structure and communications with or via the media, are prohibited until the deadline for the final payment on winning bids.

This rule, which is part of the prohibition of collusion rules as set out in Section 5.4 of the Framework, considers all communications other than communications between applicants and their affiliated and associated entities that are bidding together as one.

This rule is set out in order to preserve the integrity of the auction process. The rule is such that any discussions occurring at any time prior to the deadline for the final payment are prohibited. All such discussions having occurred, including those prior to the publication of the Framework would have to be disclosed.

B) The deadline for final payments will be 30 business days following the publication of provisional licence winners.

Q2.14 In reference to the rules around beneficial ownership discussions, please clarify who can enter into these discussions and when they can do so.

From the receipt deadline for applications, until the deadline for the final payment on winning bids, discussions regarding changes in beneficial ownership of a bidder 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. Such discussions are prohibited.

However, discussions regarding the beneficial ownership of a bidder that do not involve another bidder or its affiliates or associates (for example, discussions with an entity that is not related to any other bidder) are permitted until 10 days prior to the start of the auction. In such cases, the bidder must immediately inform Industry Canada of any change in beneficial ownership. All changes will be published in the qualified bidder information on Industry Canada’s Spectrum Management and Telecommunications website.

For additional clarity, paragraphs 227 and 228 of the Framework deal with discussions regarding the change of beneficial ownership of a bidder and prohibit such discussions between bidders (or any of their affiliates or associates on the bidder's behalf) that occur from the receipt deadline for applications until the deadline for the final payment on winning bids.

The intent of the rules is to prohibit discussions between bidders regarding a change in control or beneficial ownership of one of those bidders. It is also meant to preclude the use of a bidder’s affiliate as a proxy to those types of discussions. It is not the intent of the rules to preclude discussions between affiliates that are unrelated to the auction process and that would have no impact on the post-auction market structure.

For example, discussions by an affiliate of Bidder A with another bidder regarding a potential change in ownership or control of that affiliate are not captured under the auction rules, as long as the potential change in ownership or control of the affiliate of Bidder A does not affect the beneficial ownership of Bidder A.

However, participants to these discussions are reminded that any communication that discloses or comments on bidding strategies or post-auction market structures will be considered contrary to the auction rules and could result in disqualification.

The term "applicant" and "bidder" are interchangeable in this response.

Q2.15 If multiple regional bidders were to try to form a consortium in order to bid as a single bidder,
A) Can the spectrum aggregation limit apply to each respective regional bidder separately?
B) Could these carriers communicate with one another for this purpose, prior to making an application, without violating these rules?
C) Given the timelines between the responses to the questions of clarification and the date that applications to participate are due, if discussions have begun but no agreement has been reached, will parties be able to continue these discussions and, in the event that an agreement is or is not reached, inform Industry Canada?
D) What treatment would be accorded to the parties if an agreement is not reached but communications have taken place? Could the content of the communications then become a matter of public record?

A) A single spectrum cap will apply to the consortium.

B) The auction rules do not preclude carriers from forming a bidding consortium to participate in the auction as a single bidder if they wish to coordinate their bids. If a consortium of entities is bidding together through one joint applicant, the applicant must disclose the entities that it represents. In that case, the entities within the consortium that are bidding together will be able to discuss bidding strategies amongst themselves. (Refer to Question 2.6 for clarification on the types of discussions that are not permitted in accordance with the prohibition of collusion rules).

Paragraph 189 of the Framework states that "All auction participants must comply with the information disclosure rules and the anti-collusion rules set out in this Framework." Note that each member of the consortium will have to comply with the information disclosure rules and will have to disclose their beneficial ownership as part of the application process. Each member of the consortium will also be precluded from discussing the amount to be bid, bidding strategies, or the particular licence(s) on which the applicant or competitors will or will not bid with any other bidder, its associates and affiliates.

C) In accordance with paragraph 189 stated above, any discussions regarding the amount to be bid, bidding strategies or the particular licence(s) on which the applicant or competitors will or will not bid are precluded and would disqualify the entities' abilities to both participate in the auction separately.

D) Each situation would be treated based on the facts and in accordance with the prohibition of collusion rules. Entities must disclose communications, including where an agreement is not reached to Industry Canada. Where an agreement is not reached and there has been no communications between the parties that would violate the prohibition of collusion rules, the parties may be eligible to participate as separate bidders following an examination of the application by the Industry Canada. However, in the case where the communications between entities are found by Industry Canada to have violated the prohibition of collusion rules and where an agreement has not been reached, Industry Canada would find that both entities would be unable to participate in the auction as separate bidders. With the exception of the narrative outlining the nature of the association, Industry Canada would treat the content of the communications as confidential, noting that such information is subject to the Access to Information Act.

Q2.16 How will companies that are currently negotiating potential acquisitions or mergers be affected in their ability to participate in the auction separately?

The answer will depend on the specifics of the arrangement and on the state of the relationship when applications are due, as well as on the nature of any discussions that may have taken place between the two entities which fall within the scope of the prohibition of collusion rules.

Should both entities apply to participate in the auction, they may be deemed as associated entities for the purpose of the auction, as a result of the discussions regarding an acquisition or merger.

If they are deemed to be associated entities, and they both request to participate separately and have the spectrum aggregation limits apply separately, both applicants would have to:

• Disclose the nature of that association;
• Certify that the applicants have 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 applicants or competitors will or will not bid;
• Demonstrate, to the satisfaction of Industry Canada, that they intend to separately and actively provide services in the applicable licence area, for at least the duration of the spectrum aggregation limits; and
• Suspend communications of any kind regarding the possible acquisition or merger from the application date until the close of the auction.

Whether both entities would be permitted to participate in the auction would also be contingent on the analysis of the circumstances at the time of application. Contravention of the collusion rules, disclosure rules or any other auction rules could result in both entities being unable to participate in the auction separately.

Q2.17 Could you clarify the rules regarding prohibition of collusion and expand on the communications that are prohibited prior to the application date?

Section 5.4 of the Licensing Framework for Mobile Broadband Services (MBS) — 700 MHz Band (the Framework) sets out the rules on prohibition of collusion. These rules are designed to prevent an unfair advantage for one or more bidders as a result of information sharing and to ensure that participants do not signal others in an effort to influence their bidding behaviour. This auction was designed to reduce opportunities for signalling and anti-competitive behaviour through the use of anonymous bidding and a reduction in the public disclosure of information prior to the auction (e.g. no release of eligibility points and deposit information pre-auction). As previously noted in response to question 2.6 above, discussions regarding the mere intent to participate in the auction are not considered to contravene the rules. However, an applicant or potential applicant is precluded from sharing information including, but not limited to, bidding strategy such as the licences or licence areas under consideration or the amount or magnitude that the applicant is willing to pay. Furthermore, applicants or potential applicants are prohibited from releasing information that, if disclosed, could reasonably be expected to affect or be capable of affecting another applicant’s bids or affecting the outcome of the auction.

Any communications that are considered contrary to the rules could have an impact on a company’s eligibility to participate in the upcoming auction. Statements that indicate national or particular licence areas of interest will generally be found to be in contravention of the rules on prohibition of collusion. As this level of clarity was not provided previously, this will be applied to all communication going forward. Any entity interested in applying to participate in the auction is advised to carefully consider any communications regarding its participation.

Q2.18 A) Can two auction applicants hold discussions regarding existing or future network sharing agreements if the discussions do not involve the 700 MHz band or the upcoming auction?
B) If such discussions are permitted, would the applicants be required to disclose these discussions and submit a narrative outlining the nature of the agreement?

A) Paragraph 225 of the Framework states:

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.

Discussions concerning operational arrangements that are unrelated to the 700 MHz auction process are permitted. For example, discussions regarding existing arrangements, such as network sharing agreements that relate to spectrum other than spectrum in the 700 MHz band (e.g. AWS or PCS spectrum), are not considered contrary to the anti-collusion rules. Similarly, extension of such arrangements or negotiations of new network sharing arrangements would also be permitted provided that they to not relate to spectrum in the 700 MHz band.

B) As these arrangements do not create an association in relation to the 700 MHz auction, disclosure is not necessary.

However, participants to these discussions should carefully consider the potential that their discussions may violate the anti-collusion rules, for example, reference to a particular technology related to the 700 MHz spectrum or to the post-auction market structure. Any breach of the auction rules could result in disqualification.

Q2.19 In submitting their applications to participate in the auction on September 17, 2013, applicants were required to identify their associated entities in their applications. Are two applicants permitted to become associated entities after the application date?

Any discussions that take place after the application deadline and result in two bidders becoming associated entities in the context of the 700 MHz auction would contravene the auction rules and could result in disqualification for applicants involved.

## 3. Conditions of Licence

Q3.1 For the rural deployment requirements, does the coverage obligation include both the footprint of the HSPA network owned by the licensee and the footprint of the HSPA service provided through a network sharing agreement with another network operator, who may or may not be a 700 MHz licensee (excluding roaming arrangements)?

The rural deployment condition will apply in each area where a licensee holds licences for, or has access to, two or more paired blocks of 700 MHz spectrum and where the licensee had an HSPA network in that area on March 14, 2012.

In SMSE-002-12, Policy and Technical Framework: Mobile Broadband Services (MBS) — 700 MHz Band, Broadband Radio Service (BRS) — 2500 MHz Band, published on March 14, 2012, Industry Canada announced its decision to set out a condition of licence related to service deployment in rural areas for licensees of spectrum in the 700 MHz band. Section B4.2 of that document stated that:

"In each licence area where a licensee holds two or more paired blocks of spectrum in the 700 MHz band, or has access to two or more paired blocks of spectrum in the 700 MHz band through association, that licensee must deploy its 700 MHz spectrum:

1. to cover 90% of the population of its existing HSPA network footprint within five years from the date of the issuance of the 700 MHz licence; and
2. to cover 97% of the population of its existing HSPA network footprint within seven years from the date of the issuance of the 700 MHz licence."

In light of this decision, existing licensees were required to provide to Industry Canada, details of their existing HSPA deployments as of March 14, 2012, which was the release date of SMSE-002-12, Policy and Technical Framework: Mobile Broadband Services (MBS) — 700 MHz Band, Broadband Radio Service (BRS) — 2500 MHz Band. Where a licensee's network was part of a joint HSPA network, a clear identification of the areas of responsibility within the HSPA network footprint was also required.

Q3.2 How does the rural deployment condition of licence apply to carriers sharing an HSPA network in various regions of the country in the following example:
In the case where Carrier A (which has an HSPA network in the West) and Carrier B (which has an HSPA network in the East) have an agreement to share 700 MHz spectrum over their networks, and where Carrier A obtains two paired blocks of spectrum in all areas of the country in the auction, how would the rural deployment condition of licence apply?

The rural deployment condition of licence would apply as follows:

1. Carrier A has access to two blocks of spectrum across the country and owns an HSPA network in the West. Therefore, Carrier A is subject to the rural deployment condition of licence in the West.
2. Carrier B did not obtain spectrum in the auction; however, Carrier B owns an HSPA network in the East and, post-auction, has access to two blocks of spectrum (through its association with Carrier A) in the East. Therefore, Carrier B is subject to the rural deployment condition of licence in the East.

It should be noted that where the entities have pooled their spectrum such that the other entity has control over the spectrum, a subordinate licence will be required. Where the entities are using their own blocks of spectrum and integrating the use of the spectrum within a network (for example, in a Multi-Operator Core Network (MOCN)), a subordinate licence may be required.

The rural condition of licence applies whether or not the access to two blocks is the result of a subordinate licence agreement.

Q3.3 Where a licensee holds, or has access to, two or more paired blocks of 700 MHz spectrum in a licence area, how must the rural deployment requirement be demonstrated? For example, must a licensee demonstrate that service has been activated over both blocks in a specific licence area, or would it be sufficient for the licensee to demonstrate that service has been activated over at least one of the two blocks in the licence area?

Where the licensee holds licences for two or more paired blocks of 700 MHz spectrum in a licence area, or has access to two or more paired blocks of 700 MHz spectrum in a licence area either directly or indirectly, the licensee must demonstrate that it has deployed services to the required percentage of the population within the required time frame over at least one of its licences for 700 MHz spectrum in the licence area. This requirement is unlike the general deployment condition, which must be fulfilled for each licence held by the licensee.

Q3.4 In light of the current consultation regarding policy on spectrum licence transfers, please provide further details on the condition of licence relating to transfers and whether licence swaps will be permitted post-auction.

In March 2013, Industry Canada posted DGSO-002-13, Consultation on Considerations Relating to Transfers, Divisions and Subordinate Licensing of Spectrum Licences. This consultation is currently in process. A decision is expected to be released well in advance of the 700 MHz auction. The conditions of licence in this band will reflect decisions arising from that consultation.

Q3.5 Industry Canada has added new wording to the Annual Report requirement, noting that a licensee must provide "other information related to the licence as specified in any notice updating the reporting requirements as issued by Industry Canada." Please explain the rationale for including this additional wording.

The additional wording in the Annual Reporting section of the licensing framework was included in order to advise licensees that reporting requirements are subject to change. Licensees would be provided with details and advance notice as appropriate.

Q3.6 Will annual spectrum licence fees apply to the 700 MHz spectrum licences during the initial 20-year term?

No annual fees will apply during the initial 20-year term of the 700 MHz spectrum licences.

Q3.7 Does Industry Canada conduct any screening measures to determine the telecom competencies of the firm that is bidding in order to make sure that it's not only a financial transaction and to make sure that the spectrum will be used, other than the build-out criteria?

A licensee must comply on an ongoing basis with the applicable eligibility criteria of the Radiocommunication Regulations. Please refer to Section 6.4 of the Framework for the eligibility requirements associated with the spectrum licences in the 700 MHz band, as well as to the applicable Client Procedures Circulars.

Q3.8 Are there deployment requirements which apply to licensees that hold only one prime block of spectrum?

In addition to the rural deployment requirement, which applies to all licensees that hold or that have access to two or more blocks of spectrum in the 700 MHz band, a general deployment requirement applies to all licensees, regardless of the number of licences acquired in the auction. Please refer to Section 6.13, General Deployment Requirement, for additional detail on this condition of licence.

## 4. Auction Process

Q4.1 What specific information will be publicly released with the list of applicants and provisionally qualified bidders prior to the auction?

A list of all applicants, their beneficial ownership information and any declaration of associated entities, including the narrative description on the nature of the association, will be made public prior to the start of the auction. The number of eligibility points and the financial deposit amounts will not be published prior to the auction.

All bid data will be publicly released post-auction.

Q4.2 When will Industry Canada provide a detailed description of the backup procedures described in Section 7.8 of the Framework?

Information regarding the backup bidding procedures will be included in the mail-out packages provided to qualified bidders (see Table of Key Dates).

Q4.3 Will there be an opportunity to ask questions regarding the application form once it is made available? What is the process to be followed?

The application form is now available on request. Requests for an application form, as well as any questions concerning the forms, can be directed to:

c/o Manager, Auction Operations
Spectrum Auction Branch (JETN, Room 1765 C)
235 Queen Street
Ottawa, Ontario K1A 0C8
Telephone: 613-957-8106
Fax: 613-949-7667

Q4.4 It is indicated that "only the Auction Authorized Representative of the bidding company may notify the Manager, Auction Operations, of any material changes in the information submitted in the application documents."
A) Please provide the definition of an "Auction Authorized Representative."
B) If the representative must be a bidder (as determined in paragraph 394), please provide the reasons for this.
C) Please advise whether the representative can be an officer or designate of the bidding company, without being a bidder himself. If not, please advise why this is the case.

An Auction Authorized Representative is an individual authorized by the company, for the 700 MHz auction, to sign, to submit information and to make any changes on behalf of the applicant. The person identified as the Auction Authorized Representative by the applicant must be identified in the application form submitted to participate in the auction. Although not mandatory, the Auction Authorized Representative may also be a Designated Bidder.

Q4.5 What will be the specific schedule for the auction, including the duration of clock rounds, the time between the rounds, the time between the different stages, etc.?

As in previous auctions, the initial bidding schedule will be included in the mail-out packages to be provided to qualified bidders on the date specified in the Table of Key Dates.

Q4.6 Please provide the daily bidding schedule for the auction, as well as the calendar schedule, in the case where the auction duration approaches the December statutory holidays.

The auction schedule will be provided in the mail-out packages to qualified bidders (see Table of Key Dates).

Q4.7 As per paragraph 379 of the Framework, "Industry Canada reserves the right to request additional financial deposits during the auction."
A) Please explain which circumstances would trigger this requirement for additional financial deposits.
C) Please explain whether the auction will stop during this period and if so, what notifications would be provided regarding a potential stoppage.

1. Industry Canada may exercise its right to request additional financial deposits from all bidders during the auction if bids ascend to such a level that the initial financial deposits are considered insufficient.
2. Additional deposits must be made using one of the following methods of payment: certified cheque, bank draft, wire transfer or letter(s) of credit. Bidders will be given suitable notification to provide additional deposits.
3. Additional information on how this process would be implemented will be made available in the mail-out packages that will be sent to qualified bidders.

Q4.8 Can financial deposits that are made through various forms (i.e. certified cheque, bank draft, wire transfer or irrevocable standby letter of credit) be applied to the initial payment and/or to the final payment for provisional licence winners?

Financial deposits may not be applied to the initial payment, unless the financial deposit was sufficient to cover both the initial and the final payments.

Where a provisional winner fails to make the initial payment or the final payment within the specified period, then the provisional winner's deposit(s) will be drawn upon and the licence will not be issued.

Financial deposits shall not have any conditions that require the Receiver General for Canada to draw upon payments in any particular order of priority, or that require any deposit to be drawn upon completely before drawing upon any other deposit.

Q4.9 What will Industry Canada do in the case where a licence is revoked or where a licensee voluntarily returns its licence while the spectrum aggregation limits are still in place?

Licences that are cancelled or revoked during the licence term will be treated in a similar fashion to unassigned licences. Industry Canada will make such licences available for licensing through an alternative process, which may include a subsequent auction under the current rules. The timing and form of the process will depend on various factors, including demand for the returned licence. Conditions of licence that would apply to licences issued under that process, including spectrum aggregation limits, would be clarified at that time. Industry Canada may conduct a further consultation prior to any licensing process.

Q4.10 How soon after the close of bidding does Industry Canada expect to announce the provisional auction winners? Will this announcement occur before or after the independent verification of the auction results has been completed?

Industry Canada will announce and publish the list of provisional licence winners within five business days following the cessation of bidding and after the auction results have been verified by a third party.

Q4.11 Once an application has been submitted with the applicable financial deposit, can the applicant increase its original financial deposit and request an increase to its eligibility points after the application date?

An applicant may not increase its eligibility and applicable financial deposit after the application deadline. As stated in paragraph 383 of the Framework, "An applicant may decrease, but may not increase, its eligibility and applicable financial deposit until the receipt deadline for the remaining portion (95%) of the full financial deposit."

Q4.12 In cases where an applicant wishes to reduce its initial eligibility points after the application has been submitted with the 5% deposit, what is the mechanism to update the initial financial deposit to reflect a reduction in the amount of eligibility points required in the auction? How long will it take before the original standby letter of credit is returned to the applicant?

As per paragraph 383 of the Framework, an applicant may decrease, but may not increase, its eligibility and applicable financial deposit until the receipt deadline for the remaining portion (95%) of the full financial deposit.

Upon receipt of an amended form(s) and/or financial deposits, Industry Canada will promptly process the change request and send a notification to the applicant that the amended form(s) and/or deposits have been received. The notification will state the amount of the new deposits that have been submitted. Where the financial deposits are in the form of an irrevocable standby letter of credit, the initial irrevocable standby letter of credit will also be returned to the applicant with the notification. Where the financial deposits are in a form other than an irrevocable standby letter of credit, any partial reimbursement of the initial financial deposits may take several weeks.

## 5. Bidder Training and Support

Q5.1 Will the auction software prevent bidders from making invalid bids in both the clock rounds and the supplementary round (e.g. bids that violate the activity rules)?

The auction software will only accept valid bids in all stages of the auction. Invalid bids will produce a warning message and will not be accepted by the auction system. Additional information will be provided in the mail-out packages to be sent to qualified bidders (see Table of Key Dates).

Q5.2 Will bidders receive the data format information for the export and import functions of the auction software and if so, when will this information be released?

The specifications for the file format for uploading bids to the winner and price determination tool will be included in the mail out packages provided to qualified bidders (see Table of Key Dates).

Q5.3 What stages of the Combinatorial Clock Auction (CCA) will be included in the mock auctions?

The mock auction(s) will include both the allocation and the assignment stages. Specifically, each mock auction will include some clock rounds, a supplementary round and assignment rounds.

Q5.4 Regarding the winner and price determination tool that will be made available on a website hosted by Industry Canada, please provide clarification on the following:
A) What specific functionality will be made available to qualified bidders? For example, will qualified bidders be able to input raw bid data into the tool in order to obtain a winner and price determination for that data?
B) Could bidders get access to the tool more than six weeks prior to the auction?

A) The winner and price determination tool is a web-based application. The tool will validate the file structure of the data uploaded by qualified bidders, but it will not validate bids to ensure that they meet any of the auction rule restrictions (e.g. revealed preference limits). Qualified bidders will be able to upload entire auction scenarios (i.e. many packages of licences by different bidders). The tool will determine the winning packages and prices to be paid by the bidders according to the algorithms published by Industry Canada.

The specification of the file format for uploading bids to the winner and price determination tool will be released in the mail-out packages to qualified bidders (see the Table of Key Dates).

B) Qualified bidders will be provided with access to the website approximately six weeks prior to the start of the auction.

Q5.5 What will be the process and format for the mock auctions?

It is expected that the mock auctions will use the same service areas, licences and eligibility points as the actual auction. The intent of the mock auctions is to assist bidders in becoming familiar with the software functionalities. These mock auctions are not indicative of actual market scenarios and bidding strategies. Overall round results from the mock auctions will not be released; however, bidders will be able to view their own individual results and aggregate demand for all rounds, with the exception of the final clock round.

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