Consultation on a Licensing Framework for Residual Spectrum Licences in the 700 MHz and AWS-3 Bands — Annexes

Annex A — Proposed Conditions of Licence — 700 MHz

Based on the proposals outlined in this Consultation, it is proposed that the following conditions of licence apply to the 700 MHz licences being auctioned through this process. The only change from the previous licences is in relation to the deployment conditions of licence.

It should be noted that the licences are subject to the relevant provisions in the Radiocommunication Act and the Radiocommunication Regulations, as amended from time to time. For example, the Minister continues to have the power to amend the terms and conditions of spectrum licences (paragraph 5(1)(b) of the Radiocommunication Act). The Minister may do so for reasons including furtherance of the policy objectives set out in section 7 of the Telecommunications Act and the policy objectives related to this band as set out in SMSE-002-12. Such action would normally only be undertaken after consultation.

1. Licence Term

The term of this licence is 20 years. At the end of this term, the licensee will have a high expectation that a new licence will be issued for a subsequent term through a renewal process unless a breach of licence condition has occurred, a fundamental reallocation of spectrum to a new service is required, or an overriding policy need arises.

The process for issuing licences after this term and any issues relating to renewal, including the terms and conditions of the new licence, will be determined by the Minister of Industry following a public consultation.

2. Eligibility

The licensee must comply on an ongoing basis with the applicable eligibility criteria in subsection 9(1) of the Radiocommunication Regulations. The licensee must notify the Minister of Industry of any change that would have a material effect on its eligibility. Such notification must be made in advance for any proposed transactions within its knowledge.

3. Spectrum Aggregation Limits

The licensee must comply with the spectrum aggregation limits as follows:

A limit of two paired spectrum blocks in the 700 MHz band within blocks A, B, C, C1 and C2 is applicable to all licensees.

A limit of one paired spectrum block within blocks B, C, C1 and C2 is applicable to all licensees which are large wireless service providers. Large wireless service providers are defined as companies with 10% or more of the national wireless subscriber market share, or 20% or more of the wireless subscriber market share in the province of the relevant licence area.Footnote 2 The determination of subscriber market share will be based on the 2012 CRTC Communications Monitoring Report.

These spectrum aggregation limits will continue for five years from the date of licence issuance. No transfer of licences or issuance of new licences will be authorized if it would result in a licensee exceeding the spectrum aggregation limits during this period. Any change in ownership or control of a licensee or any other agreement that has the effect of granting a right or interest in a 700 MHz licence to another licensee in this band may be considered as a licence transfer for the purpose of this condition of licence whether or not the licensee name is changed as a result. The licensee must request approval by the Minister of Industry for any change that would have a material effect on its compliance with these spectrum aggregation limits. Such a request must be made in advance for any proposed transactions within its knowledge. At any time, at the request of Industry Canada, the licensee will be required to provide updated information demonstrating ongoing compliance with this condition of licence.

4. Licence Transferability, Divisibility and Subordinate Licensing

This licence is transferable in whole or in part (divisibility), in both bandwidth and geographic dimensions, subject to Industry Canada's approval.

A Subordinate Licence may also be issued in regard to this licence. Industry Canada’s approval is required for each proposed Subordinate Licence. Subordinate Licences will not count towards the subordinate licensee's spectrum aggregation limit if the primary licensee and the subordinate licensee demonstrate to the satisfaction of Industry Canada that they will be separately and actively providing services to customers in the applicable licence area. Where such approval is granted and for at least the duration of the aggregation limits that are in place, licensees must implement their plans to the satisfaction of Industry Canada. Any modifications to these plans must be submitted to Industry Canada for approval.

The licensee must make the Transfer Request in writing to Industry Canada. The Transfer Request will be treated as set out in Client Procedures Circular CPC-2-1-23, Licensing Procedure for Spectrum Licences for Terrestrial Services, as amended from time to time.

The licensee must apply in writing to Industry Canada for approval prior to implementing any Deemed Transfer, which will be treated as set out in CPC-2-1- 23. The implementation of a Deemed Transfer without the prior approval of Industry Canada will be considered a breach of this condition of licence.

Should the licensee enter into any Agreement that provides for a Prospective Transfer with another holder of a Licence for commercial mobile spectrum (including any Affiliate, agent or representative of the other licence holder), it must apply in writing to Industry Canada for review of the Prospective Transfer within 15 days of entering into the Agreement, which will be treated as set out in CPC-2-1-23. Should Industry Canada issue a decision indicating that the Prospective Transfer is not approved; it will be a breach of this condition of licence for a licensee to remain in an Agreement that provides for the Prospective Transfer for a period of more than 90 days from the date of the decision.

In all cases, the licensee must follow the procedures as outlined in CPC-2-1-23.

All capitalized terms have the meaning ascribed to them in CPC-2-1-23.

5. Treatment of Existing Spectrum Users

The licensee must comply with the displacement policies set out in SMSE-002-12, Policy and Technical Framework: Mobile Broadband Services (MBS) – 700 MHz Band, Broadband Radio Service (BRS) – 2500 MHz Band.

6. Radio Station Installations

The licensee must comply with Client Procedures Circular CPC-2-0-03, Radiocommunication and Broadcasting Antenna Systems, as amended from time to time.

7. Provision of Technical Information

When Industry Canada requests technical information on a particular station or network, the licensee must provide the information in accordance with the definitions, criteria, frequency and timelines specified in the request. For further information, refer to Client Procedures Circular CPC 2-1-23, Licensing Procedure for Spectrum Licences for Terrestrial Services, as amended from time to time.

8. Compliance with Legislation, Regulation and Other Obligations

The licensee is subject to, and must comply with, the Radiocommunication Act and the Radiocommunication Regulations, as amended from time to time. The licensee must use the assigned spectrum in accordance with the Canadian Table of Frequency Allocations and the spectrum policies applicable to this band, as amended from time to time. The licence is issued on condition that all representations made in relation to obtaining this licence are all true and complete in every respect.

9. Technical Considerations, and International and Domestic Coordination

The licensee must comply on an ongoing basis with the technical aspects of the appropriate Radio Standards Specifications (RSS) and Standard Radio System Plans (SRSP), as amended from time to time. Where applicable, the licensee must use its best efforts to enter into mutually acceptable agreements with other parties for facilitating the reasonable and timely development of their respective systems, and to coordinate with other licensed users in Canada and internationally.

The licensee must comply with the obligations arising from current and future frequency coordination agreements established between Canada and other countries and shall be required to provide information or take actions to implement these obligations as indicated in the applicable SRSP. Although frequency assignments are not subject to site licensing, the licensee may be required through the appropriate SRSP to furnish all necessary technical data for each relevant site.

10. Lawful Interception

The licensee operating as telecommunication common carrier using the spectrum for voice telephony systems must, from the inception of service, provide for and maintain lawful interception capabilities as authorized by law. The requirements for lawful interception capabilities are provided in the Solicitor General’s Enforcement Standards for Lawful Interception of Telecommunications (Rev. Nov. 95). These standards may be amended from time to time.

The licensee may request the Minister of Industry to forbear from enforcing certain assistance capability requirements for a limited period of time. The Minister, following consultation with Public Safety Canada, may exercise the power to forbear from enforcing a requirement or requirements where, in the opinion of the Minister, the requirement is not reasonably achievable. Requests for forbearance must include specific details and dates indicating when compliance to the requirement can be expected.

11. Research and Development

The licensee must invest, as a minimum, two percent of its adjusted gross revenues resulting from the use of this licence, averaged over the term of the licence, in eligible research and development (R&D) activities related to telecommunications. Eligible R&D activities are those which meet the definition of scientific research and experimental development adopted in the Income Tax Act, as amended from time to time. Adjusted gross revenues are defined as total service revenues, less inter carrier payments, bad debts, third party commissions, and provincial goods and services taxes collected. The licensee is exempt from R&D expenditure requirements if it, together with all affiliated licensees that are subject to the R&D condition of licence, has less than $1 billion in annual gross operating revenues from the provision of wireless services in Canada, averaged over the term of the licence. For this condition of licence, an affiliate is defined as a person who controls the carrier, or who is controlled by the carrier or by any person who controls the carrier, as per subsection 35(3) of the Telecommunications Act.

12. Rural Deployment Requirements

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 deploy 700 MHz spectrum:

  1. to cover 90% of the population of its HSPA network footprint as of March 2012, within five years of the issuance of the initial 700 MHz licence; and
  2. to cover 97% of the population of its HSPA network footprint as of March 2012, within seven years of the issuance of the initial 700 MHz licence.

For the purpose of this condition, “access” includes situations where a licensee enters into an agreement with another 700 MHz licensee in the same licence area that provides the ability to carry the other licensee’s subscriber traffic (other than via a typical roaming agreement) regardless of whether the frequencies of both licensees are in use. In determining whether a party has access, Industry Canada may review documentation that sets out the details of any agreement to use the spectrum, agreements related to network architecture or any other technical or commercial information or agreements between the parties.

The licensee must notify the Minister of Industry of any new agreement that would provide the licensee with access to spectrum in any licence area where this condition has not yet been satisfied. In addition, the licensee must provide the Minister with any documentation or information related to spectrum access or HSPA network footprints at the Minister’s request.

13. General Deployment Requirement

Licensees will be required to demonstrate to the Minister of Industry that this spectrum has been put to use, as specified in Annex C of SLPB- 002-15, Consultation on a Licensing Framework For Residual Spectrum Licences in the 700 MHz and AWS-3 Bands, within 10 years of the initial issuance of the licence. When the spectrum is put to use, it shall be used to provide services predominantly to Canadians within the service area.

Where the licence is transferred during the initial 10 years, the requirement for the new licensee to deploy will continue to be based on the initial licence issuance date. Deployment by a subordinate licensee will count towards the requirement of the primary licensee.

14. Mandatory Antenna Tower and Site Sharing

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

15. Mandatory Roaming

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

16. Annual Report

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

  • a statement indicating continued compliance with all conditions of licence;
  • an update on the implementation and spectrum usage within the area covered by the licence;
  • existing audited financial statements with an accompanying auditor's report;
  • a statement indicating the annual gross operating revenues from the provision of wireless services in Canada and, where applicable, the annual adjusted gross revenues resulting from the use of this licence, as defined in these conditions of licence.
  • a report of the R&D expenditures as set out in these conditions of licence. Industry Canada may request an audited statement of R&D expenditures with an accompanying auditor’s report at its discretion;
  • supporting financial statements where a licensee is claiming an exemption based on, together with all affiliated licensees that are subject to the R&D condition of licence, it having less than $1 billion in annual gross operating revenues from the provision of wireless services in Canada, averaged over the term of the licence;
  • a copy of any existing corporate annual report for the licensee's fiscal year with respect to the authorization; and
  • other information related to the licence as specified in any notice updating the reporting requirements as issued by Industry Canada.

All reports and statements are to be certified by an officer of the company and submitted, in writing, within 120 days of the licensee's fiscal year-end. Confidential information provided will be treated in accordance with subsection 20(1) of the Access to Information Act.

Reports are to be submitted to Industry Canada at the following address:

Industry Canada
Spectrum Management Operations Branch
Manager, Emerging Networks
235 Queen Street (6th floor, East Tower)
Ottawa, Ontario K1A 0H5

16. Amendments

The Minister of Industry retains the discretion to amend these terms and conditions of licence at any time.

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Annex B — Proposed Conditions of Licence — AWS-3 Licences

Based on the proposals outlined in this Consultation, it is proposed that the following conditions of licence apply to the AWS-3 licences being auctioned through this process. The only change from the previous licences is in relation to the deployment conditions of licence.

1. Licence Term

The term of this licence is 20 years. At the end of this term, the licensee will have a high expectation that a new licence will be issued for a subsequent term through a renewal process unless a breach of licence condition has occurred, a fundamental reallocation of spectrum to a new service is required, or an overriding policy need arises.

The process for issuing licences after this term and any issues relating to renewal, including the terms and conditions of the new licence, will be determined by the Minister of Industry following a public consultation.

2. Eligibility

The licensee must comply on an ongoing basis with the applicable eligibility criteria in subsection 9(1) of the Radiocommunication Regulations. The licensee must notify the Minister of Industry of any change that would have a material effect on its eligibility. Such notification must be made in advance for any proposed transactions within its knowledge.

3. Licence Transferability, Divisibility and Subordinate Licensing

This licence is transferable in whole or in part (divisibility), in both bandwidth and geographic dimensions, subject to Industry Canada's approval. A subordinate licence may also be issued in regard to this licence. Industry Canada's approval is required for each proposed subordinate licence.

The licensee must make the Transfer Request in writing to Industry Canada. The Transfer Request will be treated as set out in Client Procedures Circular CPC-2-1-23, Licensing Procedure for Spectrum Licences for Terrestrial Services, as amended from time to time.

The licensee must apply in writing to Industry Canada for approval prior to implementing any Deemed Transfer, which will be treated as set out in CPC-2-1- 23. The implementation of a Deemed Transfer without the prior approval of Industry Canada will be considered a breach of this condition of licence.

Should the licensee enter into any Agreement that provides for a Prospective Transfer with another holder of a Licence for commercial mobile spectrum (including any Affiliate, agent or representative of the other licence holder), it must apply in writing to Industry Canada for review of the Prospective Transfer within 15 days of entering into the Agreement, which will be treated as set out in CPC-2-1-23. Should Industry Canada issue a decision indicating that the Prospective Transfer is not approved; it will be a breach of this condition of licence for a licensee to remain in an Agreement that provides for the Prospective Transfer for a period of more than 90 days from the date of the decision.

In all cases, the licensee must follow the procedures as outlined in CPC-2-1-23.

All capitalized terms have the meaning ascribed to them in CPC-2-1-23.

4. Treatment of Existing Spectrum Users

The licensee must comply with transition policies set out in SLPB-007-14, Technical, Policy and Licensing Framework for Advanced Wireless Services in the Bands 1755-1780 MHz and 2155-2180 MHz (AWS-3).

5. Radio Station Installations

The licensee must comply with Client Procedures Circular CPC-2-0-03, Radiocommunication and Broadcasting Antenna Systems, as amended from time to time.

6. Provision of Technical Information

The licensee must provide, and maintain, up-to-date technical information on a particular station or network in accordance with the definitions, criteria, frequency and timelines specified in Client Procedures Circular CPC-2-1-23, Licensing Procedure for Spectrum Licences for Terrestrial Services, as amended from time to time.

7. Compliance with Legislation, Regulation and Other Obligations

The licensee is subject to, and must comply with, the Radiocommunication Act and the Radiocommunication Regulations, as amended from time to time. The licensee must use the assigned spectrum in accordance with the Canadian Table of Frequency Allocations and the spectrum policies applicable to this band, as amended from time to time. The licence is issued on condition that all representations made in relation to obtaining this licence are all true and complete in every respect.

8. Technical Considerations, and International and Domestic Coordination

The licensee must comply on an ongoing basis with the technical aspects of the appropriate Radio Standards Specifications (RSS) and Standard Radio System Plans (SRSP), as amended from time to time. Where applicable, the licensee must use its best efforts to enter into mutually acceptable agreements with other parties for facilitating the reasonable and timely development of their respective systems, and to coordinate with other licensed users in Canada and internationally.

The licensee must comply with the obligations arising from current and future frequency coordination agreements established between Canada and other countries and shall be required to provide information or take actions to implement these obligations as indicated in the applicable SRSP. Although frequency assignments are not subject to site licensing, the licensee may be required through the appropriate SRSP to furnish all necessary technical data for each relevant site.

9. Lawful Interception

The licensee operating as a telecommunication common carrier using the spectrum for voice telephony systems must, from the inception of service, provide for and maintain lawful interception capabilities as authorized by law. The requirements for lawful interception capabilities are provided in the Solicitor General’s Enforcement Standards for Lawful Interception of Telecommunications (Rev. Nov. 95). These standards may be amended from time to time.

The licensee may request the Minister of Industry to forbear from enforcing certain assistance capability requirements for a limited period of time. The Minister, following consultation with Public Safety Canada, may exercise the power to forbear from enforcing a requirement or requirements where, in the opinion of the Minister, the requirement is not reasonably achievable. Requests for forbearance must include specific details and dates indicating when compliance to the requirement can be expected.

10. Research and Development

The licensee must invest, as a minimum, two percent of its adjusted gross revenues resulting from the use of this licence, averaged over the term of the licence, in eligible research and development (R&D) activities related to telecommunications. Eligible R&D activities are those which meet the definition of scientific research and experimental development adopted in the Income Tax Act, as amended from time to time. Adjusted gross revenues are defined as total service revenues, less inter-carrier payments, bad debts, third party commissions, and provincial goods and services taxes collected. The licensee is exempt from R&D expenditure requirements if it, together with all affiliated licensees that are subject to the R&D condition of licence, has less than $1 billion in annual gross operating revenues from the provision of wireless services in Canada, averaged over the term of the licence. For this condition of licence, an affiliate is defined as a person who controls the carrier, or who is controlled by the carrier or by any person who controls the carrier, as per subsection 35(3) of the Telecommunications Act.

11. Deployment Requirements

For Licences in the North

Licensees will be required to demonstrate to the Minister of Industry that this spectrum has been put to use as specified in Annex C of SLPB-002-15, Consultation on a Licensing Framework For Residual Spectrum Licences in the 700 MHz and AWS-3 Bands within eight years of the initial issuance of the licence. When the spectrum is put to use, it shall be used to provide services predominantly to Canadians within the service area.

Where a licence is transferred during the initial eight years, the requirement for the new licensee to deploy will continue to be based on the initial licence issuance date.

For Licences in Manitoba and Saskatchewan

Licensees will be required to demonstrate to the Minister of Industry that this spectrum has been put to use as specified in Annex C of SLPB-002-15, Consultation on a Licensing Framework For Residual Spectrum Licences in the 700 MHz and AWS-3 Bands within five years of the initial issuance of the licence. When the spectrum is put to use, it shall be used to provide services predominantly to Canadians within the service area.

Where a licence is transferred during the initial five years, the requirement for the new licensee to deploy will continue to be based on the initial licence issuance date.

12. Mandatory Antenna Tower and Site Sharing

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

13. Mandatory Roaming

The licensee must comply with the roaming requirements set out in Client Procedures Circular CPC-2-0-17, Conditions of Licence for Mandatory Roaming and Antenna Tower and Site Sharing and to Prohibit Exclusive Site Arrangements,Footnote 3 as amended from time to time.

14. Annual Report

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

  • a statement indicating continued compliance with all conditions of licence;
  • an update on the implementation and spectrum usage within the area covered by the licence;
  • existing audited financial statements with an accompanying auditor's report;
  • a statement indicating the annual gross operating revenues from the provision of wireless services in Canada and, where applicable, the annual adjusted gross revenues resulting from the use of this licence, as defined in these conditions of licence;
  • a report of the R&D expenditures as set out in these conditions of licence (Industry Canada may request an audited statement of R&D expenditures with an accompanying auditor's report, at its discretion);
  • supporting financial statements where a licensee is claiming an exemption based on, together with all affiliated licensees that are subject to the R&D condition of licence, it having less than $1 billion in annual gross operating revenues from the provision of wireless services in Canada, averaged over the term of the licence;
  • a copy of any existing corporate annual report for the licensee's fiscal year with respect to the authorization; and
  • other information related to the licence as specified in any notice updating the reporting requirements as issued by Industry Canada.

All reports and statements are to be certified by an officer of the company and submitted, in writing, within 120 days of the licensee's fiscal year-end. Confidential information provided will be treated in accordance with subsection 20(1) of the Access to Information Act.

Reports are to be submitted to Industry Canada at the following address:

Industry Canada
Spectrum Management Operations Branch
Manager, Emerging Networks
235 Queen Street (6th floor, East Tower)
Ottawa, Ontario K1A 0H5

Where a licensee holds multiple licences, spectrum implementation reports should be broken down by service area. This information, including the extent of implementation and spectrum usage, is important for analyzing each licensee's individual performance against its conditions of licence. In addition, it allows Industry Canada to monitor the effectiveness of these conditions in meeting the policy objectives regarding the band and the Department's intent that the spectrum be deployed in a timely manner for the benefit of Canadians.

15. Amendments

The Minister of Industry retains the discretion to amend these terms and conditions of licence at any time.

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Annex C — Deployment Requirements for Residual Licences

AWS-3 Licences

Table C1 — Five-Year Deployment Requirements for Tier 3 Service Areas Within Each Tier 2 Service Area in Manitoba and Saskatchewan
Tier 2 Tier 3 Service Area Name Population* Minimum Population Coverage**
2-10 Manitoba 3-39 Winnipeg 1,032,187 60%
3-40 Brandon 174,781 30%
2-11 Saskatchewan 3-41 Regina 366,413 50%
3-42 Moose Jaw 100,292 35%
3-43 Saskatoon 563,107 50%

* Population figures based on Statistics Canada 2011 Census information.
** Based on most recent census information available at the time of assessment.

Table C2 - Eight-Year Deployment Requirements for Licences in Yukon, the Northwest Territories and Nunavut
Tier 4 Service Area Name Population* Minimum Population Coverage**
4-170 Yukon 33,854 20%
4-171 Nunavut 31,906 20%
4-172 Northwest Territories 41,455 20%

* Population figures based on Statistics Canada 2011 Census information.
** Based on most recent census information available at the time of assessment.

700 MHz Licences

Table C3 - Ten-Year Deployment Requirements for Licences in Yukon, the Northwest Territories and Nunavut
Tier 4 Service Area Name Population* Minimum Population Coverage**
4-170 Yukon 33,854 20%
4-171 Nunavut 31,906 20%
4-172 Northwest Territories 41,455 20%

* Population figures based on Statistics Canada 2011 Census information.
** Based on most recent census information available at the time of assessment.

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Annex D — Bidding Examples

Bidding Examples:

The following examples illustrate different bidding scenarios, the provisional winning bid(s), as well as the price calculations for each.

Example 1:
Tier Block (Size) Opening Bid ($) Bidder 1’s Bid ($) Bidder 2’s Bid ($) Bidder 3’s Bid ($)
4-170 C1 (10 MHz) 90,000 92,000 90,600 94,500

Let us assume that there are three bidders interested in the 700 MHz block (10 MHz) in Tier 4-170. Bidder 1 places a bid of $92,000, Bidder 2 places a bid of $90,600 and Bidder 3 places a bid of $94,500. Bidder 3 would be declared the provisional winner and would be required to pay the second highest bid value of $92,000.

Example 2:
Tier Block (Size) Opening Bid ($) Bidder 1’s Bid ($) Bidder 2’s Bid ($) Bidder 3’s Bid ($)
4-171 C1 (10 MHz) 85,000 85,500 88,000 88,000

Let us assume that there are three bidders interested in the 700 MHz block (10 MHz) in Tier 4-171. Bidder 1 places a bid of $85,500, Bidder 2 places a bid of $88,000 and Bidder 3 places a bid of $88,000. Bidders 2 and 3 have tied with a bid of $88,000 and are asked to re-bid.

Example 3:
Tier Block (Size) Opening Bid ($) Bidder 1’s Bid ($)
4-172 C1 (10 MHz) 110,000 115,700

Let us assume that there is only one bidder interested in the 700 MHz block (10 MHz) in Tier 4 172. Bidder 1 places a bid of $115,700. Bidder 1 would be declared the provisional winner. Since there no other bids on the licence, Bidder 1 would pay the opening bid price of $110,000.

Example 4:
Tier Block (Size) Opening Bid ($) Bidder 1’s Bid ($) Bidder 2’s Bid ($) Bidder 3’s Bid ($)
2-10 G (10 MHz) 1,086,000 1,200,000 1,300,000
H (10 MHz) 1,086,000 1,200,000 1,100,000
I (10 MHz) 1,086,000 1,200,000 1,300,000
GH (20 MHz) 2,172,000 2,500,000 2,700,000
HI (20 MHz) 2,172,000 2,500,000 2,700,000
GHI (30 MHz) 3,258,000 5,700,000 4,000,000 5,600,000

Note: GI is not a proposed bidding option

Let us assume that there are three bidders interested in the AWS-3 blocks, G, H and I, in Tier 2 10. Bidder 1 submits one bid of $5,700,000 for a package of all three licences. Bidder 2 submits six bids: $1,200,000 for G, $1,200,000 for H, $1,200,000 for I, $2,500,000 for GH, $2,500,000 for HI and $4,000,000 for a package of all three licences. Bidder 3 also submits six bids: $1,300,000 for G, $1,100,000 for H, $1,300,000 for I, $2,700,000 for GH, $2,700,000 for HI and $5,600,000 for a package of all three licences. Bidder 1 would be declared the provisional winner, as its package bid is higher than any combination of the bids of bidders 2 and 3.

To calculate the Vickrey price for Bidder 1, its winning bid ($5,700,000) is subtracted from the value of the winning combination ($5,700,000) resulting in $0. Next, the winning combination is recalculated for the hypothetical situation in which Bidder 1’s bids are excluded. The best assignment, excluding Bidder 1, assigns all three licences to Bidder 3 at $5,600,000. The Vickrey price for Bidder 1 is the value of the winning combination with all of Bidder 1’s bids excluded ($5,600,000) less the sum of the winning bids for all bidders other than Bidder 1 ($0); that is, its Vickrey price is $5,600,000 ($5,600,000 - $0).

Example 5:
Tier Block (Size) Opening Bid ($) Bidder 1’s Bid ($) Bidder 2’s Bid ($) Bidder 3’s Bid ($)
2-11 G (10 MHz) 618,000 700,000 850,000
H (10 MHz) 618,000 700,000 850,000
I (10 MHz) 618,000 700,000 900,000
GH (20 MHz) 1,236,000 1,400,000 1,600,000
HI (20 MHz) 1,236,000 1,400,000 1,500,000
GHI (30 MHz) 1,854,000 2,220,000

Note: GI is not a proposed bidding option

Let us assume that there are three bidders interested in the AWS-3 blocks, G, H and I, in Tier 2-11. Bidder 1 submits six bids: $700,000 for G, $700,000 for H, $700,000 for I, $1,400,000 for GH, $1,400,000 for HI and $2,220,000 for GHI. Bidder 2 submits three bids: $850,000 for G, $850,000 for H and $900,000 for I. Bidder 3 submits two bids: $1,600,000 for GH and $1,500,000 for HI. In this case, the sum of Bidder 2’s bid for I and Bidder 3’s bid for GH, with total bids of $2,500,000, would be the highest and Bidders 2 and 3 would be declared the provisional winners.

To calculate the Vickrey price for Bidder 2, its winning bid ($900,000) is subtracted from the value of the winning combination ($2,500,000), resulting in $1,600,000. Next, the winning combination is recalculated for the hypothetical situation in which Bidder 2’s bids are excluded. The best assignment, excluding Bidder 2, assigns licence I to Bidder 1 at $700,000 and licences G and H to Bidder 3 at $1,600,000, resulting in $2,300,000. The Vickrey price for Bidder 2 is the value of the winning combination with all of Bidder 2’s bids excluded ($2,300,000) less the sum of the winning bids for all bidders other than Bidder 2 ($1,600,000) that is, its Vickrey price is $700,000 ($2,300,000 − $1,600,000).

To calculate the Vickrey price for Bidder 3, its winning bid ($1,600,000) is subtracted from the value of the winning combination ($2,500,000), resulting in $900,000. Next, the winning combination is recalculated for the hypothetical situation in which Bidder 3’s bids are excluded. The best assignment, excluding Bidder 3, assigns licence I to Bidder 2 at $900,000 and licences G and H to Bidder 1 at $1,400,000, resulting in $2,300,000. The Vickrey price for Bidder 3 is the value of the winning combination with all of Bidder 3’s bids excluded ($2,300,000), less the sum of the winning bids for all bidders other than Bidder 3 ($900,000), that is, its Vickrey price is $1,400,000 ($2,300,000 − $900,000).

Hence, the Vickrey outcome is for Bidder 2 to pay $700,000 for licence I and Bidder 3 to pay $1,400,000 for licences G and H. However, these prices sum to $2,100,000 which is less than Bidder 1’s package bid of $2,220,000 for all three licences. Therefore, Bidder 2 and Bidder 3 must split an additional payment of $120,000 ($2,200,000 - $2,100,000), satisfying the condition that no other bidder or group of bidders was prepared to pay more for the licences in question. Therefore, Bidder 2 and Bidder 3 must pay, collectively, at least $2,220,000. The additional payment would be split proportionately between the two bidders, in reference the opening bids amounts of the licences won. The opening bid price of Bidder 3’s package ($1,236,000) is twice as high as the opening bid price of Bidder 2’s package ($618,000). Therefore, Bidder 3 would pay twice as much as Bidder 2 of the extra payment, with Bidder 3 paying an additional $80,000, for a total payment of $1,480,000 ($1,400,000 + $80,000) and Bidder 2 paying an additional $40,000 for a total payment of $740,000 ($700,000 + $40,000).

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Annex E — Pricing Rule

Industry Canada is proposing to use a second-price rule to determine the prices to be paid such that the price for a winning bidder will be at least the opening bid price, but no higher than the actual amount bid. Second prices are often referred to as Vickrey prices and represent the opportunity cost of the bidder winning the licence or package. More specifically, Industry Canada is proposing to apply bidder-optimal core prices and use the “nearest Vickrey” approach in determining the prices.

Bids for the 700 MHz block can be made per licence; the winning bid will be the highest bid for each licence. For the AWS-3 licences, bids can be made for individual licences and/or a combination of the available licences. The winning bids in each service area will be calculated by determining the combination of bids that generates the greatest sum; the bids in this combination would be the winning bids.

To mitigate the possibility of a tie, bidders are encouraged not to bid in round figures. In the event of a tie, tied bidders will be requested to enter a second sealed bid in an attempt to break the tie. Should there be a second tie, bidders will be requested to submit a third sealed bid in an attempt to break the tie. This procedure will be repeated until there is no tie.

The second or Vickrey price for each winning bidder (known as “Bidder J” in this explanation) is calculated as follows. First, from the value of the winning combination, subtract Bidder J’s winning bid (value A). Next, recalculate the winning combination for the hypothetical situation in which all Bidder J’s bids are excluded, as if Bidder J had not participated (value B). The Vickrey price for Bidder J is calculated as the value of the winning combination with all Bidder J’s bids excluded (value B) minus the sum of the winning bids for all bidders other than Bidder J (value A); that is, value B minus value A. This is the minimum amount that the winning bidder could have bid in order to still have won, given the bids of all other bidders.

For the 700 MHz block, the Vickrey price for winning bidders will be the second highest bid on the licence or, should there only be one bidder for a particular licence, the opening bid amount. For the AWS-3 blocks, the Vickrey price(s) could depend on package bids and/or bids for the individual licences as well as the opening bid prices for the licences. In addition, with package bidding, an extra payment beyond the Vickrey prices is sometimes required as a result of interaction between overlapping bids. In the event that an extra payment is required, the payment to be made will be adjusted so that it is proportionate to the size of the bidder’s package as measured by the bidder’s winning package evaluated at the opening bid prices.

The prices to be paid by winning bidders for the 700 MHz and AWS-3 blocks in each service area, where available, must satisfy the following conditions:

  1. First condition: The price for a winning bid must be greater than or equal to the opening bid price(s) for the licence(s) included in the bid, but not more than the dollar amount of the winning bid.
  2. Second condition: The set of prices must be sufficiently high that there is no alternative bidder, or group of bidders, prepared to pay more than any winning bidder or group of winning bidders. If there is only one set of prices that meets the first and second conditions, this determines the prices to be paid.
  3. Third condition: If there is more than one set of prices that fulfils the first and second conditions, the set (or sets) of prices minimizing the sum of prices across winning bidders is (are) selected. If there is only one set of prices satisfying these three conditions, this set determines the prices.
  4. Fourth condition: If there is more than one set of prices that satisfies the first three conditions, the set of prices that minimizes the weighted sum of squares of differences between the prices and the Vickrey prices will be selected. The weighting is relative to the price of the bidder’s package evaluated at the opening bid prices. This approach for selecting among sets of prices that minimize the sum of prices across winning bidders is referred to as the “nearest Vickrey” approach.

These conditions characterize a unique set of prices such that each winning bidder pays no more than the dollar amount of its winning bid and pays at least the opening bid price(s). Industry Canada staff will calculate the set of prices for the 700 MHz block and AWS-3 blocks in each service area, where available, that meet the conditions outlined above.

The following is an example of how prices are calculated. This example is based on the Spectrum Auction Design paper by P. Cramton (http://www.cramton.umd.edu/papers2005-2009/cramton-spectrum- auction-design.pdf).

Suppose that there are five bidders, 1, 2, 3, 4 and 5, bidding for two licences, A and B. The following bids are submitted (”b” designates the bidder):

  • b1{A} = $28
  • b2{B} = $20
  • b3{AB} = $32
  • b4{A} = $14
  • b5{B} = $12

The bids of the five bidders are represented in Figure E1.

In this example, the highest value combination of bids would assign licence A to Bidder 1 and licence B to Bidder 2, generating $48 in value. There is no other assignment of the licences that yields a higher value.

To calculate the Vickrey price for Bidder 1, its winning bid ($28) is subtracted from the value of the winning combination ($48), resulting in $20. Next, the winning combination of packages is recalculated for the hypothetical situation in which Bidder 1’s bids are excluded. The best assignment, excluding Bidder 1, assigns licence A to Bidder 4 at $14 and licence B to Bidder 2 at $20, resulting in $34. The Vickrey price for Bidder 1 is the value of the winning combination of packages with all Bidder 1’s bids excluded ($34) less the sum of the winning allocation stage bids for all bidders other than Bidder 1 ($20); that is, its Vickrey price is $14 ($34 – $20).

Similarly, to calculate the Vickrey price for Bidder 2, its winning bid ($20) is subtracted from the value of the winning combination ($48), resulting in $28. Next, the winning combination of packages is recalculated for the hypothetical situation in which Bidder 2’s bids are excluded. The best assignment, excluding Bidder 2, assigns licence A to Bidder 1 and licence B to Bidder 5, resulting in a value of $40. The Vickrey price for Bidder 2 is the value of the winning combination of packages with all Bidder 2’s bids excluded ($40) less the sum of the winning allocation stage bids for all bidders other than Bidder 2 ($28); that is, its Vickrey price is $12 ($40 - $28).

Hence, the Vickrey outcome is for Bidder 1 to pay $14 for licence A and for Bidder 2 to pay $12 for licence B. Total revenues with these payments are $14 + $12 = $26. As shown in Figure E1, this means that Bidder 1 can reduce its bid to $14 before being displaced by Bidder 4. Similarly, Bidder 2 can reduce its bid to $12 before being displaced by Bidder 5.

Figure E1: Example of Calculating Prices (in Dollars)

Figure E1: Example of Calculating Prices 

(in Dollars) (the long description is located below the image)
Description of Figure E1

This figure is a graph illustrating the example above with the five bidders, 1, 2, 3, 4 and 5, bidding for two licences, A and B. This illustration demonstrates how to calculate prices using a second-price rule and why an additional payment beyond second prices is sometimes required.

However, these payments sum to $26, which is less than Bidder 3’s bid of $32 for both licences A and B. Therefore, Bidder 1 and Bidder 2 must split an additional payment of $6 ($32 − $26), to ensure that their combined payment is greater than that of Bidder 3, satisfying the condition that no other bidder or group of bidders was prepared to pay more for the licences in question. That is, Bidder 1 and Bidder 2 must pay, collectively, at least $32. The additional payment of $6 is split equally between the two bidders. Each bidder is therefore paying an additional $3 above its Vickrey price, with Bidder 1 paying $17 ($14 + $3) and Bidder 2 paying $15 ($12 + $3), as shown in Figure E1.

If the opening bid prices for licence A and licence B are the same amount, the additional payment of $6 is split equally between the two bidders. Each bidder is therefore paying an additional $3 above its Vickrey price, with Bidder 1 paying $17 ($14 + $3) and Bidder 2 paying $15 ($12  + $3), as shown in Figure E1.

However, if the opening bid prices for the two licences are different amounts, the two bidders must split the extra payment proportionately, in reference to the opening bid amounts (the fourth condition). For example, if the opening bid price for licence A is $8 and the opening bid price for licence B is $4, then the opening bid price of Bidder 1’s package is twice as large as that of Bidder 2. Therefore, Bidder 1 would pay twice as much as Bidder 2 of the extra payment, with Bidder 1 paying an additional $4, for a total payment of $18 and Bidder 2 paying an additional $2, for a final payment of $14.

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