Response to a Clarification Request regarding the Consultation on a Technical, Policy and Licensing Framework for Spectrum in the 600 MHz Band

Posted on November 1, 2017

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1.  The following is a response to the clarification request received from Rogers Communications inc. (hereinafter referred to as Rogers) subsequent to the release of SLPB-005-17, Consultation on a Technical, Policy and Licensing Framework for Spectrum in the 600 MHz Band (hereinafter referred to as the Consultation).

2.  Innovation, Science and Economic Development Canada (ISED) notes that the Consultation as written accurately sets out the proposed framework for the auction. The following is intended to clarify the existing proposals. Further explanation regarding the determination of price increments is set out below and demonstrated in figure 1.

Question 1 (Rogers' paragraph 4):

Is the "maximum" supply of set-aside product 3 or 7?

Question 2 (Rogers' paragraph 5):

If a set-aside bidder wanted, for example, 4 licences in total would it:

  1. make a bid for 4 blocks of set-aside product (and its demand be counted in this way for application of the determination price increments and activity rules) OR
  2. make a bid of 1 (or more) block(s) of open product and 3 (or fewer) blocks of set-aside product (and again its demand be counted in this way for application of the determination price increments and activity rules)

Question 3 (Rogers' paragraph 6):

For the purposes of defining this feasible set, is a set-aside bidder allowed to bid for 4 or more blocks of set-aside product in a service area?

Response 1, 2 and 3:

3.  As stated in paragraph 9 of annex A of the Consultation: The licences are auctioned simultaneously over multiple clock rounds. In each round, bidders indicate the number of licences in each service area on which they would like to bid, given the prevailing prices. The bid for a product cannot exceed the product's maximum supply. Thus, a set-aside-eligible bidder's bid for a set-aside product could be for 0, 1, 2, 3, 4, 5, 6 or 7 licences, while a set-aside-ineligible bidder's bid for an open product could be for 0, 1, 2, 3 or 4 licences. This applies to bids in both the clock rounds and the supplementary round.

4.  A set-aside eligible bidder can place a bid for up to 7 blocks in that service area. All bids placed by the set-aside-eligible bidder would be considered to be placed on the set-aside product in that service area.

Question 4 (Rogers' paragraph 9):

Suppose that (i) there is no current demand for open lots at all and (ii) there is just one set-aside-eligible bidder who bids for 4 set-aside blocks. Then rule paragraph 11a) would imply that the set-aside price would be increased (and if necessary the open price increased too to ensure that it does not fall below the set-aside price), despite there not being any overall excess demand. Moreover, the clock rounds would not then close.

Response 4

5.  Regardless of whether the excess demand on the set-aside product is the result of bids submitted by one or multiple bidders, the rule explained in subparagraph 11a) of annex A would apply, which states: The price of only the set-aside product in a service area will increase from the previous round when the aggregate demand for the set-aside product exceeds three (four in this example) and both of the following conditions are satisfied: i) the aggregate demand for the open product is at most four (satisfied – 0 in this example); and ii) the price of the set-aside product is less than the price of the open product (may or may not be satisfied – not specified in the letter).

6.  Since it was not specified in the example, the subsequent price increase depends on condition (ii) – whether the price of the set-aside product is less than the price of the open product or equal to the price of the open product.

7.  If the price of the set-aside product is equal to the price of the open product, then neither price increases, and this service area meets the condition for closing the clock rounds (Figure 1, outcome 6).

8.  If the price of the set-aside product is less than the price of the open product, the price of the set-aside product increases and the price of the open product does not (Figure 1, outcome 3a). If the increased price of the set-aside product would exceed the price of the open product, then the price of the open product is increased to be equal to the new price of the set-aside product (Figure 1, outcome 3b). At this point, if there are no further changes in the demand for set-aside product or in the demand for open product then the auction may close, if all other service areas are also resolved.

9.  Increasing prices in the clock rounds: For additional clarity, a graphic is provided below to illustrate the application of the pricing rules as set out in Annex A of the Consultation.

10.  In the first clock round, the price of all licences in each product would be equal to the opening bid price listed in section 12.2 of the Consultation. The clock price evolution in subsequent clock rounds is illustrated in figure 1, which enumerates all possible combinations of the demand for open and set-aside blocks as well as relative prices for set-aside and open blocks. All possible outcomes are numbered from 1 to 7 on the graphic. The clock price would change as follows, in accordance with paragraph 11 of annex A:

  1. The price of only the set-aside product in a service area will increase from the previous round when the aggregate demand for the set-aside product exceeds three and both of the following conditions are satisfied: i) the aggregate demand for the open product is at most four; and ii) the price of the set-aside product is less than the price of the open product (Figure 1, outcome 3). If this would result in the price of the set-aside product not exceeding the price of the open product, then the price of the open product will not increase (Figure 1, outcome 3a). However, if this would result in the price of the set-aside product exceeding the price of the open product, then the price of the open product will instead be set equal to the same price that has been determined for the set-aside product (Figure 1, outcome 3b). The price of the set-aside product will never be set above the price of the open product.
  2. The price of only the open product in a service area will increase from the previous round when the aggregate demand for the open product exceeds four and the aggregate demand for the set-aside product is at most three (Figure 1, outcome 2).
  3. The prices of both products in a service area will increase from the previous round when the aggregate demand for the set-aside product exceeds three and either of the following two conditions are satisfied: the aggregate demand for the open product exceeds four (Figure 1, outcome 1); or the prices of the two products are equal and the sum of the aggregate demands for the set-aside and open products exceeds seven (Figure 1, outcome 7).
  4. If none of the conditions (a), (b) or (c) are satisfied for a service area, then the prices of neither of the products in the service area will increase from the previous round (Figure 1, outcomes 4, 5, and 6).

11.  The explanations provided above should also provide additional clarity regarding the post-auction treatment of licences won by set-aside eligible bidders. As stated in paragraph 54 of the Consultation: In the case where one or more set-aside eligible bidders collectively win more than 30 MHz in a given service area, ISED is proposing that all of these blocks be considered set-aside blocks, and effectively be subject to the same conditions of licence set out in section 11.2  – Licence transferability and divisibility.

Figure 1—Clock price evolution

Clock price evolution (the long description is located below the image)
Description of figure

This figure is a flow chart of the possible combinations of relative prices for set-aside and open blocks, prepared in response to several questions from stakeholders.

Question 1: Is the demand for open blocks greater than four? If answer is yes, then the chart leads to question 2, which states: Is the demand for set-aside blocks greater than three? If no, then the chart leads to question 3, which states: Is the price of set-aside blocks less than the price of open blocks?

Question 2: Is the demand for set-aside blocks greater than three? If answer is yes, then the chart leads to outcome 1, in which the price for open blocks increases and the price for set-aside blocks increases. If the answer to question 2 is no, then the chart leads to outcome 2, in which the price for open blocks increases and price for set-aside blocks does not increase.

Question 3: Is the price of set-aside blocks less than the price of open blocks? If the answer is yes, then the chart leads to question 4, which states: Is the demand for set-aside blocks greater than three? If the answer is no, then the chart leads to question 5, which states: Is the demand for set-aside blocks greater than three?

Question 4: Is the demand for set-aside blocks greater than three? If yes, then the chart leads to outcome 3, in which the price of open blocks does not increase, and question 7: Is the resulting price of set-aside blocks greater than the price of open blocks? If yes, then the chart leads to outcome 3b, in which the price of open blocks increases to match the price of set-aside blocks. If no, then the chart leads to outcome 3a, in which the price of open blocks does not increase. If the answer to question 4 is no, then the chart leads to outcome 4, in which the price of open blocks does not increase and the price of set-aside blocks does not increase.

Question 5: Is the demand for set-aside blocks greater than three? If yes, then the chart leads to question 6, which states: Is the total demand greater than 7? If no, then the chart leads to outcome 5, in which the price of open blocks does not increase and price of set-aside blocks does not increase.

Question 6: Is the total demand greater than 7? If yes, then the chart leads to outcome 7, in which the price of open blocks increases and the price of set-aside blocks increases. If no, then the chart leads to outcome 6, in which the price of open blocks does not increase and price of set-aside blocks does not increase.

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