Consultation on a Policy and Licensing Framework for Spectrum in the 3500 MHz Band

1. Through the release of this paper, Innovation, Science and Economic Development Canada (ISED), on behalf of the Minister, is hereby initiating a consultation on a policy and licensing framework for the auction of spectrum licences in the band 3450-3650 MHz (referred to as the 3500 MHz band) as announced in Canada Gazette notice SLPB-001-19.

2. Subsequent to the initial consultation entitled SLPB-004-18, Consultation on Revision to the 3500 MHz Band to Accommodate Flexible Use and Preliminary Consultation on Changes to the 3800 MHz Band, released in June 2018, and the resulting policy decisions announced in the document SLPB-001-19, Decision on Revisions to the 3500 MHz Band to Accommodate Flexible Use and Decisions on Preliminary Changes to the 3800 MHz Band (referred to as the 2019 Decision), released on June 5, 2019, ISED is now seeking comments on the policy and licensing considerations including auction format, rules and processes, as well as on conditions of licence for spectrum in the 3500 MHz band. ISED is also proposing a set of updated conditions of licence intended to cover all existing fixed wireless access licences in the 3400-3700 MHz band.

3. The Minister of Innovation, Science and Economic Development, through the Department of Industry Act, the Radiocommunication Act and the Radiocommunication Regulations, with due regard to the objectives of the Telecommunications Act, is responsible for spectrum management in Canada. As such, the Minister is responsible for developing national policies for spectrum utilization and ensuring effective management of the radio frequency spectrum resource.

4. Canadians want high-quality services, ubiquitous coverage and affordable prices from their telecommunications service providers. Canadians rely on wireless telecommunications services to access a variety of applications, multi-media services, social networking and Internet browsing; to do business and connect with others; and to manage finances, health and homes in both urban and rural areas.

5. ISED is committed to ensuring that Canadian consumers, businesses and public institutions continue to benefit from the latest wireless telecommunications services across the country. A robust wireless telecommunications industry drives the adoption and use of digital technologies and enhances the productivity of the Canadian economy.

6. Spectrum is a critical resource for wireless carriers in both densely populated urban areas, and in rural and remote areas of the country. Additional flexible use spectrum will enable providers to increase network capacity to meet the traffic demands of higher usage rates, and support the provision of next-generation wireless technologies for both fixed and mobile services. The development and deployment of 5th generation (5G) technologies will support Canada in becoming a global centre for innovation, and will allow Canada to be at the forefront of digital development and adoption through the creation and strengthening of a world-class wireless infrastructure.

7. Beyond initial improvements to the speed and capacity of mobile broadband networks and services, 5G technologies are expected to transform services across all sectors of the economy including manufacturing, healthcare and transport. Testing and demonstrations of different use cases are taking place domestically and internationally; however, it is unclear at this time which business cases will drive ongoing investment in 5G networks, which services and applications will deliver the greatest benefits to Canadians, and when such applications will be ready for market. This consultation and subsequent decision will ensure that Canadians can benefit from the near term improvements to mobile broadband networks and be ready to embrace new applications and services as they deploy.

8. Spectrum releases in Canada are designed to align with international market developments and the continual evolution of wireless technologies around the world. By ensuring that the spectrum being made available reflects global trends, emerging 5G standards and the equipment ecosystem that is expected to materialize in the coming years, Canada positions itself to benefit from the next generation of smartphones and other advanced wireless devices. Canadian consumers benefit from the economies of scale that come when manufacturers produce equipment for many markets. In addition, specific Canadian circumstances must be taken into account, which, in this case, include the reliance of some Canadians on fixed wireless access using the 3500 MHz band for broadband connectivity, and the competitive dynamics of the market for commercial mobile services.

9. Some rural areas may continue to rely on fixed wireless access in the 3500 MHz band over a longer period of time than urban areas. Fixed wireless access providers are expected to be among the first to offer 5G fixed services. As such, ISED is putting forward proposals that promote the usage of spectrum in rural areas.

10. In developing this consultation paper, the Minister has been guided by the policy objectives stated in the Telecommunications Act, and the policy objective of the Spectrum Policy Framework for Canada (SPFC), to maximize the economic and social benefits that Canadians derive from the use of the radio frequency spectrum resource. These objectives and the enabling guidelines listed in the SPFC will continue to guide the Minister in managing the spectrum resource.

11. Through Canada's Innovation and Skills Plan and its focus on people, technologies and companies, the Government of Canada is committed to promoting innovation-led growth across all sectors of the Canadian economy. Decisions made arising from this consultation will support the Innovation and Skills Plan priorities and the SPFC policy objective by positioning Canada at the leading edge of the digital economy through the enabling of flexible use of the 3500 MHz band to support 5G technologies. Consequently, ISED's policy objectives for the 3500 MHz band are to:

• foster innovation, investment and the evolution of wireless networks by enabling the development and adoption of 5G technologies
• support sustained competition, so that consumers and businesses benefit from greater choice
• facilitate the deployment and timely availability of services across the country, including rural areas

12. In 2014, ISED released DGSO-007-14, Decisions Regarding Policy Changes in the 3500 MHz Band (3475–3650 MHz) and a New Licensing Process (the 2014 Decision), which included a decision to implement a fundamental reallocation of the 3475–3650 MHz band to allow mobile services in addition to existing fixed services. The 2014 Decision also recognized the importance of fixed wireless services for the delivery of broadband in rural areas. It determined that the future licensing framework should permit existing licensees that are in compliance with existing conditions of licence, and who would have a high expectation of spectrum licences under the 3500 MHz flexible use policy, to continue to provide fixed wireless access services. However, until recently, there was uncertainty regarding the future use of this band internationally.

13. In June 2018, ISED released the Spectrum Outlook 2018 to 2022 (the Spectrum Outlook), which noted that there was strong interest in releasing the 3500 MHz band for flexible use as quickly as possible. In addition, ISED noted the international interest in the 3500 MHz band and the expectation of it being a key band for the development of both mobile and fixed 5G services and outlined the expected timeline for a global equipment ecosystem. As a result, ISED classified the 3500 MHz band as a Priority 1 in the Spectrum Outlook.

14. In addition to this consultation on mid-band spectrum, ISED published SLPB-001-17, Consultation on Releasing Millimeter Wave Spectrum to Support 5G in June 2017 to begin the process to make this high-band spectrum, optimal for low-latency and high-bandwidth use, available for 5G services in the future. In March 2018, ISED published SLPB-002-18, Technical, Policy and Licensing Framework for Spectrum in the 600 MHz Band to support increased network capacity and the deployment of next-generation technologies using low-band spectrum. ISED considers that this approach of planning the release of spectrum in low, mid and high frequency bands will be beneficial to the deployment of 5G technologies offering higher speeds, low-latency and improved capacity and coverage.

15. SLPB-004-18, Consultation on Revisions to the 3500 MHz Band to Accommodate Flexible Use and Preliminary Consultation on Changes to the 3800 MHz Band released in June 2018, and the subsequent SLPB-001-19, Decision on Revisions to the 3500 MHz Band to Accommodate Flexible Use and Preliminary Decisions on Changes to the 3800 MHz Band (2019 Decision) released on June 5, 2019, outline the changes to the 3500 MHz band plan to accommodate flexible use in the band. 

16. Taking into account these developments, ISED is hereby consulting on a policy and licensing framework for spectrum in the 3500 MHz band.

17. In the 2019 Decision, ISED implemented a band plan composed of 20 unpaired blocks of 10 MHz, as shown in figure 1, providing a channel spacing size supported by both 4G Long Term Evolution (LTE) and 5G New Radio (NR) equipment. The band plan composed of unpaired blocks will facilitate the issuance of new licences to both incumbent and new licensees.

18. In order to facilitate large bandwidth channels for 5G technologies, ISED is proposing to implement rules that will ensure, in most cases, that blocks can be aggregated into a set of contiguous spectrum licences in the service area. The proposed rules are discussed in sections 8.1 and 9.

Figure 1 — Band plan for 3500 MHz band

19. In instances where the demand for spectrum is expected to exceed supply, an auction is generally used.

20. Spectrum is a critical input for both mobile and fixed wireless access providers. Mobile competitors that entered the market after the 2008 Advanced Wireless Services (AWS-1) spectrum auction continue to invest in their wireless networks and increase subscribership. Access to additional spectrum would assist them in their efforts to provide services using the latest technologies and increase network capacity in order to meet the traffic demands of a growing subscribership. Wireless Internet Service Providers (WISPs) provide fixed Internet services using spectrum to a predominantly rural customer base. Access to additional spectrum would assist them in their efforts to expand services geographically and to continue providing services to existing customers. In addition, national mobile service providers (NMSPs), that have 10% or more of the national wireless market, would also benefit from access to additional spectrum, allowing them to increase capacity to better serve their substantial subscriber base and provide services using the latest technologies.

21. Commercial mobile services are an important communication tool for many Canadians. In 2017, more Canadian households had mobile phones (89.5%) than landlines (63.0%)—a big change from only ten years ago, when over two-thirds of Canadian households subscribed to mobile phones (71.9%) and almost all subscribed to landlines (92.5%). Just as, or more important, is the increase in Canadians using their smart phones to access the Internet and mobile apps, leading to an increase in the consumption of wireless data. According to the Canadian Radio-television and Telecommunications Commission's (CRTC) Communications Monitoring Report 2018 the average monthly data usage per subscriber increased from 0.99 GB in 2014 to 2.0 GB in 2017. The number of subscribers with data plans increased from 62% in 2013 to 83% in 2017.

22. Meeting the needs of consumers and businesses in rural areas presents particular challenges, as the business case for deploying networks in less densely populated regions is more difficult than in urban areas.

23. Fixed wireless services are a key component of providing broadband Internet connectivity for rural homes and businesses across Canada since they can be much more economical to deploy in lower density areas. According to CRTC's Communications Monitoring Report 2018, approximately 26% of rural households were outside the wireline footprint, an improvement from 31% in 2016. These households rely on fixed wireless access, and other technologies, for connectivity.

24. Adoption and usage trends in Canada highlight the important role of fixed wireless access for delivering broadband Internet in rural areas. For example, monthly data usage for these services is quite high and has been steadily increasing. According to the CRTC, in 2017, the average data usage per fixed residential subscription in Canada was 166 GB per month, up from 128 GB in 2016. Average speeds are experiencing similar growth. Fixed wireless access services are being used to deliver faster speeds and increased data usage in lower density areas.

25. Given the high demand for mobile and fixed broadband services in Canada and the potential opportunity for the deployment of 5G services using the 3500 MHz band, demand is expected to exceed supply for these licences. Therefore, ISED will use an auction process to assign spectrum licences in the 3500 MHz band.

26. Since taking steps to introduce new competitors to the mobile wireless market in 2008, additional service providers have undertaken the substantial investment required to deploy wireless networks in many markets across Canada and to provide mobile wireless services to Canadians. As a result, competition has increased, bringing benefits to consumers. The Price Comparisons of Wireline, Wireless and Internet Services in Canada and with Foreign Jurisdictions – 2018 Edition found that, on average, regional mobile service providers offer prices up to 33% lower than the national incumbents.

27. Since the 3500 MHz band is the first band where 5G technologies are likely to be deployed, it is especially important for Canadians as 5G technologies support higher speeds and more subscribers. Aligning the 3500 MHz band with global standards will allow Canadians to obtain competitively priced consumer devices and network equipment. 5G equipment, with its improved spectral efficiency, will be the key to providing more capacity for mobile service providers and WISPs. ISED views the licensing of 3500 MHz spectrum as an opportunity to release spectrum to further support investment by service providers and to improve wireless services for Canadians. In particular, it presents a key opportunity to further support the competitiveness of the regional service providers by ensuring that they will have an opportunity to acquire spectrum to effectively compete with the NMSPs, as 5G technology is initially deployed. It will also allow WISPs to acquire additional 3500 MHz spectrum to offer 5G fixed wireless services, significantly improving services to rural Canadians.

28. There is a risk that competition in the post auction marketplace could suffer without measures to facilitate regional service providers' and WISP's access to spectrum. Furthermore, the Competition Bureau concluded that the lower prices are caused by the presence of a strong regional competitor.^{Footnote 1} The Competition Bureau has stated that the NMSPs have market power in the provision of retail mobile wireless services on several occasions, most recently in their intervention to the CRTC's proceedings on lower-cost data-only plans.^{Footnote 2} Consistent with the above comments, ISED is of the view that these NMSPs likely have the means and incentive to prevent other service providers from acquiring spectrum licences in an open auction.

29. Similar risks have also been recognized by spectrum regulators in multiple international jurisdictions. In many cases, these regulators have elected to address these risks by adopting competitive auction measures. In Australia's November 2018 auction of the 3575-3700 MHz band, the Australian Communications and Media Authority imposed a cap of 60 MHz in urban areas across the 3400-3700 MHz band. Ireland imposed a 150 MHz cap as a pro-competitive measure in its 2017 auction of 350 MHz in the 3600 MHz band.  In the U.S., 30 MHz of spectrum was set-aside for non-incumbents in the 600 MHz incentive auction.

30. As noted in the Framework for Spectrum Auctions in Canada (FSAC), there are various measures available in an auction to promote a competitive marketplace if required, notably spectrum set-asides and spectrum aggregation limits, also known as spectrum caps. These measures can address issues of market power and support competition. The factors that ISED may consider when deciding upon use of a competitive measure are set out in section 4 in the FSAC.

31. A spectrum set-aside ensures that a minimum amount of spectrum is reserved for a certain sub-set of entities. A set-aside was used in the 2008 AWS-1 auction, where approximately 40% of the available spectrum was only available to certain bidders, and in the 2015 AWS-3 auction, where approximately 60% of the available spectrum was only available to certain bidders. A set-aside of 43% was also used in the recent 600 MHz auction.

32. A  spectrum cap limits the amount of spectrum that each licensee is allowed to obtain. Variations of spectrum caps have been used in past auctions, including the 700 MHz auction in 2014 and the 2500 MHz auction in 2015. A spectrum cap regulates the distribution of spectrum across different licensees.

33. Given the above considerations, and in light of the policy objectives stated in section 3, ISED proposes to adopt competitive measures for the 3500 MHz licensing process. ISED is seeking comment on the use of a spectrum set-aside or an in-band spectrum cap, applied separately or together.

34. Amount of spectrum for a set-aside and/or size of the spectrum cap: The minimum technical requirement for 5G NR technology in the 3500 MHz band will be an unpaired 10 MHz block. Larger aggregations would allow increased capacity and speed. Considering there are 20 unpaired blocks of 10 MHz in the 3500 MHz band and that this spectrum is expected to be in high demand by service providers to improve network quality and capacity, the amount of spectrum for a set-aside and/or the size of a spectrum cap must be balanced with the total amount of spectrum available in the band.

35. ISED notes that after the application of the transition plan described in the 2019 Decision there could be solely set-aside spectrum available for auction in a limited number of service areas, if a set-aside is applied and depending on the amount of the set-aside. If an in-band spectrum cap is adopted, existing holdings, including sub-divided and grid-cell licences, as of the date of the application to participate in the auction, would be counted towards the cap. As such, existing licensees may not be able to obtain additional spectrum in some service areas if their spectrum holdings as a result of the transition plan described in the 2019 Decision are equal to or in excess of the spectrum cap.

36. Applying either a set-aside or a spectrum cap does not preclude the use of the other. Therefore, ISED is seeking comments on the amount of spectrum that should be applied for the use of a set-aside,  or which should be subject to an in-band spectrum cap, and/or how a combination of a set-aside and a spectrum cap should be applied.

37. Eligibility for set-aside spectrum: Should a spectrum set-aside be applied, ISED must determine who will be eligible to bid on set-aside spectrum.  In its effort to promote a competitive marketplace, ISED has implemented policies in various auctions that effectively reserved spectrum for certain sub-sets of entities that could acquire access to this spectrum to compete with NMSPs. Regional service providers and WISPs could benefit from an opportunity to acquire access to additional spectrum to support network improvements to meet the wireless traffic demands of their growing subscribership.

38. In the past, ISED has used specific definitions to distinguish between established service providers and newer service providers for the purpose of determining bidding eligibility. For the purpose of this consultation on the 3500 MHz band, it is proposed that NMSPs be defined as “companies with 10% or more of national wireless subscriber market share.” The subscriber market share will be determined by the 2018 CRTC Communications Monitoring Report.

39. ISED is of the view that the ability to bid on set-aside spectrum should be limited to a particular sub-set of service providers that are best positioned to compete in either the commercial mobile services market or as rural wireless Internet service providers. As a result, it is proposed that eligibility to bid on the set-aside spectrum licences be limited to those registered with the CRTC as facilities-based providers,^{Footnote 3}which are not NMSPs, and that are actively providing commercial telecommunication services to the general public in the relevant Tier 2 area of interest (i.e. they may bid on any tier within Tier 2 where they are actively providing commercial services) effective as of the date of application to participate in the 3500 MHz auction.^{Footnote 4} In this consultation, these entities are referred to as set-aside-eligible bidders. Upon application to participate in the auction, applicants would be required to indicate in their application, whether they are applying to bid as a set-aside-eligible or set-aside-ineligible bidder on a service area by service area basis.

40. A bidder may be eligible to qualify as a set-aside-eligible bidder based on the eligibility of its affiliated entities or on the eligibility of the partners who control the bidder where the bidder is a partnership. 

41. As long as the bidder itself is not affiliated with or controlled by an NMSP, and where one or more affiliates or controlling partners of the bidder is registered on the CRTC facilities-based list, that bidder may be qualified as set-aside-eligible to bid in all licence areas where an affiliate or controlling partner is actively providing commercial telecommunications services to the general public in the relevant Tier 2 service area.

42. Limiting access to any set-aside licences as noted above is more likely to result in the provision of robust advanced wireless services, both mobile and fixed, allowing for more effective and sustained competition in the post-auction marketplace. Furthermore, in order to ensure the effectiveness of the set-aside and to deter speculation, it is proposed that any set-aside licences acquired by set-aside-eligible bidders would not be transferable to set-aside-ineligible entities for the first five years of the licence term, as set out in section 11.2.

43. ISED notes that changes to a licensee's ownership structure, business relationships or service offerings after it has been issued a licence may affect the licensee's set-aside eligibility. It is proposed that the conditions of licence reflect the responsibility of any set-aside licensees to maintain their set-aside eligibility for the first five years of the licence.

44. In its assessment of a bidder's eligibility to bid on any set-aside spectrum, ISED would determine whether commercial telecommunications services are actively being provided to the general public in the relevant Tier 2 service area, by the potential bidder. Potential bidders would be required to demonstrate this by providing relevant documentation to ISED, which will include, but not be limited to, details outlining:

• the services being offered in the licence area
• the retail/distribution network
• how subscribers access services and the number of subscribers in the service area

45. Block size: As discussed in section 5, there are 20 unpaired blocks of 10 MHz. Should a set-aside be applied, ISED is proposing that the set-aside be auctioned as separate unpaired blocks of 10 MHz. Proposed contiguity rules for the aggregation of blocks within a specific licence area are discussed in section 9.

46. Application of an in-band spectrum cap: If a spectrum cap is applied, in service areas where an existing licensee already has spectrum holdings in excess of the spectrum cap, including cases where licensees hold sub-divided and grid cell licenses, it is proposed that the licensee would not be required to divest any such holdings in order to fall within the spectrum cap. However, such licensees would not be eligible to bid for additional licences or otherwise obtain additional licences in service areas where the spectrum cap has been met or exceeded. ISED is proposing that licensees planning to return any of their existing sub-divided or grid-cell licence holdings to ISED in order to increase their eligibility to bid on full blocks in the related licence areas, they must do so by six months prior to the auction application date, if a spectrum cap is adopted.  This will allow ISED to process the request and to publish an updated list of the licences being auctioned prior to the application date.

47. The Service areas for competitive licensing document outlines the general service areas that are used by ISED for the purposes of issuing spectrum licences. The defined geographic areas have been categorized under “service area tiers” that are based on Statistics Canada's Census Divisions and Subdivisions.

48. As different wireless services and applications are best suited to different sizes of service areas, four tiers of service areas have been established.

• Tier 1 is a single national service area
• Tier 2 consists of 14 large service areas covering all of Canada
  • eight Tier 2 service areas that have provincial/territorial boundaries and
  • six that are sub-provincial within Ontario and Quebec
• Tier 3 contains 59 smaller regional service areas
• Tier 4 contains the smallest licensing area and comprises 172 localized service areas  
  • current licences in the 3500 MHz band are based on Tier 4 service areas

49. Licensing based on smaller tier sizes, such as Tier 4, provides additional flexibility to licensees, by allowing them to either concentrate on the geographic markets of most interest or to aggregate smaller service areas into larger regions that correspond to their business needs. The propagation characteristics of the 3500 MHz band limit the interference coordination challenges with neighboring service providers.

50. Given the current licences in the 3500 MHz band and the overarching goal of providing services for flexible use in urban and rural areas, ISED is proposing to licence the new flexible use licences in this band using Tier 4 service areas.

51. As described in the 2019 Decision, existing licensees will be eligible to apply for flexible use licences for a predetermined amount of spectrum based on their existing holdings in a specific area through the transition process. As existing holdings may include Tier 4 licences, sub-divided licences, and grid-cell licences, the amount of spectrum remaining in each service area will vary. ISED proposes that all remaining spectrum should be made available through the auction process.

8.1.1 Spectrum available in the auction

52. In determining the amount of spectrum licences that will be available in each of the Tier 4 service areas as part of the auction, ISED proposes considering two groups of licences to be made available for auction. The first group includes licences that will cover the entire Tier 4 service area (Tier 4 licences). The second group includes licences that will only cover a portion of a Tier 4 service area (partial tier licences). 

53. Partial tier licences are the result of a Tier 4 block being partially encumbered by existing licences that only cover a geographic portion of a Tier 4 service area, and will continue to do so after the transition process. These existing licences could be grid cell licences or subdivided licences. Existing grid-cell licences were obtained either through a first-come, first-serve process or as a result of ISED issuing a new licence for a smaller service area based on the licensee not fully meeting their deployment requirements. Subdivided licences were obtained as a result of a Tier 4 licence being divided between multiple licensees.

54. Tier 4 licences: The amount of unencumbered spectrum blocks to be made available in the auction would be based on the difference between the total amount of spectrum in the band (20 blocks of 10 MHz each totalling 200 MHz) and the amount of spectrum to be licensed through the transition process (whether the existing licensees have applied through the transition process or not).  See table A1 in annex A for the amount of unencumbered spectrum available for auction in each tier.

55. Partial tier licences: Where existing licensees will be eligible to apply for flexible use sub-divided and/or grid-cell licences that cover only a portion of a Tier 4 service area through the transition process, a spectrum licence in that block can be made available for the remaining geographic portion of the Tier 4 service area. These will be considered partial tier licences for the purpose of the auction. The area and population that is covered by the existing sub-divisions or grid cells varies. In some cases, the existing sub-divisions or grid cells cover the majority of the tier (leaving very little to be auctioned), while in others they cover a very small area within the tier (leaving the vast majority of the tier to be auctioned). ISED recognizes that there may be interest in these portions of Tier 4 service areas and therefore proposes to make these partial tier licences available in the auction and is seeking comments on this proposal. In these cases, the number of spectrum blocks to be made available as partial tier licences, would be based on the number of spectrum blocks that will be encumbered by grid-cell and sub-divided licensees issued through the transition process. See table A1 in annex A for the amount of encumbered spectrum in each tier.

56. In a particular tier area, where existing sub-divided or grid cell licenses are encumbering the majority of the tier, ISED is proposing that the remaining portions of the encumbered areas be bundled in the auction as a combined encumbered block of 20, 30, 40 MHz or more, depending on the number of 10 MHz blocks being bundled. This would apply where the geography of the remaining portions is the same or similar, and/or the remaining area covers a relatively small population. The bundled blocks would be issued as individual licences of 10 MHz following the auction, as shown in example 1 in annex B.  In other cases where the geography is different, as shown in example 2 in annex B, the encumbered service areas would be auctioned in separate 10 MHz blocks and the spectrum cap (if adopted) would apply.

57. If a spectrum cap is adopted, in order to simplify the bidding process, ISED is proposing that the bundled encumbered blocks available in the auction would not count towards the cap. However, any transfers of the licences post-auction would be subject to the spectrum cap and the conditions of licence as described in section 11.2.

58. ISED is proposing to bundle encumbered areas in the following tiers: 4-071 Napanee, 4-119 Estevan, 4-120 Weyburn, 4-122 Swift Current, 4-123 Yorkton, 4-126 Watrous, 4-129 Lloydminster, 4-158 Squamish/Whistler, and 4-171 Nunavut. This list will be finalised prior to the auction.

59. Frequency determination and contiguity of spectrum: ISED is of the view that it would be beneficial for both auctioned licences and licences obtained through the transition process to be assigned specific frequencies at the same time. This would facilitate a more efficient assignment of spectrum as the determination of frequencies for the full band would be considered simultaneously. ISED proposes that licensees that acquire multiple flexible use Tier 4 licences in a given area, either as a result of the auction or as a result of the transition process, be assigned contiguous spectrum. This would also apply to partial tier licences acquired through the auction, but not to grid-cell or subdivided licences obtained through the transition process. The determination of specific frequencies for all Tier 4 service area spectrum holdings would be conducted during the final stage of the auction (the assignment stage). For more information on the proposed implementation of this process, refer to section 9.8.

60. Before the auction, ISED will publish a map of sub-divided and grid-cell licences that reflect the holdings as of June 6, 2018 (the date of reference for the implementation of the 2019 Decision) for licensees that continue to be eligible for these holdings. In addition, ISED will also be publishing a list of all generic blocks available for auction and will note which service areas have encumbrances. This will provide the necessary information for potential bidders to develop their bidding strategy.

61. Sub-divided and grid cell licences, which will be issued to existing licensees as part of the transition process will not be assigned frequencies through the auction process. The determination of their new frequencies, however, would be based on the result of the auction and the frequencies assigned to the encompassing partial tier licence. There would be no guarantee of contiguity for these grid cell or sub-divided licences.

62. ISED is proposing that the opening bid prices, as well as eligibility points for encumbered blocks, be adjusted proportionally to the percentage of the population covered as proposed in section 13.2. In some tiers the geography of the existing grid cell or sub-divided licence covers very little of the population, for example, in 4-160 Kamloops the grid cell licences cover only 0.04% of the overall population of the tier. ISED recognizes that any spectrum that is partially encumbered will require coordination with the exiting licensee and will result in some of the population within the tier area not being available to the new licensee. As such, ISED is proposing that the spectrum made available in the auction for areas that are less than the entire Tier, be considered as encumbered spectrum, no matter how small the encumbrance is in terms of the percentage of population. These partial area licences will be represented as blocks of encumbered spectrum in the auction.

63. The auction format should be simple, fair and transparent for bidders; one that leads to an efficient assignment of spectrum. In selecting the auction format and related rules, consideration is given to the characteristics of the spectrum being auctioned, for example, the quantity and size of the blocks, their geographic characteristics, as well as the similarities and complementarities that may exist among the blocks.

64. As outlined in the 2019 Decision, given significant stakeholder support, ISED committed to propose an auction format that allows for price discovery. ISED agrees that given the expected high demand for licences in the 3500 MHz band, reducing uncertainty concerning the value of the spectrum being offered would be of significant benefit to potential bidders. Consequently, ISED has eliminated the sealed-bid auction format as a consideration for the upcoming 3500 MHz auction. A number of formats were considered including: the combinatorial clock auction (CCA), the simultaneous multiple round ascending (SMRA) and the clock auction (CA) formats. For the reasons outlined below, ISED is proposing that the clock auction format be used for the upcoming 3500 MHz auction.

65. The CCA format was successfully used by ISED in the 700 MHz, 2500 MHz and 600 MHz auctions. This format provides a complete solution to the exposure problem, where a bidder wins some, but not all of the licences needed for its business plan and is left stranded with licences that cannot be used as effectively. However, the number of licences and products that will be available for the 3500 MHz auction significantly exceeds the number of licences available in previous Canadian CCA auctions. This would introduce the computational risks to using the CCA format. The number of licences and products would also introduce complexity for bidders.

66. An SMRA format with specific licences was last used by ISED in the 2008 AWS auction. The 2008 AWS auction included 292 licences using Tier 2 and Tier 3 service areas, and with 331 rounds, was the longest in the history of Canadian auctions. Given the use of 10 MHz blocks and the Tier 4 service areas, the number of licences offered in the 3500 MHz band will be significantly higher. There is a significant risk that the use of an SMRA format would result in a very long auction. In addition, the SMRA format would not allow the assignment of pre-existing holdings in the 3500 MHz band together with the spectrum won in the auction in a contiguous manner.

67. ISED is proposing the CA format with generic licences and intra-round bidding, as described below as well as in annex C. The multi-round clock stage of the CA format would allow for price discovery. It would also provide an opportunity for participants to address the exposure risk, as compared to a sealed-bid format, and it would provide participants with somewhat reduced exposure risk as compared to an SMRA. The use of generic licences and intra-round bidding would support a shorter auction process and would allow for the assignment of pre-existing holdings together with spectrum acquired during the auction in a contiguous manner. Although a second price approach would be used for the assignment round, the use of the proposed pricing in the clock stage of the auction would significantly reduce the pricing uncertainty.

68. As discussed in section 8, ISED is proposing that the 3500 MHz band be auctioned in unpaired 10 MHz blocks using Tier 4 service areas, which would result in 172 service areas across Canada. ISED further proposes that these blocks be offered as generic licences in each of the 172 service areas.

69. Generic licences are blocks of spectrum that are sufficiently similar and comparable in value to one another that they can be offered as a single category in each service area. In determining whether licences should be regarded as generic, ISED considered the frequency location in the band, the block size, the encumbrance, and possible technology and interference constraints. The use of generic licences simplifies the bidding process, as it enables bidders to indicate quantities of licences desired in each area instead of identifying specific licences, reducing the number of products available to bid on, and also reducing the number of possible combinations that bidders have to consider in placing their bids.

70. ISED is proposing that in areas where there are encumbered blocks of spectrum available, that these be offered as separate categories and be open to all bidders. If there are significantly different levels of encumbrance for different blocks in the same service area, each encumbrance level for the service area would be offered as a separate category.  For additional information on the number on encumbered blocks and their service areas, see table A2 in annex A.

71. If a set-aside is applied, ISED is also proposing that in each service area, the set-aside would consist of unencumbered spectrum and that any remaining unencumbered spectrum be open to all bidders. The pairing of a category (set-aside, open or encumbrance level) and a service area is referred to as a product.  If a spectrum cap is the only competitive measure applied, there could be unencumbered and/or various encumbered products available in each service area.

72. As described in section 7, if a set-aside is applied ISED is proposing that all applicants must indicate in their application whether they are applying to bid as a set-aside-eligible or set-aside-ineligible bidder on a service area by service area basis. A bidder that is set-aside-eligible in a service area can only bid for the unencumbered set-aside product (any number of unencumbered blocks in the service area) and for any encumbered products in that area. A bidder that is set-aside-ineligible in a service area can only bid for the unencumbered open product in that area (any number of unencumbered blocks in the service area, minus the set-aside blocks) and for any encumbered products in that service area. 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 any quantity up to the number of unencumbered blocks in the service area, while a set-aside-ineligible bidder's bid for an open product could be for any quantity up to the number of unencumbered blocks minus the blocks that are set aside. In other words, in some service areas, there may be only encumbered spectrum or no spectrum at all available for set-aside-ineligible bidders. See annex A for more details.

73. Given the use of generic licences and the ability of set-aside eligible bidders to bid on all available blocks in a service area, there is a possibility that set-aside-eligible bidders —individually or collectively—would be able to bid on and win more than the number of blocks available for the set-aside in a service area. In the case where one or more set-aside-eligible bidders collectively win more than the amount of spectrum available for the set-aside 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. Although this rule would restrict the transferability of these licences for the first five years, it is noted that set-aside spectrum serves to provide a significant advantage to set-aside-eligible bidders by effectively protecting them from competition by NMSPs.

74. As has been the case in recent spectrum auctions, ISED is proposing to use anonymous bidding during the 3500 MHz auction. After each clock round, bidders would be provided with information regarding their own bidding activity and the aggregate demand in each service area, as well as their own eligibility and prices of products on which they are eligible to bid in the next clock round.

75. This level of information disclosure would provide bidders with enough information to permit price discovery, allowing bidders to make informed decisions regarding their bidding strategies. Anonymous bidding would help bidders focus on their valuations for the licences, the level of aggregate demand, and the prices, rather than on the bidding behaviour of competing bidders. Anonymous bidding is therefore anticipated to reduce the potential for anti-competitive behaviour, while simplifying the bidding process.

76. ISED is proposing to use a clock auction format for the 3500 MHz spectrum auction as described in annex C. This is a two-stage auction format that provides a simultaneous multiple-round clock stage for generic blocks to determine the quantity of blocks won in each product, followed by an assignment stage to determine the specific frequency assignment of each licence.

77. The clock stage is a simultaneous multiple-round auction process with generic blocks, where all licences are offered at the same time. Before the auction begins, ISED will specify the supply of blocks in each product and each product's opening bid price (reserve price). An activity rule is used to improve price discovery and maintain auction progress.

78. Typically, the clock stage consists of a number of rounds in which the bidders identify the number of blocks demanded of each product, at the price specified by ISED for that round (the clock price). As the clock stage progresses, the clock prices of products with excess demand increase.

79. For the 3500 MHz auction, ISED is proposing the use of “intra-round bidding” in the clock stage. With intra-round bidding, all rounds that take place after Round 1 have a range of prices associated with them. The start-of-round price is the lowest price in this range, whereas the round's clock price is the highest price in this range. In Round 1, each bidder indicates the number of blocks it demands for each product at the opening bid price. In subsequent rounds, a bidder can either maintain its demand for a product at the round's clock price or request to change its demand at a price that is in between the start-of-round price and the clock price. The ability to express demand at any price between the start-of-round price and the clock price (rather than simply at the clock price, as would typically be the case) is referred to as intra-round bidding. This has several advantages:

• bidders can better express demand
• ties in which multiple bidders change demand at the same price are less likely
• a larger bid increment can be used without causing inefficiencies, reducing the number of rounds

80. At the end of the round, bids are processed to determine the number of blocks held by each bidder for each product after the round (the processed demand). A bid to maintain demand from the previous round for a product is always applied during bid processing. A bid to increase demand for a product is applied only if the increase will not cause the bidder's processed activity (i.e. the activity associated with the bidder's processed demands) to exceed the bidder's eligibility for the round. The general principle is that a bid to decrease demand for a product is applied only if the reduction will not cause aggregate demand to fall below supply for that product (or to fall further below supply, if it is already below supply). This guarantees that once a product has aggregate demand greater than or equal to supply, there will never be any unsold blocks for the product. For a detailed description, see section C6 of annex C.

81. A bidder can submit a bid that expresses its demand for a product at any price between the start-of-round price and the clock price. In a simultaneous auction with intra-round bidding, a bidder's ability to increase the demand for one product may depend on whether it can reduce the demand for another product. In order to treat bids for different products in a consistent manner, the price intervals between the start-of-round price and the clock price are expressed in relative (percentage) terms. Bids for a change in demand are processed in ascending order of “price point.” The price point is generally defined by how much the intra-round bid exceeds the start-of-round price in percentage terms relative to the distance between the start-of-round price and the clock price for the product.

82. Once processed demands have been determined, the auction system will generally calculate the posted price of every product for the round as follows. A product's posted price would be equal to the clock price of the same round if aggregate demand exceeds supply at the clock price. If aggregate demand for a product is equal to supply due to an intra-round bid for a reduction in demand that was applied, the posted price would be the price of that intra-round bid. Therefore, the price for the round would not need to increase to the level of the clock price if the demand and supply are balanced at some price that is below the clock price, as expressed using intra-round bidding. If aggregate demand for a product is less than or equal to supply and no bid for a reduction in demand was applied, the posted price would be equal to the start-of-round price. The round's posted price becomes the start-of-round price for the next round. For a detailed description, see section C7 of annex C.

83. Prices for the first clock round will be set according to the opening bid prices as published in the final licensing framework. ISED is consulting on the opening bid amounts for each of the licences being auctioned, as described in section 13.2. For each subsequent round, the start-of-round price would be equal to the posted price of the previous round, and the round's clock price would be higher.

84. For the 3500 MHz spectrum auction, ISED is proposing that a round's clock price be in the range of 1-20% higher than the start-of-round price (or equivalently, the previous round's posted price), rounded up to the nearest thousand. During the auction, ISED reserves the right to adjust the amount of roundtoround price increases within this range to facilitate the progress of an efficient and timely auction.

85. If a set-aside is applied, as is explained in annex C, when the price range for the set-aside product overlaps with the price range for the open product, the price increment for the set-aside product will be adjusted so that the clock price of the set-aside product equals the clock price of the open product.

86. Each of the blocks available in the auction has been assigned a specific number of eligibility points ("points") that are approximately proportionate to the opening bid price of the licence. One eligibility point has been assigned for each $5,000 of opening bid prices. Refer to annex D for a listing of the points for each licence and the population of each service area.

87. Each applicant must indicate in its application form, the total number of "points' worth" of blocks on which they wish to bid. This number defines a bidder's initial level of eligibility points and is also used to determine the financial deposit that must be submitted with the application. Bidder eligibility points may not be increased once the auction has started.

88. In any round, a bidder will not be allowed to submit bids if the eligibility points associated with the bids exceed the bidder's eligibility for the round.

89. In Round 1, a bidder's eligibility to bid is determined by the number of points acquired with its financial deposit. In subsequent rounds, a bidder's eligibility to bid is determined by its processed activity for the previous round, that is, the eligibility points associated with its processed demands in the previous round. In order to maintain its eligibility from the previous round, the bidder's processed activity must correspond to a certain percentage of its eligibility for that round.

90. This percentage is called the "activity requirement." ISED will set the activity requirement between 90% and 100% in all clock rounds, and will retain the discretion to change the activity requirement within that range. The precise figure for the initial activity level will be communicated to all qualified bidders before the auction begins.

91. If a bidder's processed activity falls short of the required activity level for the round, its eligibility point level will decrease proportionately, so that the total "points worth" of licences on which it may bid in the next round will be equal to its processed activity for the current round, multiplied by the reciprocal of the required activity level (e.g. 1/0.95, if the activity requirement is 95%).

92. Bidders are required to indicate their demand in every round, even if their demand at the new round's prices are unchanged from the previous round, so as to affirmatively indicate their interest in products at the new prices. Missing bids are treated by the auction system as requests to reduce to a quantity of zero blocks for the product. If these requests are applied, or applied partially, a bidder's processed activity, and hence its eligibility to bid in the next round, will be reduced accordingly.

93. If a set-aside is applied the clock stage will conclude for all products in all service areas after the first round in which the aggregate demand for each open product is less than or equal to its initial supply, and there is no excess demand for unencumbered blocks or for any encumbered product in any service area.  If a spectrum cap is the only measure applied, the auction will conclude when there is no excess demand for any product in any service area.

94. Bidders that hold processed demand for a product in a service area after the final clock round become winning bidders. The price to be paid for one block of a product will be the product's posted price of the final clock round. Winners will be assigned frequency-specific licences in the assignment stage.

95. Whenever generic blocks are used, the auction format must include an assignment stage to determine the assignment of specific blocks. Recognizing that using contiguous spectrum is generally more efficient, and thus preferable to fragmented spectrum, ISED is proposing that winners of multiple blocks in a service area receive contiguous licences. In addition, ISED proposed in section 8.1 to assign blocks for spectrum holdings obtained through the transition process as part of this auction.

96. Treatment of existing spectrum holdings: There are two types of incumbent licence holder in the 3500 MHz band. The first type of licensee holds a Tier 4 service area licence; the second type of licensee holds sub-divided or grid-cell licences that cover a portion of the Tier 4 service area. As discussed in the 2019 Decision, these existing licensees will be eligible to apply for a new flexible use licence for either 60 MHz, 50 MHz or 20 MHz following the 3500 MHz auction. The specific frequency blocks for which they can apply will be determined through the auction process. The frequency blocks assigned to the existing licensees who hold Tier 4 service areas will be determined in the  assignment stage of the auction, or in the case of sub-divided or grid-cell licences after the conclusion of the auction process.

97. As noted in section 8.1, it is proposed that Tier 4 licensees who are eligible to be assigned new licences though the transition process be assigned contiguous blocks through the assignment round.

98. Where an existing Tier 4 licensee that also participates in the clock stage wins either tier 4 blocks or partial area blocks, these blocks will be assigned contiguous to the blocks of licences that it is eligible to obtain through the transition process. Existing Tier 4 licensees that participate in the auction but do not obtain additional blocks during the clock stage may still participate in the assignment round in order to express their preferences over which frequencies will be assigned to their new flexible use licences obtained through the transition process. For further information on the bidder application process and the required financial deposits to participate in the auction, please refer to section 13.  

99. Sub-divided and grid-cell licences obtained through the transition process would not be guaranteed contiguous spectrum blocks in the assignment round given that they are encompassed within Tier 4 licences, and in some cases, cross Tier 4 boundaries. These sub-divided and grid cell licensees would not be able to express their preferences for specific frequencies within the auction process.

100. Existing holders of sub-divided or grid cell licences within an encumbered product (as described in section 8.1) would be assigned frequency blocks as determined by the assignment of the winning bidder of the partial tier licences. In some cases, geographic areas covered by existing Tier 4 licences and by existing sub-divided or grid cell licences overlap. Existing holders of sub-divided or grid cell licences with service areas that overlap with an existing Tier 4 licence will be assigned frequency blocks that correspond to the Tier 4 licensee's assignment. In the case where the new Tier 4 licensee obtains more blocks than those that cover the sub-divided or grid cell licences, ISED will provide the sub-divided or grid cell licensee contiguous spectrum, where possible.  In the case where a block is encumbered by two or more sub-divided or grid cell licences, the assignment and contiguity of the block will be determined by the licence that covers the highest population.

101. Structure of the assignment stage: All bidders will have an opportunity to express their preferences for specific blocks at the same time.  There will be no specific blocks reserved for unencumbered, encumbered, open or set-aside products.  ISED is proposing to conduct a separate assignment round for each of the eight most populated service areas sequentially, in descending order of population. Once the eight most populated service areas have been assigned, ISED is proposing to conduct the bidding for the remaining service areas in parallel.  That is, bidding for assignments in multiple service areas or groups of service areas would take place during the same assignment round.  This would help to reduce the length of the assignment stage.

102. After the assignment of the eight most populated service areas, all remaining service areas will be ranked by population from highest to lowest and divided into sessions of six. Each session would not include more than one Tier 4 service area from within the same Tier 2 service area, to ensure that licences from service areas in close geographic proximity are not assigned in different sessions in the same round. This would provide bidders with the additional knowledge of the assignment of their most populated tiers, before moving on to the next round in which they could adjust their preference for a specific assignment, based on the result obtained in the previous assignment round. This is to better assure that bidders can obtain the same frequencies for its blocks across service areas that are in close geographic proximity.

103. In order to simplify the assignment stage and to facilitate the assignment of contiguous spectrum across regions, ISED is proposing that, wherever possible and as an exception to the process described above, two or more contiguous Tier 4 service areas be combined into an assignment area. To be considered an assignment area, Tier 4 service areas must form a contiguous geographic region and be located within the same Tier 2 service area. In addition, the bidders (including any licensees who are eligible through the transition process) and the number of blocks they have to be assigned in the service areas being considered must be the same.

104. Assignment price: Winning bidders, and licensees who are eligible through the transition process, do not have to place bids in the assignment stage if they do not have an assignment preference, as they are guaranteed the number of generic licences that they have already won in the clock stage. Each winning bidder has both a right and an obligation to purchase one of the frequency range options presented to it in the assignment round.

105. The assignment bid is a package bid for the specific frequency locations of all blocks for a bidder in a given Tier 4 service area or assignment area. The assignment prices will be determined from the set of assignment bids for the service area or assignment area. The assignment price is attributable to the entire collection of blocks assigned to a given bidder in a given service area or assignment area and not to individual blocks that comprise the package.

106. ISED is proposing to use a second-price rule to determine the prices to be paid by winning bidders in the assignment stage. More specifically, ISED is proposing to apply bidder optimal core prices and to use the “nearest Vickrey” approach in determining the assignment prices. Given the pricing rules, the assignment price of each winning assignment stage package will be equal to or less than the corresponding winning bid amount, and could even be zero. The final price paid by a winning bidder would be the sum of the clock stage price(s) and the assignment stage price(s).

107. The structure of the assignment stage and the proposed determination of assignment prices are explained in detail in annex E.

108. In order to maintain auction integrity, as in past auctions, ISED proposes that there be rules relating to the participation of affiliated and associated entities in order to ensure that each bidder is an independent bidder. As was the case in previous auctions, it is proposed that affiliated entities not be allowed to participate separately in the auction. It is also proposed that associated entities only be allowed to participate separately if, following a review of their application, ISED is satisfied that their participation would not have an adverse impact on auction integrity. As in previous auctions, applicants will be required to disclose information about their company(ies), including affiliations and associations.

109. Proposed definition of affiliated entities: It is proposed that the definition of affiliated entities remain as it was for previous auctions, as follows:

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

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

111. Applicants may provide information to ISED to rebut the presumption of affiliate status. Applicants must notify ISED in writing if they are rebutting the presumption and must file material that will enable ISED 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” above.

112. Upon receipt of this material, ISED 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).

113. Should the entities fail to provide the relevant information in a timely fashion in order to allow ISED to complete its determination, ISED may make a ruling on eligibility that the entities in question are affiliated.

114. Eligibility to participate in the auction: It is proposed that only one member of an affiliate relationship be permitted to become a qualified bidder in the auction or the affiliated entities may apply to participate jointly as a single bidder. Affiliated entities must decide prior to the application deadline which entity will apply to participate in the auction. All affiliations must be disclosed at the time of the application.

115. However, given the proposal outlined in section 8.1.2 of this Consultation, to make use of the auction's assignment round to simultaneously determine the specific frequency assignments of all licences in the 3500 MHz band, either acquired through the auction process or the transition process, there is a risk that existing relationships between incumbent licensees and potential bidders in the auction may have an adverse impact on the integrity of the auction. For these reasons, ISED is proposing to consider a fixed use licensee who is eligible to apply for a flexible use licence, to be treated as though it were a bidder, whether or not it applies to participate in the auction.

116. Proposed definition of associated entities: As a basis for participating in the 3500 MHz auction, ISED proposes that associated entities be defined as follows:

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

117. As in past auctions, the proposed rules would allow carriers to form a bidding consortium and to participate in the auction as a single bidder if they wish to coordinate their bids through a single bidder. In such a case, the eligibility rules would apply jointly in each licence area. For example, if a set-aside is applied, in the cases where any of the entities participating jointly would not qualify as a set-aside-eligible bidder, the bidding consortium would not be eligible to bid on set-aside spectrum. If a spectrum cap is applied, the sum of the existing holdings as a result of the 2019 Decision, each of the entities participating jointly would be counted towards the cap in each service area.

118. The spectrum and network efficiencies that can be achieved through various forms of associations and arrangements may help to address the high demand for capacity by customers and the high cost of network deployment. In support of the policy objectives stated in section 3 and the spectrum and network efficiencies that can be achieved through such arrangements, ISED recognizes the need to provide increased flexibility in the treatment of a certain subset of associated entities, as long as this would not have an adverse impact on the integrity of the auction.

119. Depending on the nature of the association, it may not preclude the ability of the entities to participate separately in the auction. It should be noted that under the proposed definition, entities are only deemed to be associated with respect to arrangements that relate to the acquisition or use of spectrum licences being auctioned in this process. For example, significant joint equipment purchase agreements and joint backhaul networks would not be captured under the definition unless they relate to the licences in question.

120. Eligibility to participate separately in the auction: ISED proposes that associated entities may apply to participate separately in the 3500 MHz auction. ISED is of the view that allowing associated entities that are competitors in the market to bid separately would not have an adverse impact on the integrity of the auction provided that auction participants comply with the information disclosure and anti-collusion rules as proposed below (see section 10.3 and section 10.4).

121. To obtain approval to participate separately in the auction, associated entities will be required to demonstrate to ISED's satisfaction that they intend to separately and actively provide services in the applicable licence area. Associated entities wishing to participate in the auction separately would be required to submit their application at least two weeks in advance of the final application deadline. This requirement would provide ISED with the additional time necessary to assess the nature of the association between the entities. Should the request be denied, only one of the associated entities will be eligible to apply to participate in the auction.

122. Bidders are reminded that the provisions of the Competition Act apply independently of, and in addition to, the proposed policy.

123. Please note that all entities participating in the auction will be subject to the same prohibition of collusion rules, as stated in section 10.4.

124. Eligibility to have the spectrum cap apply separately, if adopted: ISED is proposing that associated entities could request that the spectrum cap, if adopted, apply individually as long as parties intend to make use of the 3500 MHz spectrum to actively and independently provide services in the applicable licence area. The onus will be on the associated entities to demonstrate to ISED that this is the case.

125. ISED's review would not extend to an overall assessment of the effects of the agreement between associated entities on competition in the marketplace.

126. Assessment factors: ISED would consider a broad range of criteria so as to determine the associated entities' intent and actions to actively and independently provide wireless services. Assessment criteria may include, but would not be limited to:

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

127. Documentation: Associated entities would be invited to provide all relevant documentation to ISED in regard to the above-noted assessment factors. These may include, but would not be limited to:

• all agreements relating to the transfer of, use of and access to the 3500 MHz spectrum
• business plans for the area in which the agreement(s) will provide access to spectrum and
• business and financial results, including investments and customer acquisition.

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

129. In order to ensure auction integrity and transparency, all entities wishing to participate in the auction process will be required to disclose in writing, as part of their application, the names of affiliated and associated entities. It is proposed that a narrative also be submitted, describing all key elements and the nature of the affiliation or association in relation to the acquisition of the spectrum licences being auctioned and the post-auction relationships of said entities. It is proposed that this narrative include arrangements with other potential bidders that relate in any way to the future use of the licences being auctioned directly or indirectly.

130. Some examples of arrangements that would require disclosure include, but are not limited to, agreements to establish a joint network using spectrum licences acquired by each of the entities and agreements regarding a joint backhaul network if they relate to the use of the licences being auctioned. It is also proposed that agreements, such as significant joint equipment purchases, be disclosed. Typical roaming and tower sharing agreements and other agreements, such as the purchase of backhaul capacity, would not cause entities to be deemed associated entities and hence need not be disclosed.

131. The submitted narrative would be made available to other bidders and to the public on ISED's website prior to the auction in order to ensure transparency of the licensing process.

132. As in previous auctions, in order to ensure the integrity of the bidding process, all applicants will be prohibited from cooperating, collaborating, discussing or negotiating agreements with other bidders regarding the licences being auctioned or the post-auction market structure. Any such discussions occurring at any time prior to the public announcement of provisional licence winners by ISED are prohibited.

133. In order to maintain the integrity of the auction, bidders are prohibited from signaling either publicly or privately, their bidding intentions or post-auction market structure related to spectrum in the 3500 MHz band. This would include for example, comments or any communication with or via the media, other government departments, or government officials that do not have a mandated or delegated authority related to the auction process, including at the municipal, provincial, territorial, and federal levels. An example of prohibited communications would be making a public announcement regarding which licences the company intends to bid on or its rollout intentions.

134. However, given the decisions outlined in section 6.4 of the 2019 Decision regarding the transfer of licences prior to the auction, ISED proposes that discussions related to the transfer of existing 3500 MHz spectrum licences that take place prior to the auction, may be permitted, as long as the discussions are restricted to existing licences and do not disclose bidding strategy or post-auction market strategy, as proposed in the paragraph below. These discussions however, would not be allowed at any time after the application deadline to participate in the auction.

135. Given that ISED is proposing to allow the participation of some associated entities as separate bidders in this auction process, the proposed prohibition of collusion rules are as follows:

All applicants, including affiliated and associated entities, are prohibited from cooperating, collaborating, discussing or negotiating agreements with competitors, relating to the licences being auctioned or relating to the post-auction market structure, including frequency selection, bidding strategy and post-auction market strategy, until after the public announcement of provisional licence winners by ISED.

Prospective bidders will note that the auction application forms contain a declaration that the applicant will be required to sign certifying that the applicant has not entered into and will not enter into any agreements or arrangements of any kind with any competitor regarding the amount to be bid, bidding strategies or the particular licence(s) on which the applicant or competitors will or will not bid. For the purposes of this certification, “competitor” means any entity, other than the applicant or its affiliates, which could potentially be a bidder in this auction based on its qualifications, abilities or experience.

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

10.4.1 Communication during the auction process

136. In order to preserve the integrity of the auction process, any communications from an applicant, its affiliates, associates or beneficial owners or their representatives that discloses or comments on bidding strategies, including but not limited to the intent of bidding and post-auction market structures, shall be considered contrary to the licensing framework that will be published as a result of the current consultation and may result in disqualification and/or forfeiture penalties. 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. This will include communications with or via the media. This prohibition of communication applies until the public announcement of provisional licence winners by ISED.

137. 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 circumstances outlined in the following two paragraphs.

138. 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.

139. 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.

10.4.2 Discussion regarding beneficial ownership

140. Information regarding the beneficial ownership of each applicant will be made publicly available so that all bidders have knowledge of the identity of other bidders. Any discussions involving two bidders or any of their affiliates or associates regarding an addition or a significant change of beneficial ownership of a bidder, including matters such as mergers and acquisitions, from the receipt deadline for applications until the public announcement of provisional licence winners by ISED, would fall into the area of prohibited discussions and would be considered contrary to the auction rules.

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

• any change to the beneficial ownership of the applicant that provides a new party with a beneficial interest or which significantly alters the beneficial ownership structure is effected at least 10 days before the commencement of bidding
• the applicant informs the Minister immediately in writing of any change in beneficial ownership, which will be reflected in its published qualified bidder information on ISED's Spectrum Management and Telecommunications website

142. Bidders must cease all such negotiations at least 10 days before the commencement of bidding until the public announcement of provisional licence winners by ISED.

10.4.3 Other communication rules

143. Discussions on tower sharing: The prohibition of communication includes discussions about tower and site sharing regarding the licences that are the subject of this auction until after the public announcement of provisional licence winners by ISED. Discussions concerning new arrangements or the expansion of existing sharing arrangements that relate to spectrum outside of licences being offered in this auction process are not prohibited.

144. Communication with local exchange carriers: The prohibition of communication includes discussions regarding interconnection services with a local exchange carrier (LEC) that is a qualified bidder (or one of its affiliates/associates) in this auction, where the services relate to spectrum in the bands offered in this auction process.

145. Consulting services, legal and regulatory advice: Separate bidders may not receive consulting advice from the same auction consulting company. Separate bidders may receive legal and regulatory advice from the same law firm provided that the law firm complies with the conflict of interest and confidential information requirements of the applicable law society and that the applicants otherwise comply with the provisions set forth in the licensing framework.

146. The proposed conditions would apply to all flexible use licences (whether issued through the auction or the transition process). It should be noted that licences are subject to the relevant provisions in the Radiocommunication Act and the Radiocommunication Regulations. For example, the Minister continues to have the power to amend the terms and conditions of spectrum licences pursuant to paragraph 5(1)(b) of the Radiocommunication Act. The Minister may do so for a variety of reasons, including furtherance of the policy objectives related to the band. Such action would normally only be undertaken after consultation.

147. The Framework for Spectrum Auctions in Canada, states that ISED has adopted a flexible approach in determining licence terms (up to 20 years) based on the specific spectrum being offered and subject to a public consultation preceding the specific auction or renewal process.

148. This decision was based on the recognition that licence terms in excess of 10 years would create greater incentive for financial institutions to invest in the telecommunications industry and for the industry itself to further invest in the development of network infrastructure, technologies and innovation.

149. The 3500 MHz band has the potential to facilitate the offering of 5G mobile broadband and fixed broadband services to Canadians. Given that the use of this band for 5G technologies is being adopted globally, there is little risk that there will be any usage changes to this spectrum in the foreseeable future. It is also unlikely that any developments in technology would result in a change to another use that is incompatible with mobile broadband and fixed broadband services.

150. ISED recognizes that the current rate of wireless technology development is ever evolving and these developments, such as cognitive radio and dynamic spectrum access, are expected to provide opportunities for increased efficiency for spectrum access.  As a result, it is expected that although long-term spectrum licences will continue to provide priority access to spectrum, future consultations will likely explore the possibility of providing for opportunistic access to licensed spectrum.

151. In light of the above, ISED is proposing that auctioned spectrum licences in the 3500 MHz band have a licence term of 20 years. The proposed condition of licence is as follows:

The term of this licence is 20 years from the date that licences are first issued following the auction procedure (“the initial licence issuance date”) set out in the Policy and Licensing Framework for Spectrum in the 3500 MHz Band (the Framework). Whether the licence was issued on the initial licence issuance date or issued at any later time, in accordance with transition provisions of the Framework, all licences will terminate on the same date, 20 years after the initial licence issuance date.

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, Science and Economic Development (the Minister) following a public consultation.

152. In general, spectrum licences may be transferred in whole or in part (either in geographic area or in bandwidth) subject to the approval of the Minister. All spectrum licence transfer requests, including requests for subordinate licences, are subject to review under the Client Procedure Circular CPC-2-1-23, Licensing Procedures for Spectrum Licences for Terrestrial Services.

153. As the 3500 MHz band is now designated as flexible use (mobile and fixed services), it is proposed that these flexible use licences be treated like all other commercial mobile spectrum licences and may be transferred or subordinated in accordance with the provisions of section 5.6 of CPC-2-1-23 (including section 5.6.4). As part of this review, ISED will analyze concentration levels that would result from the licence transfer, and examine the ability of the licence transfer applicants and other existing and future competitors to provide services, given the post-transfer concentration of commercial mobile spectrum in the affected licence area(s). For subordinate licensing, the subordinate licence would include a subset of the primary licence conditions and its deployment would count toward meeting the deployment requirements of the primary licensee.

154. However, to facilitate the ease of fixed wireless access use, ISED proposes that should a licensee advise ISED that only fixed services will be provided following the requested transfer, only the general terms, conditions and guidelines of CPC 2-1-23 pertaining to transfers would apply (i.e. section 5.6.4 would be excluded from the analysis). As a consequence, a condition of licence would also be added limiting the use of the spectrum for fixed services only. The licensee may make a subsequent request to ISED to remove this authorization restriction for fixed service use. In this case, ISED will examine the request with respect to section 5.6.4 of CPC 2-1-23 and may remove the restriction thereafter.

155. Similarly, ISED proposes that should an applicant for a subordinate licence advise ISED in writing, as part of a licence transfer request, that only fixed services will be provided, ISED would only review the application in accordance with the general terms, conditions and guidelines of CPC 2-1-23 (excluding section 5.6.4). An additional condition to the subordinate licence would be included specifying that the spectrum may only be used for fixed services. ISED proposes that deployment of spectrum for fixed use only still be counted toward meeting the deployment requirements of the primary licensee.

156. As a subordinate licence is a subset of a primary licence, should the primary licence explicitly be limited to fixed services only, then the subordinate licence would not be eligible for flexible or mobile use.

157. If a spectrum cap is adopted in the 3500 MHz band, it is proposed that the cap would continue to be in place for five years following licence issuance. Therefore, no transfer of licences or issuance of new licences would be authorized that allows a licensee to exceed the spectrum cap during this period or that allows a licensee whose prior holdings already exceed the cap to further exceed the cap. Any change in ownership or control granting a right or interest to another licensee in this band may be considered as 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 Innovation, Science and Economic Development for any change that would have a material effect on its compliance with the spectrum cap. Such a request must be made in advance for any proposed transactions within its knowledge. 

158. If a set-aside is applied, it is proposed that transfers of 3500 MHz spectrum will not be permitted where they will result in a set-aside-ineligible entity obtaining a set-aside spectrum licence for the first five years of the licence term. After the first five years, it is proposed that set-aside spectrum licences would be treated like all other commercial mobile spectrum licences and may be transferred in accordance with the provisions of section 5.6 of CPC-2-1-23. Similarly, it is proposed that transfers between set-aside-eligible entities may take place at any time, subject to the provisions of section 5.6 of CPC-2-1-23. As part of its review of any proposed transfer, ISED will analyze, among other factors, the change in spectrum concentration levels that would result from the licence transfer, and will examine the ability of the licence transfer applicants and other existing and future competitors to provide services, given the post-transfer concentration of commercial mobile spectrum in the affected licence area(s). 

159. Despite the general restriction on transfers of set-aside licences, it is proposed that a subordinate licence may be granted to a non-set aside eligible entity in support of an agreement to share spectrum, should a set-aside be applied. It is also proposed that a subordinate licence would not count towards the spectrum cap, should a spectrum cap be adopted. In order for a subordinate licence to be granted in these cases, it is proposed that there are two conditions that need to be met. First, licensees would need to demonstrate that the conditions under section 5.6.3 of CPC-2-1-23 are fully met. Second, licensees would be required to demonstrate to the satisfaction of ISED that they intend to, and will continue to, make use of the 3500 MHz spectrum to actively and independently provide services in the applicable licence area, based on the assessment factors set out below.

160. Assessment factors: ISED will consider a broad range of criteria to determine the associated entities' intent and actions to actively and independently provide wireless services. Assessment criteria may include, but will not be limited to:

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

161. Documentation: Associated entities will be invited to provide all relevant documentation to ISED in regard to the above-noted assessment factors or any other factor identified by ISED. These may include, but will not be limited to:

• all agreements relating to the transfer of, use of and access to the 3500 MHz spectrum
• business plans for the area in which the agreement(s) will provide access to spectrum
• business and financial results, including investments and customer acquisition

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

163. ISED's review will not extend to an overall assessment of the effects of the agreement between associated entities on competition in the marketplace.

164. Licensees must apply to ISED for the issuance of subordinate licences prior to the implementation of any spectrum sharing agreements or any agreement that provides for another party to operate the licensee's spectrum.

165. Exchange of spectrum licences: If a set-aside is applied and in recognition of the principles for promoting the efficient use of spectrum, it is proposed that ISED may also permit, after the announcement of the provisional licence winners, a transfer or "exchange" of equal amounts of 3500 MHz spectrum within the same licence area between a set-aside-eligible entity and a set-aside-ineligible entity, subject to the provisions of section 5.6 of CPC-2-1-23.

166. For further information on these requirements, refer to CPC-2-1-23, as amended from time to time. Licence transfers may also be subject to the provisions of the Competition Act.

167. ISED is proposing the following wording for the condition of licence on transferability and divisibility:

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

The licensee must make the Transfer Request in writing to ISED. 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 ISED 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 ISED 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), the licensee must apply in writing to ISED 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 ISED 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.

If a set-aside is applied the following would also apply:

The following provision applies to set-aside licences as defined under the Policy and Licensing Framework for Spectrum in the 3500 MHz Band (the Framework):

• For the first five years of the licence term, a set-aside licence is not transferable to a set-aside-ineligible entity (as defined in the Framework) with two exceptions:
  1. a Subordinate Licence to a set-aside-ineligible entity may be granted in support of a spectrum sharing agreement provided that the requirements in section 5.6.3 and section 5.6.4 (in cases where the service being deployed is mobile) of CPC -2-123 are met and that ISED is satisfied that the relevant entities will actively and independently provide wireless services in the applicable licence areas, based on the assessment factors set out in the Framework; and
  2. an exchange of equal amounts of 3500 MHz spectrum within the same licence area between a set-aside-eligible entity and a set-aside-ineligible entity may be allowed, subject to the provisions of section 5.6 of CPC-2-1-23.

If a spectrum cap is applied the following would also apply:

The spectrum cap put in place for the 3500 MHz auction will continue for five years from the date of the licence issuance. Therefore, no transfer of licences or issuance of new licences will be authorized if it would result in a licensee exceeding the spectrum cap during this period or causes a licensee whose prior holdings already exceed the spectrum cap to further exceed the spectrum cap. Any change in ownership or control granting a right or interest to another licensee in this band may be considered as 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 for any change that would have a material effect on its compliance with this spectrum aggregation limit. Such a request must be made in advance of any proposed transactions within its knowledge.

The licensees may also apply, in writing, to use a subordinate licensing process. ISED approval is required for each proposed subordinate licence. Subordinate licences will not count towards the subordinate licensee’s spectrum cap if the primary licensee and the subordinate licensee demonstrate to the satisfaction of ISED 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 spectrum cap being in place, licensees must implement their plans to the satisfaction of ISED. Any modifications to these plans must be submitted to ISED for approval.

168. ISED uses deployment requirements to encourage licensees to put the spectrum to use to provide wireless service in Canada and to deter acquisition of spectrum licences by speculators and those whose intent is to prevent access to the spectrum by their competitors.

169. Deployment requirements generally require licensees to provide coverage to a percentage of the population or to a percentage of the licensees' existing mobile broadband footprint within a given time period. In the 700 MHz band, two deployment requirements were established. The first was a general deployment requirement for each licence area based on a percentage of the population. The second was an additional rural deployment requirement for those licensees that acquired multiple blocks of contiguous spectrum, based on covering an incrementally increasing percentage of the licensees' existing mobile broadband footprint. The AWS-3 and 600 MHz bands both had incrementally increasing mid-term and final deployment requirements.

170. For the 3500 MHz band, ISED is proposing to use two deployment requirements. The first is a general deployment requirement for each licence area based on a percentage of the population as listed in annex F and applies at year 5, 10 and 20 after the initial issuance date. The second is an additional requirement for licensees that currently operate a mobile LTE network.^{Footnote 5}

171. ISED notes the importance of this spectrum to all Canadians for 5G services. The additional proposed requirements for licensees currently operating a mobile LTE network recognize that these licensees will likely make use of the 3500 MHz band to improve their current networks with 5G technologies. The proposed requirement for 5G in rural areas around urban centres is to promote deployment in rural areas surrounding urban centres and address concerns that targets were previously being met by serving only urban populations. As such, ISED is proposing that licensees that acquire 3500 MHz flexible licences and currently provide mobile LTE services to the general public (general public includes retail residential and retail business customers, in the relevant service area of interest) will be required to meet the following deployment requirements regardless of the service that they plan to deploy using the licence(s):

• Timely 5G coverage:
  • to provide service coverage to 90% of the population of their mobile LTE footprint as of June 5, 2019, within five years of the initial issuance date
  • to provide service coverage to 97% of the population of their mobile LTE as of June 5, 2019, footprint within seven years of the initial issuance date
• 5G in rural areas around urban centres:
  • in the 24 Tier 4 service areas, which contain at least one large population centre (as defined by 2016 Census of Population from Statistics Canada and listed in annex G) licence holders in these areas will be required to provide service coverage to 95% of the population outside the large population centre within ten years of the initial issuance date

172. These time frames will ensure timely deployment of 5G services to all Canadians while permitting some flexibility for licensees to put in place build plans that align with their business strategies.   

173. In the 2019 Decision, it was decided that all flexible use licences would expire on the same date, regardless of when they were issued. This means that if licences are issued through the transition process after the auction, licensees may have a reduced period of time to satisfy the deployment conditions. Therefore, ISED is proposing to use the following deployment conditions for licensees that are only subject to the general deployment requirements (i.e. where the proposed mobile LTE deployment requirements do not apply) and are issued flexible use licences through the transition process:

• For licences issued between years 4 and 5 of the licence term, licensees will only be required to meet the 10- and 20-year deployment requirements.
• For licences issued between years 5 and 10 of the licence term, licensees will only be required to meet the 20-year deployment requirement.
• For licences issued after year 10 of the licence term, ISED may deem other deployment levels as acceptable to meeting the condition of licence. This would be determined on a case-by-case basis factoring in the remaining time frame, on a graduated basis, to the end of the licence term.

174. In all instances, the mobile LTE network footprint would be the coverage in effect as of June 5, 2019. ISED will consider network sharing arrangements such as Multi-Operator Core Network (MOCN) networks to count as part of this LTE network footprint but standard roaming agreements do not count towards this network footprint. In addition, it is proposed that the licensee must provide the Minister with any documentation or information related to spectrum access or LTE network footprints at the Minister's request.

175. Deployment requirements will be based on the most recent census information available at the time of assessment. Deployment by a subordinate licensee will count towards the requirement of the primary licensee and both fixed service and mobile coverage using 3500 MHz spectrum will count towards meeting the deployment requirements.  ISED encourages subordination in cases where the licensee does not plan to deploy services, to maximize the benefits that Canadians derive from the use of the spectrum.

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

177. In consideration of the above, ISED proposes the following wording for this condition of licence, which will apply to all flexible use licences:

GENERAL DEPLOYMENT REQUIREMENTS

1. Licensees will be required to demonstrate to the Minister of Innovation, Science and Economic Development that this spectrum has been put to use to actively provide service as specified in annex F within 5, 10 and 20 years of the initial licence issuance date.
2. Licences issued more than four years after the initial licence issuance date will have modified deployment requirements as set out in the Framework.
3. The licensee is required to meet these conditions at all relevant times during the licence term and to continuously provide services throughout the term of the licence in accordance with these requirements.
4. Where a licence is transferred, the requirement for the new licensee to deploy will continue to be based on the initial licence issuance date.

SERVICE PROVIDERS OFFERING MOBILE SERVICES

1. Licensees will be required to demonstrate to the Minister of Innovation, Science and Economic Development that this spectrum has been put to use in the licence areas where they offer existing mobile broadband LTE service to cover the following deployment obligations:
   1. 90% of the population within its mobile LTE network footprint as of June 5, 2019, within five years of the initial licence issuance date;
   2. 97% of the population within its mobile LTE network footprint as of June 5, 2019, within seven years of the initial licence issuance date; and
   3. 95% of the population outside the large urban population centers, as listed in annex G of this document, in the tiers that contain the large urban population centre within 10 years of the initial licence issuance date;
2. Licensees will be required to provide ISED with their mobile LTE network footprint as of June 5, 2019, when requested by ISED.
3. The licensee is required to meet these conditions at all relevant times during the licence term and to continuously provide services throughout the term of the licence in accordance with these requirements.
4. Where a licence is transferred, the requirement for the new licensee to deploy will continue to be based on the initial licence issuance date.
5. The licensee must provide the Minister with any documentation or information related to spectrum access or LTE network footprints at the Minister's request.

178. ISED is seeking comments on additional conditions of licence outlined in annex H that would apply to licences issued through the proposed auction process for spectrum in the 3500 MHz band. The proposed conditions of licence in annex H are based on existing policies and procedures.

179. Licences obtained outside the upcoming auction, such as through the transition process or licences which have not converted to flexible use licences will be subject to new licence fees after they are established, as noted in DGSO-007-14. ISED will consult before the implementation of a new licence fee structure. Until such time, the existing fees will continue to apply.

180. In December 2014, ISED published Decisions Regarding Policy Changes in the 3500 MHz Band (3475-3650 MHz) and a New Licensing Process (the “2014 Decision”), which defined the policy and licensing changes and renewal process for existing licences in the 3500 MHz band, both tier and first-come, first-served (FCFS) grid cell licences. Licensees that met all conditions of licence had their licences renewed with amended conditions of licence to reflect ISED's current policies related to the 3500 MHz band.

181. The 2014 Decision was intended to cover all existing fixed wireless access (FWA) licences in the 3400-3700 MHz band. The 3500 MHz band was first defined by ISED in DGTP-013-098, Spectrum Utilization Policy SP 3400-3700 MHz – Spectrum Policy and Licensing Provisions for Fixed Wireless Access Systems in Rural Areas in the Frequency Range 3400-3700 MHz (July 1998). In August 2001, ISED initiated a consultation DGRB-006-01, Consultation on the Auction of Spectrum Licences for Wireless Communication Services in the 2300 MHz band and Fixed Wireless Access in the 3500 MHz Band, which defined the 3500 MHz band as from 3400 to 3700 MHz. In February 2003, ISED released DGTP-002-03, Restructuring the Spectrum in the Band 3400-3650 MHz to More Effectively Accommodate Fixed and Radiolocation Services, to rearrange the spectrum in the 3500 MHz band to better accommodate fixed wireless systems with radiolocation systems. In all of these cases, the traditional lower frequency of the 3500 MHz band covered 3400 MHz and above.

182. A number of licences were issued by ISED starting in 1998 based on DGTP-013-098, which allowed licensees to deploy fixed wireless access systems using grid cell FCFS spectrum from 3400 to 3700 MHz. Approximately 30 of these licences exist today and they have outdated conditions of licence. For example, these licences do not have licence conditions requiring continued deployment of spectrum or other conditions that are standard for current FCFS licences in the 3500 MHz band such as provision of technical information and lawful intercept requirements. Consequently, none of these licences include the current L8, Spectrum Licences in 3.5 GHz issued on First-Come First-Served basis after the 2014 Renewal Process condition of licence.

183. As such, ISED is proposing to amend the licence conditions of these older FCFS licences (spectrum licences from 3400 to 3650 MHz) to align with the other FCFS spectrum licences in the band. Therefore, ISED is proposing that all FCFS licences from 3400 to 3650 MHz have the same conditions of licence, i.e. appendix L8, Spectrum Licences in 3.5 GHz issued on First-Come First-Served basis after the 2014 Renewal Process, with minor updates to the L8 appendix name and frequency range. All other conditions of licence will then be removed from these licences.

184. Furthermore, ISED is harmonizing and updating the FWA language and proposing that the amended conditions of licence apply as June 5, 2019 plus one year—June 5, 2020 to all existing FWA licences (one year after the publication date of this document).

185. This proposal would guarantee consistent treatment of all FWA licences in the 3500 MHz band. It would ensure that spectrum is being put to use and that all current applicable conditions as they relate to the Radiocommunication Act and Radiocommunication Regulations are associated with these licences.

186. In light of the considerations above, ISED is seeking comments on a proposed amendment to the licence conditions of select older FWA grid cell licences and the timing of its implementation.

187. The proposed conditions of licence are set out in annex I.

188. The following section outlines the proposed general process for submitting an application to participate in the 3500 MHz auction, as well as the general requirements and rules that would apply prior to, during and post-auction.

189. To participate in an auction, all applicants must submit a completed application form, along with a financial deposit, details of the applicant's beneficial ownership, information on any affiliations and associations as discussed in section 10 of this document, and other corporate documentation as required. ISED will publish the list of applicants on its website soon thereafter.

190. Opening bids are the prices for the spectrum licences at the start of the auction, and the minimum that will be accepted for each licence. The proposed opening bid prices for the unencumbered products can be found in table D1 of annex D and the proposed opening bid prices for the encumbered products can be found in table D2 of annex D.

191. The 3500 MHz band is comparable to the 2500 MHz band in that they have similar propagation characteristics and will be able to be used for both commercial mobile or fixed wireless services. ISED's proposal will apply the same ratios for lower populated tiers, but based on the Tier 4 service area and using 2016 Census data (as opposed to Tier 3 and 2011 Census data in the 2500 MHz auction). ISED is proposing to increase the ratio for the largest populated areas due to the increasing value seen in in recent Canadian auctions in those areas.

192. A ratio of $0.14/MHz/pop was used in the 2500 MHz auction for service areas with a population over 2 million, and ISED is proposing to increase that ratio to $0.232/MHz/pop. ISED is proposing to use the same prices, in $/MHz/pop, that were used for the opening bids in the 2500 MHz auction (2015) for all other service areas. The proposed ratios are grouped into four categories based on population and the presence of a Census Metropolitan Area (CMA) within a service area:

• service areas with population over 2 million: $0.232/MHz/pop
• service areas with population over 1 million but less than 2 million: $0.1/MHz/pop
• service areas with population under 1 million that contain one or more CMA: $0.065/MHz/pop
• all other service areas: $0.051/MHz/pop

193. For each service area, the proposed opening bids were determined by multiplying the proposed prices in $/MHz/pop as outlined above by the population of the service area and 10 MHz block and rounding the obtained numbers to the nearest thousand.  The proposed opening bids for unencumbered products are shown in table D1 of annex D.

194. Bids at or above the proposed opening bid prices will ensure that Canadians obtain a fair return for the use of this spectrum. The total amount of opening bids for one block of unencumbered 10 MHz nationwide would be $46.7 million.

195. ISED is also proposing that the opening bid prices as well as eligibility points be adjusted proportionally to the percentage of the population covered for the encumbered blocks of the partial tier licences. The proposed opening bids for encumbered products are shown in table D2 of annex D.

196. The proposed eligibility points associated with the licences being made available in the 3500 MHz auction are based on opening bids.

197. Proposed eligibility points per service area are listed in annex D. One eligibility point has been assigned for each $5,000 of opening bid prices. In service areas with opening bid prices below $50,000 the number of eligibility points was rounded to the nearest point. For other service areas the number of eligibility points was rounded to ten points. The equivalent of a national licence, comprised of one 10 MHz block of spectrum in the 172 service areas covering the country, would be associated with 9,325 eligibility points.

198. In order to enhance the integrity of the auction, ISED requires that all bidders submit a pre-auction financial deposit with their auction application. The financial deposit must be in the form of a certified cheque, bank draft, money order, wire transfer, or an irrevocable standby letter of credit, payable to the Receiver General for Canada, drawn on a financial institution that is a member of the Canadian Payments Association.

199. Similar to previous auctions, ISED proposes to determine the value of the pre-auction financial deposit based on the licences on which the applicant wishes to be eligible to bid. Each licence has been assigned a specific number of eligibility points that are approximately proportionate to the opening bid prices, as demonstrated in annex D. For spectrum licences to be auctioned in the 3500 MHz band, it is proposed that the financial deposit be equal to $5,000 per eligibility point.

200. An individual bidder requesting to be eligible to bid on the equivalent of one national 10 MHz block would have to submit a deposit covering 9,325 points, which would equate to $46,625,000 (i.e. $5,000 x 9,325). Financial deposit(s) will be returned to any applicant that is found not to be a qualified bidder and to any applicant that provides written notification to ISED of its withdrawal from the process prior to the auction's commencement. Financial deposits will be returned to unsuccessful bidders once the auction has closed.

201. Within 10 business days following the publication of provisional licence winners, each provisional licence winner will be required to submit 20% of its final payment. The remaining portion of 80% will be due within 30 business days following the announcement of provisional licence winners. These payments will be non-refundable.

202. Following the conclusion of the auction, winning bidders that fail to comply with the specified payment schedule or fail to come into compliance with the eligibility requirements of the Radiocommunication Regulations, will be considered disqualified and will forfeit their ability to obtain licences through this process. Furthermore, noncompliant bidders will be subject to a forfeiture penalty in the amount of the difference between the forfeited bid and the ultimate price of the licence—to be determined by a subsequent licensing process.

203. In addition to the forfeiture penalties set out above, the applicant and/or its representatives may be subject to prosecution, administrative monetary penalties, or other enforcement procedures under the Radiocommunication Act if the auction rules are breached.

204. Qualified bidders will receive the necessary information to participate in the auction several weeks prior to the start of the auction. Information may include, but will not be limited to, an information session, a user manual for the auction system, instructions and passwords to access the secure auction system, along with the schedule for training, mock auctions, and the start of the bidding process.

205. A mock auction will be held, likely during the weeks prior to the start of the auction, in order to allow qualified bidders to better familiarize themselves with the auction system.

206. ISED will consider making unassigned licences available for licensing through an alternative process, which could include a subsequent auction at a later date following the close of the initial auction. The timing and form of such a process will depend on the demand for the available licences. ISED may conduct a public consultation should it consider it necessary.

207. Following the end of the initial licence term, licensees 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 the spectrum to a new service is required, or an overriding policy need arises.

208. As part of the licence renewal process, the Minister retains the power to fix and amend the terms and conditions of spectrum licences during the term of the licence and at the end of the term in accordance with subsection 5(1) of the Radiocommunication Act. As noted in the FSAC, licence fees that reflect some measure of market value will apply to licences issued through a renewal process. Accordingly, the renewal process will serve to determine whether new licences will be issued, the terms and conditions that will apply to the new licences.

209. Generally, approximately two years prior to the end of the licence term, ISED will review whether there is a need for a fundamental reallocation of the spectrum to a new service, or whether an overriding policy need has arisen. A review of the licensee's continued compliance with the conditions of licence will also begin. ISED will launch a public consultation to discuss whether or not, in light of the above-noted issues, new licences should be issued for a subsequent term. The consultation paper will also propose, and invite comments on, licence conditions that would apply during the subsequent licence term.

210. It is proposed that the renewal process include a public consultation process that would commence approximately two years prior to the end of the licence term.

211. As done in previous auctions, following a decision on the questions raised in this consultation paper, ISED will accept written questions soliciting clarification of the rules and policies set out in the decision paper for a limited period of time, which will be specified in the final licensing framework. Written questions, submitted by the deadline, and ISED's responses will be made public on ISED's website.

212. Respondents are requested to provide their comments in electronic format (Microsoft Word or Adobe PDF) by email.

213. Written submissions should be addressed to the following address:

Innovation Science and Economic Development Canada
Senior Director, Spectrum Licensing and Auction Operations
235 Queen Street (6th Floor, East Tower)
Ottawa ON  K1A 0H5

214. All submissions should cite the Canada Gazette, Part I, the publication date, the title and the notice reference number (SLPB-002-19). Parties should submit their comments no later than August 2, 2019, to ensure consideration. Soon after the close of the comment period, all comments received will be posted on ISED's Spectrum Management and Telecommunications website.

215. ISED will also provide interested parties with the opportunity to reply to comments from other parties. Reply comments will be accepted until September 20, 2019.

216. Following the initial comment period, ISED may, at its discretion, request additional information if needed to clarify significant positions or new proposals. In such a case, the reply comment deadline may be extended.

217. All spectrum-related documents referred to in this paper are available on ISED's Spectrum Management and Telecommunications website.

218. For further information concerning the process outlined in this document or related matters, contact:

Innovation Science and Economic Development Canada
c/o Senior Director, Spectrum Licensing and Auction Operations
235 Queen Street (6th Floor, East Tower)
Ottawa ON  K1A OH5
Telephone: 613-302-3436
TTY: 1-866-694-8389
Email: ic.spectrumauctions-encheresduspectre.ic@canada.ca

The tables included in this annex outline the amount of spectrum that will be available for auction. This is based on the amount of spectrum remaining after taking into consideration the amount of spectrum that will be available for existing licensees, should they meet all conditions of their existing licences, and as outlined in annex A of the 2019 Decision (SLPB-001-19).

Annex A includes four tables that demonstrate key characteristics of the licences being auctioned in the 3500 MHz band. Table A1 outlines the total amount of spectrum that will be made available in the auction. In order to provide further details on the partial licences being offered, table A2 outlines the blocks that are encumbered with grid cell licences whose operations must be protected, while table A3 outlines the spectrum blocks that are encumbered by existing licences covering an area that would not be offered at auction. ISED will provide final tables and maps of the spectrum available for the auction prior to the application date to participate in the auction.

Table A1 outlines the amount of spectrum that will be offered as unencumbered blocks and as partial blocks. As stated in section 8.1, ISED proposes that all licences in the band, both those auctioned and those obtained through the transition process, be assigned specific frequencies simultaneously through the assignment round of the auction. Consequently, table A1 includes the amount of spectrum that would be made available to existing licensees, for the purpose of bidding on a preferred frequency selection in the assignment round, should they desire. Note that this amount may differ from the table contained in annex A of the 2019 Decision, in view of the exceptions for existing grid-cell and sub-divided licences proposed in section 9.8 of this consultation.

Table A2 outlines the number of blocks that are encumbered by a protected grid-cell licence in specific tier areas. These blocks would be offered as a Tier 4 licences, however, the new licensee would be required to protect the operations of the existing grid cell licences within these areas. This protection was afforded to fixed wireless access systems in rural areas, originally licensed prior to the auction process conducted in 2004.

The spectrum blocks outlined in table A3 would be offered as a partial Tier 4 service area licences, as the area encumbered by an existing sub-divided or grid-cell licence within this block would not be available at auction.

This annex presents two examples of service areas. Example 1 illustrates a situation where multiple 10 MHz blocks are encumbered by existing sub-divided or grid cell licenses that cover the majority of the tier. Example 2 illustrates a situation where the geographic area of an existing sub-divided or grid cell licence covers a relatively small portion of tier population.

Example 1: In Tier 4-120 Weyburn, an incumbent holds three overlapping grid cell licences. After applying the rules for retaining spectrum from the 2019 Decision, the unencumbered geographic area of Tier 4-120 is represented by the coloured areas on the maps on figure B1. These coloured areas correspond to three different amounts of encumbered spectrum that would be made available for those portions of this tier (10 MHz, 20 MHz and 30 MHz). As the existing grid cell licences cover a significant portion of tier population, ISED is proposing to bundle the three remaining areas with their corresponding available amounts of spectrum as a combined encumbered block of 60 MHz for the auction. Figure B1 shows the amount of spectrum and the corresponding geographic areas that would be made available as a combined block in the auction. Note that the winner of this combined encumbered block of 60 MHz would receive three separate licences, one for all of the blocks that cover the same geography (i.e. 10 MHz in 4-120-1, 30 MHz in 4-120-2 and 20 MHz in 4-120-3).

Figure B1: Combined encumbered 60 MHz block example in Tier 4-120 Weyburn

Example 2: Figures B2 and B3 are two examples of encumbrances in Tier 4-136 Calgary where the existing sub-divided/grid cell licences cover a portion of the population in the tier. In these two cases the encumbrances cover significantly different geographic areas within the tier. In this situation, ISED is proposing to auction spectrum for these two encumbered areas individually and in separate 10 MHz blocks.

Figure B2: Map of service area 4-136-1 Calgary where 30 MHz of spectrum is available

Figure B3: Map of service area 4-136-2 Calgary where 20 MHz of spectrum is available

Note: ISED is currently considering and consulting on multiple options for the application of competitive measures. Given that the application of a spectrum cap is fairly simple in its application and implementation in comparison with a set-aside, this annex is written using the more complex example of a set-aside. It serves as a guide for how the auction format and rules would be implemented in the case where the more complex competitive measure outlined in this consultation paper, a set-aside, were implemented. These examples are to provide clarity only and should not give any indication of the decisions that will be made by ISED following the consultation.

1. A clock auction (CA) is a bidding process that includes a price discovery stage (clock stage) and an assignment stage. In the clock stage, the number of spectrum licences that a bidder will win for each product and the base price to be paid by each winning bidder are determined. In the assignment stage, the specific frequencies that will be assigned to each winning bidder are determined.

2. If set-aside is applied, upon application to participate in the auction, each applicant would be required to indicate whether it is applying as a set-aside-eligible or set-aside-ineligible bidder on a service area by service area basis. Set-aside eligibility will be subject to ISED approval.

3. There will be a variable number of blocks available in each of the 172 service areas. In addition, some blocks will be unencumbered and others will be encumbered because some service areas include existing subdivided or grid cell licences. Table A1 provides information on the availability of spectrum for the 3500 MHz auction. The pairing of a service area and a category (open, set-aside, or encumbrance level) is referred to as a “product.” Note that in some cases there are different levels of encumbrance for different blocks in the same service area. In those cases, each encumbrance level for the service area will correspond to a different product.

4. The open and set-aside products will include only unencumbered blocks.  If the number of unencumbered blocks available in a service area is greater than the pre-determined number of set-aside blocks, then this pre-determined number of blocks will be reserved for set-aside-eligible bidders and the remaining unencumbered blocks will be open. If the number of unencumbered blocks available in a service area is less than or equal to the pre-determined number of set-aside blocks, then all unencumbered blocks will be reserved for set-aside-eligible bidders and there will be no open product in that service area.  Specifically, let N denote the number of unencumbered blocks available in a service area and X denote the number of pre-determined set-aside blocks.  If N≤X, then there is no open product in the service area and the supply of the set-aside product equals N.  If N≥X, then there is a set-aside product with initial supply of X blocks and an open product with initial supply of N −X.  In this case, the actual supply of each product will be determined from the auction; the maximum supply of the open product equals N −X and the maximum supply of the set-aside product equals N.

5. Set-aside-eligible bidders can bid on the set-aside product and on any encumbered products in the service area. Set-aside-ineligible bidders can bid on the open product and on any encumbered products in the service area.

C1. Clock stage

6. The clock stage consists of a number of clock rounds. The licences are auctioned simultaneously over multiple clock rounds. In Round 1, each bidder indicates the number of blocks it demands for each product at the opening bid prices (listed in annex D). In subsequent rounds, a bidder can bid either to maintain its demand for a product at the round's clock price or to request to change its demand at a price associated with the round.

7. The quantity of blocks in a 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 up to the supply of all unencumbered blocks available in the service area, while a set-aside-ineligible bidder's bid for unencumbered spectrum could be up to the maximum supply of the open product as indicated in paragraph 4 of this annex. Both set-aside-eligible and set-aside-ineligible bidders can bid for all available encumbered blocks in service areas where encumbered blocks are available in the auction.

8. A bidder is not allowed to submit bids if the associated eligibility points exceed the bidder's eligibility for the round.

9. After each round, bids are processed to determine the processed demands and the posted prices for the round. The posted price of a round becomes the start-of-round price of the next round.

C2. Intra-round bids to change demand

10. A bidder will be able to make intra-round bids by indicating a point between the start-of-round price and the clock price of the round at which its demand for blocks in a product changes. In placing an intra-round bid, a bidder will indicate a specific price, and a quantity of blocks it demands if the price for blocks in the product should increase beyond that price. A bidder may submit up to five intra-round bids for a product in a round as long as the quantities in those bids are monotonic in price. For example, if all of the bids submitted by a bidder in a round for a product are sorted in ascending order of price, the corresponding quantities must all either increase or decrease starting from the bidder's processed demand from the previous round. Therefore, if the bidder's processed demand is four blocks at the start of round price of $100,000 and the clock price for this round is $120,000, the bidder can submit a bid to reduce its demand to two blocks at the price of $105,000 and another bid to further reduce its demand to zero blocks at the price of $115,000.

11. Intra-round bids will be optional and a bidder may choose to express its demands only at the clock prices. Permitting intra-round bidding will enable ISED to set relatively large price increments, thereby speeding up the auction, without running the risk that a jump in the clock price will overshoot the market clearing price—the point at which demand for blocks equals the available supply.

12. A bidder can express its demands at the clock price or at an intra-round price, and bid quantities can represent an increase or a decrease over the bidder's previous demands for blocks in a product. The auction system will apply a bid to change demand to the maximum extent possible as described in section C6 of this annex.

13. A bid indicates a desired quantity of a product at a price. If it is not possible for the auction system to apply the bid in its entirety, the bid may be applied partially. A bid requesting a reduction in demand will be applied in full if there is sufficient demand. That is, the auction system will apply the reduction provided that there is sufficient aggregate demand at the time the bid is considered during bid processing to allow the reduction to be applied without the aggregate demand of all bidders falling below the available supply. If there is some excess demand, but not enough to grant the full requested reduction, the auction system will partially apply the reduction, thereby reducing the bidder's demand by fewer than the requested number of blocks. A bid requesting an increase in demand will be applied in full as long as the bidder's bidding eligibility is sufficiently higher than its processed activity at the time the bid is considered during bid processing. If the bidder does not have sufficient eligibility, the auction system will apply the increase to the extent possible given the bidder's available bidding eligibility. See section C6 of this annex for details.

14. A bid to reduce demand at an intra-round price indicates that a bidder is willing to pay up to the intra-round bid price for a quantity of blocks that is unchanged from its previously demanded quantity. At the intra-round bid price, the bidder is willing to accept the unchanged quantity, the changed quantity, or any quantity in between. At a price above the intra-round bid up to the clock price for the round (or, if the bidder submitted more intra-round bids for the product at higher prices, up to the bid price of the next intra-round bid), the bidder is willing to accept the changed quantity indicated by the intra-round bid.

15. In the event that a bid is not applied, or not fully applied, the auction system will maintain the unapplied demands in a queue, prioritized by price point, should subsequent changes in aggregate demand or a bidder's processed activity later make it possible to apply the bid. Bids are only held in the queue during the processing of bids for a single round. For example, if a bidder's reduction request is only partially applied because aggregate demand is insufficient, but another bidder requests an increase in demand at a higher price point, it may then be possible to fully apply the bid reduction request that was only partially applied earlier in the bid processing for the round and held in the queue. If a bidder's request to increase demand is not applied or not fully applied because the bidder's bidding eligibility is not sufficiently higher than its processed activity at that time, and if its request to reduce demand in another product is later applied during bid processing reducing the bidder's processed activity, then the system may be able to fully apply the increase. Sections C4-C7 of this annex provide further details on this process.

C3. Bid processing

16. Sections C4-C7 of this annex describe how bids are processed after a round. First, missing bids are included as described in section C4. Then, the order in which bids will be processed is determined as described in section C5. Bids are processed in that order to determine the processed demand for each bidder and each product for the round, as described in section C6. Finally, the product's posted prices for the round are calculated as described in section C7.

C4. Missing bids

17. For each product for which the bidder had positive processed demand in the previous round, if the bidder does not submit a bid for that product during the current round, it will be deemed to have placed a bid to reduce its demand for that product to zero blocks at the  start-of-round price. All such missing bids are processed in the same way as bids submitted by a bidder to purchase a zero quantity of blocks in this product at the start-of-round price.

C5. Order of processing bids

18. The price point of a bid for a product generally indicates the percentage of the distance between the round's start-of-round price and clock price for the product. That is, the price point is equal to the bid price minus the start-of-round price, divided by the clock price minus the start-of-round price. This definition of price point is used for bids for open and encumbered products as well as for bids for set-aside products in service areas where there are no open products available in the auction. In these cases, the price point of a bid is greater than or equal to 0% and less than or equal to 100%. For example, if, for an open product, the start-of-round price is $100,000 and the clock price is $105,000, then a bid for the open product at $102,000 will have a price point of (102,000-100,000)/(105,000-100,000) = 40%.

19. Paragraphs 20 and 21 of this annex consider the case of a set-aside product in a service area where an open product is also available in the auction. Because of the way that bids are processed, the start-of-round price of a set-aside product can never exceed the start-of-round price of the open product in the service area. Moreover, clock prices are set in a way that ensures that the clock price of a set-aside product never exceeds the clock price of the open product in the service area. The price point of a bid for a set-aside product is defined based on whether the price range for the set-aside product overlaps the price range for the open product.

20. For a set-aside product whose price range overlaps with the price range of the open product (i.e. if the start-of-round price of the open product is less than the clock price of the set-aside product), the price point of a bid is based on the price range of the open product. In particular, the price point of a bid for the set-aside product is equal to the bid price minus the start-of-round price for the open product, divided by the clock price of the open product minus the start-of-round price of the open product. Thus, it is possible, when the start-of-round price for the set-aside product is less than the start-of-round price for the open product, for the price point of a bid for the set-aside product to be a negative number. For example, suppose that for the open product, the start-of-round price is $100,000 and the clock price is $105,000, and, for the set-aside product, the start-of-round price is $99,000 and the clock price is $105,000. Then a bid for the set-aside product at $99,500 will have a price point of (99,500-100,000)/(105,000-100,000) = -10%. However, if the set-aside and open products have the exact same price range for the round, then the price point of a bid for the set-aside product will also be between 0% and 100% (inclusive).

21. For a set-aside product whose price range does not overlap the price range of the open product (i.e. if the start-of-round price of the open product is at least the clock price of the set-aside product in a service area), the price point of a bid for the set-aside product is equal to the bid price minus the set-aside clock price, divided by the set-aside clock price minus the set-aside start-of-round price. Thus, in this case, a bid for the set-aside product has a price point that is greater than or equal to -100% and less than or equal to 0%, which will imply that bids for the set-aside product will be processed before bids for the open product. For example, suppose that for the open product, the start-of-round price is $100,000 and the clock price is $105,000, and, for the set-aside product, the start-of-round price is $80,000 and the clock price is $85,000. Then, a bid for the set-aside product at $82,000 will have a price point of (82,000-85,000)/(85,000-80,000) = -60%.

22. Bids are processed in increasing order of price point. That is, a bid with a lower price point is considered to have higher priority than a bid with a higher price point. For the case where the clock price of the set-aside product equals the start-of-round price of the open product, note that a bid for the set-aside product and a bid for the open product could both have price points of 0%. In this event, the set-aside 0% bid will be given higher priority than the open 0% bid, for purposes of bid processing. Pseudo-random numbers are used to break any ties.

C6. Processing bids to determine the processed demands

23. The bid processing algorithm described in this section maintains a queue of all bids from the round that have not been applied in their entirety. The highest-priority bid that has not yet been considered is processed. The algorithm checks to what extent the bid can be applied using the most-recently-determined processed demands.

24. A bid to increase demand is applied to the maximum extent possible while ensuring that the bidder's processed activity (after applying the bid) does not exceed its eligibility for the round. Note that it may not be possible to apply a bid because of insufficient bidding eligibility if another bid submitted by the bidder, requesting a reduction, is not applied due to insufficient aggregate demand, thereby not freeing up eligibility points needed to support the requested bid to increase demand for another product. This can occur even though the bidder's submitted activity does not exceed its eligibility.

25. For a bid to reduce demand, the general principle is that the bid is applied to the maximum extent possible while ensuring that the reduction does not cause aggregate demand to fall below supply for that product (or to fall further below supply, if it is already below supply). The specifics are described in the paragraphs below.

26. A bid to reduce demand for a set-aside product is applied to the maximum extent possible while ensuring the following:

1. the aggregate demand for the set-aside product does not drop below the product's initial supply
2. the aggregate demand for the open and set-aside products does not drop below the supply of unencumbered blocks in the service area, if there is also an open product in the service area

27. If either the aggregate demand for the set-aside product is less than or equal to the initial supply of the set-aside product or the aggregate demand for the open and set-aside products is less than or equal to the number of unencumbered blocks in the service area, then a bid to reduce demand for the set-aside product is not applied at all.

28. If the price ranges overlap and the aggregate demand for the set-aside product is greater than its initial supply, a bid to reduce demand for an open product is applied to the maximum extent possible while ensuring that the aggregate demand for the open and set-aside products does not drop below the supply of unencumbered blocks in the service area. If the aggregate demand for the open and set-aside products is less than or equal to the number of unencumbered blocks in the service area, then the bid to reduce demand for the open product is not applied at all.

29. If the price ranges do not overlap or the aggregate demand for the set-aside product is less than or equal to its initial supply, a bid to reduce demand for an open product is applied to the maximum extent possible while ensuring that the aggregate demand for the open product does not drop below the initial supply of the open product. If the aggregate demand for the open product is less than or equal to the initial supply of the open product, then a bid to reduce demand for the open product is not applied at all.

30. A bid to reduce demand for an encumbered product is applied to the maximum extent possible while ensuring the aggregate demand for the encumbered product does not drop below the product's supply. If the aggregate demand for the encumbered product is less than or equal to the supply of the encumbered product, then a bid to reduce demand for the encumbered product is not applied at all. There could be several distinct encumbered products in the same service area. For the purpose of the demand reduction they will be considered independently from each other.

31. If a bid is not applied in its entirety, then it is placed in the queue.

32. Whenever a bid is applied either partially or in its entirety, the queue is re-tested to determine whether it is possible to apply any bids in the queue (either partially or entirely) according to the conditions described above; if so, the highest-priority bid is applied to the maximum extent possible. When a bid has been applied in its entirety, it is removed from the queue; otherwise, it is kept in the queue so that the remaining part may be applied later. The re-testing of the queue is iterated until no bids remaining in the queue can be applied (either partially or entirely) while satisfying the conditions above. Then the next bid from the round is processed, until (1) all bids from the round have been processed, and (2) no bids in the queue can be applied. At that point, all bids remaining in the queue are discarded.

33. The demands of a bidder following the processing of the bids for the round are referred to as its processed demands.

C7. Determining the posted prices

34. After the round's processed demands have been determined, the auction system calculates the posted price of each product (open, set-aside or encumbered).

35. For the purposes of this section, the “supply” of a set-aside product is considered to be its initial supply and the “supply” of an open product is defined as follows:

1. If the two price ranges overlap and the aggregate demand for the set-aside product is greater than its initial supply, the “supply” of the open product is equal to the supply of unencumbered blocks in the service area minus the aggregate demand for the set-aside product.
2. If the two price ranges do not overlap or the aggregate demand for the set-aside product is less than or equal to its initial supply, the “supply” of the open product is equal to the initial supply of the open product.

36. The supply of an encumbered product is simply the number of blocks of that product available in the auction.

37. In most cases, the posted price of a product is set as follows:

1. If the aggregate demand for the product exceeds the product's supply, the posted price will be set equal to the product's clock price for the round.
2. If the aggregate demand for the product equals the product's supply and at least one bid that included a reduction in the quantity demanded of that product was applied (either entirely or partially), the posted price will be set equal to the product price associated with the bid that has the highest price for the product among all bids from the round that included a reduction in demand for the product and that were applied (either entirely or partially). In other words, the posted price will be the price at which a reduction caused demand to equal supply.
3. If the aggregate demand for the product is less than or equal to the product's supply and no bid that included a reduction in quantity for that product was applied (either entirely or partially), the posted price will be set to be equal to the round's start-of-round price for the product.

38. The posted prices of encumbered products are always set as described in paragraph 36 above.

39. The posted prices of open and set-aside products are set as described in paragraph 36 of this annex, except in the cases described below, which deal with the interplay between open and set-aside products when both products exist in a service area and the price ranges of the two products overlap. These exceptions are described in the following two paragraphs.

40. Exception for open products: Suppose that, in a given service area, the price range of the open product overlaps the price range of the set-aside product for the round. Then, the posted price of the open product is set as described in paragraph 36, except that in parts (b) and (c), in addition to bids to reduce demand for the open product, bids to reduce demand for the set-aside product with bid prices within the price range of the open product are also taken into account.

41. Exception for set-aside products: An exception in setting the posted price for the set-aside product applies if the following four conditions all hold in a given service area: (i) an open product is available in the service area (ii) the price range of the open product overlaps the price range of the set-aside product for the round (iii) the aggregate demand for the set-aside product exceeds the supply of the set-aside product, and (iv) the aggregate demand for the open and set-aside products equals the supply of unencumbered blocks. Then, the posted price of the set-aside product is set equal to the posted price of the open product (which is calculated as described above).

C8. Bid processing examples

42. Example of a reduction in demand for an encumbered product: Consider an encumbered product with supply equal to two blocks. Suppose that in Round 2, the product's start-of-round price is $100,000 and the product's clock price is $110,000. Suppose that there are two bidders with processed demands for the product after Round 2: Bidder 1 has processed demand of one block and Bidder 2 has processed demand of two blocks. Then, the product's aggregate demand after Round 2 is equal to three blocks. In this case, which corresponds to part (a) of paragraph 36, the product's posted price for Round 2 will equal $110,000 (the Round 2 clock price), and the product's start-of-round price in Round 3 will be $110,000. Suppose that the product's clock price in Round 3 equals $121,000. In Round 3, Bidder 1 submits a bid to reduce its demand for the product to zero blocks at $120,000, and Bidder 2 maintains its demand of two blocks at the Round 3 clock price. Suppose that no other bids are submitted for the product in Round 3. Then, the reduction bid of Bidder 1 will be applied, and the Round 3 processed demands for the product will be zero blocks for Bidder 1 and two blocks for Bidder 2. In this case, which corresponds to part (b) of paragraph 36, the product's posted price for Round 3 will equal the price of the reduction bid by Bidder 1, which is $120,000. This is the price at which a bidder's reduction caused aggregate demand to equal supply. The product's start-of-round price for Round 4 will equal $120,000. Suppose that the product's clock price for Round 4 equals $132,000. In Round 4, Bidder 2 submits a bid to maintain its demand of two blocks at the Round 4 clock price, and no other bidders submit bids for the product. Then, the aggregate demand for the product after Round 4 will remain equal to the product's supply. In this case, which corresponds to part (c) of paragraph 36, the posted price for Round 4 will equal the posted price for Round 3, which is $120,000. Note that this is the price at which a bidder's reduction had caused aggregate demand to equal supply (in a previous round).

43. Example of a reduction in demand and price point priority: Suppose that in a given round, the start-of-round price of the set-aside product equals the start-of-round price of the open product. The start-of-round price is $100,000 and the price increment is 10%. This implies that the round's clock price is $110,000 for both the open and the set-aside products. The price of $100,000 corresponds to the 0% price point and the price of $110,000 corresponds to the 100% price point. Further, suppose that the demand for the set-aside product exceeds its initial supply by one block and the demand for the open product is equal to the initial supply of the open product. During this round, a set-aside-eligible bidder bids to reduce its demand by one block at the price of $104,000 (the 40% price point) and a set-aside-ineligible bidder bids to reduce its demand by one block at the price of $106,000 (the 60% price point). Since bids are processed in increasing order of price point, the bid of the set-aside-eligible bidder will be processed first. This bid will be applied because (a) the aggregate demand for the set-aside product exceeds the product's initial supply by one block and (b) the aggregate demand for the open and set-aside products exceeds the supply of unencumbered blocks by one. Then, the aggregate demand for the set-aside product equals its initial supply and the aggregate demand for the open product also equals its initial supply. The bid processing algorithm will consider the bid to reduce demand by the set-aside-ineligible bidder. This bid is not applied because the aggregate demand for the set-aside product is less than or equal to its initial supply and the aggregate demand for the open product is less than or equal to its initial supply.  If there are no other bids for the open and the set-aside products in this service area, the posted price for both the open product and the set-aside product will be set at $104,000. This will be the next round's start-of-round price for both products.

44. Example of a demand increase and a reduction in the same round: As in the previous example, suppose that in a given round, the start-of-round price of the set-aside product equals the start-of-round price of the open product. The start-of-round price is $100,000 and the price increment is 10%. The demand for the set-aside product exceeds the product's initial supply by one block and the demand for the open product equals the initial supply of the open product. During this round, a set-aside-eligible bidder bids to reduce its demand by one block at the price of $104,000 and a set-aside-ineligible bidder bids to reduce its demand by one block at the price of $106,000. Also, another set-aside-ineligible bidder bids to increase its demand by one block at the price of $108,000. As in the previous example, the bid of the set-aside-eligible bidder will be processed first and will be applied. The bid of the set-aside-ineligible bidder will be processed next, but will not be applied and will be placed in the queue. The request of the other set-aside-ineligible bidder to increase demand will be processed next and will be applied (assuming that the bidder has sufficient eligibility at that time). The bid in the queue will be considered next and now can be applied. If there are no other bids for the open and the set-aside products in this service area, the posted price of the set-aside product will be set at $104,000 and the posted price of the open product will be set at $106,000.

45. Example of a reduction in demand when the price ranges of the set-aside product and open product overlap: Suppose that the start-of-round price for the set-aside product is $100,000, the start-of-round price for the open product is $105,000 and the price increment is 20%. This implies that the round's clock price for the open product will be set at $126,000 and the round's clock price for the set-aside product will also be set also at $126,000 (so as to be equal to the clock price of the open product). Further, suppose that the demand for the set-aside product exceeds the initial supply by one block and the demand for the open product equals the initial supply of the open product. During this round, a set-aside-eligible bidder bids to reduce its demand by one block at the price of $108,000 (or about the 14% price point) and a set-aside-ineligible bidder bids to reduce its demand by one block at the price of $106,000 (or about the 5% price point). Since bids are processed in increasing order of price point, the bid of the set-aside-ineligible bidder will be processed first. After demand is reduced by the set-aside-ineligible bidder, there will be no overall excess demand for the unencumbered blocks in this service area. So the request of the set-aside-eligible bidder to reduce its quantity will be denied. If there are no other bids for the open and the set-aside products in this service area, the posted price for both products will be set at $106,000. Note that in this example, after the round, the aggregate demand for the set-aside product exceeds its initial supply by 1 block and there is no excess demand for unencumbered blocks.

46. Example of a reduction in demand when the price ranges of the set-aside product and open product do not overlap: Suppose that the start-of-round price for the set-aside product is $100,000, the start-of-round price for the open product is $120,000 and the price increment is 10%. This implies that the clock price for the set-aside product should be set at $110,000 and the clock price of the open product should be set at $132,000. Further, suppose that the demand for the set-aside product exceeds the initial supply by one block and the demand for the open product is equal to the initial supply of the open product. The price of $120,000 corresponds to the bottom of the price range for the open product and hence the 0% price point; the price of $132,000 corresponds to the top of the price range for the open product and hence the 100% price point. The price of $100,000 corresponds to the bottom of the price range for the set-aside product and hence the 100% price point; the price of $110,000 corresponds to the top of the price range for the set-aside product and hence the 0% price point. During this round, a set-aside-eligible bidder bids to reduce its demand by one block at the price of $108,000 (or at the -20% price point) and a set-aside-ineligible bidder bids to reduce its demand by one block at the price of $122,000. Since bids are processed in increasing order of price point, the bid of the set-aside-eligible bidder will be processed first and will be applied. The bid of the set-aside-ineligible bidder will be considered next and will not be applied. If there are no other bids for the open and the set-aside products in this service area, the posted price for the set-aside product for the next round will be set at $108,000 and the posted price for the open product will be set at $120,000.

C9. Next round's clock prices

47. A product's start-of-round price for the next round is equal to the posted price.

48. The incrementing policy generally works as follows. The price increment for a product is set to x% of the product's start-of-round price, where x% is the increment percentage for the round, rounded up to the nearest $1,000. The round's clock price is then equal to the start-of-round price plus the price increment.

49. However, if, for a given service area, the incrementing policy would cause the clock price of the set-aside product to be greater than the start-of-round price of the open product and strictly less than the clock price of the open product, then the clock price of the open product is calculated according to the incrementing policy described above and the clock price of the set-aside product is set equal to the clock price of the open product.

50. Observe that the posted price of the set-aside product can never exceed the posted price of the open product. Therefore, the next round's clock price of the set-aside product can never exceed the clock price of the open product.

C10. Information in the clock rounds

51. After the bids of a round have been processed, each bidder will be informed about its processed demands after the round and its eligibility for the next round. In addition, each bidder will be informed of the aggregate demands for unencumbered blocks and encumbered blocks in each service area for the round, as well as the round's posted prices and the next round's clock prices for each product on which the bidder is eligible to bid. Bidders will not be informed about the individual bids submitted by other bidders or about the remaining eligibility of other bidders.

C11. Eligibility points

52. Each of the 172 service areas has been assigned a specific number of eligibility points in proportion to the opening bid price of the licence. One eligibility point has been assigned for each $5,000 of opening bid prices for each 10 MHz block of spectrum in a service area. Eligibility points for encumbered products were reduced in proportion to population covered by the incumbent or the incumbents within the corresponding service area. Annex D of this consultation lists the eligibility points associated with a product in each service area, as well as the population of the service area.

53. Eligibility points are used in the determination of the pre-auction financial deposits and in the activity rules applied during the auction, which influence the bids that bidders can submit. In its application to participate, each potential bidder must indicate the total number of “points” worth of licences on which it wishes to bid and submit a corresponding financial deposit. A bidder's initial eligibility defines an upper limit on the total number of eligibility points for which the bidder can bid in a round. As in past spectrum auctions, bidders begin each clock round with a set number of eligibility points, which determines their maximum activity level for the given clock round.

54. Bidders will not be able to increase their eligibility points after the application deadline.

C12. Activity rule in the clock rounds

55. A bidder's processed activity for a round is equal to the eligibility points associated with its processed demands after the bids for the round have been processed. In other words, a bidder's processed activity level will reflect its demands as applied by the auction system during bid processing.

56. In Round 1, a bidder's eligibility to bid is determined by the number of points acquired with its financial deposit. In subsequent rounds, a bidder's eligibility to bid is determined by its processed activity level in the previous round. Therefore, if a bidder wishes to maintain its eligibility from the previous round, its activity level must correspond to a certain percentage of its eligibility points in each round. This percentage is called the "activity requirement."

57. ISED will set the activity requirement between 90% and 100% in each clock round. The precise figure for the initial activity requirement will be communicated to all qualified bidders before the auction begins.

58. If a bidder falls short of the required activity level in any round, its eligibility point level will shrink proportionately, so that the total "points worth" of licences on which it may bid in the next round will equal its processed activity level in the current round, multiplied by the reciprocal of the activity requirement (e.g. 1/0.95 if the activity requirement is 95%).

59. The bidder's required activity is calculated by multiplying the bidder's eligibility for the round by the activity requirement. It is important to note that where this calculation results in a required activity level that is not a whole number, the auction system will round this number up to the next highest integer to determine the minimum activity level required to remain eligible to bid on the same "points worth" of licences in the next round. Similarly, when determining the level of points for the next round, if the product of the actual activity level and the reciprocal of the activity requirement is not a whole number, then this number is rounded down.

60. Examples of the activity rule in the clock rounds are described below.

• Bidder X has 620 eligibility points. The activity requirement is 95%, which means Bidder X must have processed activity of at least 589 points worth of licences to maintain full eligibility. Bidder X is bidding to maintain its demand on 600 points worth of licences and does not submit any bids to change demand. Therefore, the bidder's processed activity after the round will be 600 points (because bids to maintain demand are always applied during bid processing). Thus, the bidder's processed activity after the round will exceed the required activity level, and the bidder will maintain full eligibility (620 points) for the next round.
• Bidder Y has 2,400 eligibility points. The activity requirement is 95%. To maintain this level of eligibility, Bidder Y must have processed activity of at least 2,280 points worth of licences (2,400 points multiplied by 95%) after the bid processing of the current round. Suppose that Bidder Y submits bids to reduce its demand for some products and that if all these reductions are applied during bid processing, its processed demand will be only 1,700 points worth of licences. If all of the bidder's bids to reduce demand are applied during bid processing, then the bidder's eligibility in the next round will be 1,789 points (1,700 multiplied by the reciprocal of the activity requirement and rounded down—i.e. 1,700 × 1/0.95). If some of the bidder's bids to reduce demand are not applied during bid processing and the bidder's processed demand for the round is 2,000, then its eligibility in the next round will be 2,105 points (2,000 multiplied by the reciprocal of the activity requirement and rounded down—i.e. 2,000 × 1/0.95).
• Bidder Z has 600 eligibility points. The activity requirement is 95%. Products A, B, and C have 200, 400 and 600 eligibility points respectively. The bidder currently has processed demand of one block for product A and one block for product B. The bidder submits the following bids: a bid to reduce its demand for A to 0 blocks; a bid to reduce its demand for B to 0 blocks; and a bid to increase its demand for C to 1 block. If all three bids are applied during bid processing, then the bidder's processed activity will be 600 and thus the bidder will maintain its eligibility after this round. However, if the bid to reduce demand for A is applied but the bid to reduce demand for B is not applied due to insufficient excess demand, then the bid to increase demand for C cannot be applied because that would cause the bidder's processed activity to exceed its eligibility for the round. In that case, the bidder's processed activity will be 400 and the bidder's eligibility in the next round will be 421 points (400 multiplied by the reciprocal of the activity requirement and rounded down—i.e. 400 × 1/0.95).

C13. Conclusion of bidding in the clock stage

61. The clock stage will conclude for all products in all service areas after the first round in which the aggregate demand for each open product is less than or equal to its initial supply, and there is no excess demand for unencumbered blocks or for any encumbered product in any service area. This round is referred to as the final clock round. At this point, ISED will announce to bidders that the clock rounds have ended and that the auction will proceed to the assignment stage (see section C15 of this annex).

C14. Information at the end of the clock rounds

62. At the end of the clock rounds, each bidder will know how many blocks in each product it has won and the associated price. The price for a generic licence in a product will be the product's posted price for the final clock round.

63. At this point, bidders will know with certainty the number of licences in each product that they have won; however, given that these are generic licences, they will not necessarily know the specific licences that they have won.

C15. The assignment stage

64. After the conclusion of the clock stage, the auction will advance to the assignment stage, where the specific assignment of the generic licences will be determined. Both bidders that have won one or more generic licences in the clock stage and bidders that were incumbents for full service areas but did not win any licences will have the option to participate in the assignment stage.

65. The assignment stage will be used to determine the specific frequency blocks that winning bidders and incumbents for full service areas will be assigned. The assignment stage will make no distinction between bidder types (set-aside-eligible or set-aside-ineligible) in the determination of specific assignments. All blocks of a service area will be assigned in the same assignment round, irrespective of whether there are encumbered blocks or incumbents in the service area.

66. The number of blocks to be assigned to a bidder in a given service area will be equal to the sum of the number of blocks (both unencumbered and encumbered) that the bidder won in the clock stage in that service area and the number of blocks that the bidder is eligible to hold after the transition  in the entire service area.  The bidder will be assigned these blocks only in a contiguous manner.  After the auction, the winner of encumbered blocks must allow the existing sub-divided or grid-cell licensee to relocate to frequencies that this winner acquired as a result of the assignment stage.  The winner must ensure that the incumbent obtains contiguous spectrum that corresponds to the number of encumbered blocks won by that winner.

67. The assignment stage will consist of a sequence of assignment rounds. In each assignment round, bidders will be presented with a set of options available to them for the service areas being assigned, taking into consideration the bidder's clock stage winnings and eligible existing holdings in those service areas.

68. After the assignment of the eight most populated service areas, all remaining service areas will be ranked by population from highest to lowest and divided to groups of six. Each group would not include more than one Tier 4 service area from within the same Tier 2 service area. The assignment rounds will be run service area by service area in descending order of population. This process will enable bidders to know which specific frequencies they have won in the most populated service areas prior to their participation in the assignment rounds for the less populated service areas.

69. In support of simplifying the assignment stage and facilitating the assignment of contiguous spectrum across service areas, two or more service areas will be combined into a single assignment round when they are in the same Tier 2 area and geographically contiguous, and the number of licences to be assigned to each bidder are the same in the service areas to be combined.  In the previous sentence, note that set-aside, open, encumbered, and existing licences are treated the same.  For example, if Bidder A has won two set-aside licences and one encumbered licence in service area I and is eligible to hold three Tier 4 blocks in service area II after the transition, this will not prevent service areas I and II from being combined into a single assignment round.  

70. As an example of service areas being combined into a single assignment round, let us consider two contiguous service areas in the same Tier 2 area shown in the tables C1 and C2. Service areas II and III would be eligible to be combined into a single assignment round.

71. With the combined service areas, bidders will only be permitted to bid for and win assignments that would give them the exact same blocks in each service area.

72. The proposed order of the assignment rounds is described in annex E. Winning bidders do not have to place bids in the assignment stage if they do not have an assignment preference, as they are guaranteed the number of generic licences that they have already been allocated. Each bidder has both a right and an obligation to obtain one of the frequency range options presented to it in the assignment round.

73. For each assignment round, a solver will be used to identify the combination of specific assignments of licences that result in the highest bid amount. In the event of a tied outcome with more than one specific assignment producing the same total value, the tie will be broken by a pseudo-random number generator built into the auction software.

74. A second-price rule will be used to determine the assignment price to be paid for the assignment of specific licences such that winning bidders will pay an amount sufficient to ensure that there is no other bidder or group of bidders prepared to pay more for the licence(s).

75. The additional amount to be paid for the assignment of specific licences, known as the assignment price, is calculated for the package of specific licences won in the round, not for the individual licences. Given the pricing rules, the assignment price of each winning assignment stage package will be equal to or less than the corresponding winning bid amount, and could even be zero.

76. ISED will apply bidder-optimal core prices and use a “nearest Vickrey” approach to determine assignment prices. In the event that an additional payment above Vickrey prices is required, the calculation of the additional payment to be paid by each winning bidder will be weighted based on the relative size of the package it is being assigned in the given assignment round, evaluated at the opening bid prices. For existing holdings the opening bid price of the unencumbered block in the service area will be applied.

C16. Assigning contiguous spectrum in the assignment stage

77. Recognizing the efficiency gains from having contiguous blocks of spectrum, ISED will assign bidders contiguous spectrum within a service area.

78. ISED is proposing to present all contiguous bidding options that are consistent with the number of licences to be assigned to the bidder, regardless of the number of blocks to be assigned to other bidders. The bidder might not be able to win some of its bidding options if they are inconsistent with the contiguity restrictions described above. The purpose of presenting all contiguous bidding options, regardless of the number of licences to be assigned to each bidder, is to maintain anonymous bidding as much as possible and thereby reduce the potential for gaming behavior in the assignment stage.

79. Further information on the process for submitting assignment round bids will be available in the information package provided to qualified bidders.

C17. Information at the end of each assignment round

80. Following the end of each assignment round, after the results have been verified, participating bidders will be notified of the specific licences that they have won and the assignment price to be paid. In doing this, bidders will know their own results from one assignment round before participating in a subsequent assignment round.

C18. Final price

81. At the end of the assignment stage, ISED will determine the final price that each winning bidder will be required to pay for the package of licences it has been assigned. This final price will be equal to the sum of the posted price(s) of the final clock round for all generic licences that the bidder won plus any associated assignment price(s).

C19. Information at the end of the assignment stage

82. Following the end of the assignment stage, winning bidders will be notified of the specific licences that they have won, as well as the final price to be paid.

C20. Information after the end of the auction

83. The following information will be made publicly available following the conclusion of the auction process:

• the list of winning bidders, licences won (including category) and prices to be paid
• the bids submitted by each bidder in every clock round, including the bidder's identity
• the start-of-round and clock prices for each product in every clock round
• the assignment bids submitted by each bidder, including the bidder's identity and the corresponding assignment prices

Table D1 outlines the proposed opening bid prices for unencumbered products based on the population and proposed $/MHz/pop for each Tier 4 service area. Population is based on 2016 Census data. The table also outlines the number of proposed eligibility points for a 10 MHz block for each Tier 4 service area.

Table D2 outlines the proposed opening bid prices for encumbered products based on the population and proposed $/MHz/pop for each encumbered product. The population of the unencumbered portion of the product is an approximation based on 2016 Census data. The table also outlines the number of proposed eligibility points for each encumbered product in the relevant tier area.

E1. Proposed order for the assignment rounds

1. ISED is proposing to conduct a separate assignment round for each of the eight most populated service areas sequentially, in descending order of population. Once the eight most populated service areas have been assigned, ISED is proposing to conduct the bidding for the different service areas in parallel. That is, bidding for assignments in multiple service areas will take place during the same assignment round and the bidders will be required to submit their bids for service areas included in the same session at the same time. This will help to reduce the length of the assignment stage.

2. After the assignment of the eight most populous service areas, all remaining service areas will be ranked by population from highest to lowest and divided into sessions of six. Each session cannot include more than one Tier 4 service area from within the same Tier 2 service area. There are two exceptions shown in table E1: i) Round 35 includes five service areas and ii) Round 36 includes three service areas, two of which are in the same Tier 2 service area of Southern Quebec.

3. ISED is of the view that the session sizes and the mix of geographic areas provide a balance between the need for a timely conclusion of the assignment stage and the ability of bidders to handle assignments in different service areas that are run in parallel.

4. The preliminary sequence of assignment rounds in the case that no service areas are combined into an assignment area is shown in table E1.

5. In the assignment stage, two or more contiguous Tier 4 service areas may be combined into an assignment area. This will simplify the assignment stage and will facilitate the assignment of contiguous spectrum across regions. In order to form an assignment area, the Tier 4 areas must form a contiguous geographic region, be located within the same Tier 2 area, and each bidder needs to be assigned the same number of blocks in each of these Tier 4 areas. An assignment round would include the blocks won as an outcome of the clock stage of the auction as well as the blocks for licences to be assigned through the transition process. See section C15 of annex C for examples.

6. If some service areas are combined, the order of the assignment rounds will change in accordance with the rules outlined in paragraph 2. In order to determine the ranking of service areas and assignment areas for the purposes of paragraph 2, the population of an assignment area will be deemed to equal the sum of the populations of the Tier 4 service areas that it comprises.

7. For example, let us assume that there are the same winners of blocks in service areas 4-077 Toronto and 4-079 Guelph/Kitchener and that these winners must be assigned the same number of blocks in each service area. In this case service areas 4-077 and 4-079 will be combined in a single assignment area and the order of the assignment rounds will be adjusted to reflect this combination (see table E2).

E2. Proposed pricing for the assignment stage

8. ISED is proposing to use a second-price rule to determine the prices to be paid by winning bidders in the assignment stage. More specifically, ISED is proposing to apply bidder optimal core prices and to use the “nearest Vickrey” approach in determining the assignment prices. The final price paid by a winning bidder would be the sum of the clock stage price(s) and the assignment stage price(s).

9. An assignment bid is a package bid for the specific frequency locations of a collection of blocks for a given Tier 4 service area or assignment area. The assignment prices will be determined from the set of assignment bids for the service area or assignment area. The assignment price is attributable to the entire collection of blocks assigned to a given bidder in a given assignment round and not to individual blocks that comprise the package.

10. For the purpose of calculating assignment prices, the Vickrey price for each winning Bidder J is calculated as follows. First, from the value of the winning combination of assignment bids, subtract Bidder J's winning bid (value A). Next, recalculate the winning combination of assignment bids in the hypothetical situation where all Bidder J's assignment bids are equal to zero, as if Bidder J did not have a preference for any of the assignment options that it was presented with in the round (value B). The Vickrey price for Bidder J is defined as the value of the winning combination of assignment bids with all Bidder J's bids set to equal zero (value B) minus the sum of the winning assignment bids for all bidders other than Bidder J (value A), that is, value B minus value A.

11. An extra payment beyond the Vickrey prices is sometimes required as a result of complementarities. In the event that an extra payment is required, the payment to be made will be adjusted relative to the size of the bidder's package, as measured by the bidder's winning package evaluated at the opening bid prices. The procedure for calculation of this extra payment is called a core-selection adjustment.

12. The assignment prices from each service area or assignment area must satisfy the following conditions:

• First condition: The assignment prices must be positive or zero and not more than the dollar amount of the winning assignment stage bid.
• Second condition: The set of assignment prices must be sufficiently high that there is no bidder or group of bidders willing to pay more for an alternative feasible assignment. If there is only one set of assignment prices that satisfies the first two conditions, this determines the assignment prices.
• Third condition: If there are many sets of assignment prices that fulfil the first and second conditions, the set(s) of assignment prices minimizing the sum of assignment prices across winning assignment stage bids is (are) selected. If there is only one set of assignment prices that satisfies these three conditions, this will determine the assignment prices.
• Fourth condition: If there are many sets of assignment prices that satisfy the first three conditions, the set of assignment prices that minimizes the weighted sum of squares of differences between the assignment prices and the Vickrey prices will be selected. The weighting is relative to the price of the bidder's package (including pre-existing holdings) being assigned in the given assignment round, evaluated at the opening prices. This approach for selecting among sets of assignment prices that minimize the sum of assignment prices across winning assignment bids is referred to as the “nearest Vickrey” approach.

13. A software algorithm will be used to determine the set of assignment prices that meet the conditions outlined above.

14. The following is an example of how assignment prices are calculated. This example is based on the 2013 Spectrum Auction Design paper by Peter Cramton.

15. For expository ease, in this example there are only six blocks in a service area, A, B, C, D, E and F. Suppose that there are five bidders, 1, 2, 3, 4, 5, bidding for the assignment of six blocks. In the clock stage, Bidders 1, 2, 4 and 5 won one block in this service area and Bidder 3 won two blocks. Bidders 1 and 4 would like to get Block A, Bidders 2 and 5 would like to get Block B and Bidder 3 would like to get Blocks A and B as a result of the assignment round. Bidders do not put any value on other blocks available for the assignment. The following bids are submitted (the subscript of “b” designates the bidder):

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

16. The bids of the five bidders are represented in figure E1.

17. In this example, the highest value combination of bids would assign Block A to Bidder 1, Block B to Bidder 2, and Blocks C, D, E and F to Bidders 3, 4 and 5 generating $48 in value. The distribution of Blocks C, D, E and F among Bidders 3, 4 and 5 will be decided by a tie- breaking algorithm based on random numbers. There is no other assignment of the blocks that yields a higher value.

18. 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 Block A to Bidder 4 at $14 and Block 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 assignment stage bids for all bidders other than Bidder 1 ($20)—that is, its Vickrey price is $14 ($34 - $20).

19. 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 Block A to Bidder 1 and Block 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 assignment stage bids for all bidders other than Bidder 2 ($28)—that is, its Vickrey price is $12 ($40 - $28).

20. Hence, the Vickrey outcome is for Bidder 1 to pay $14 for the assignment of Block A and for Bidder 2 to pay $12 for Block B. Bidders 3, 4, and 5 are assigned Blocks C, D, E and F at zero price. 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.

21. However, these payments sum to $26, which is less than Bidder 3's bid of $32 for the assignment of Blocks A and B. Therefore, Bidder 1 and Bidder 2 must split an additional payment of $6 ($32 – $26) in order to ensure that their combined payment is greater than that of Bidder 3, satisfying the condition that no other bidder or group of bidders were prepared to pay more for an alternative feasible assignment. To do so, Bidder 1 and Bidder 2 must pay, collectively, at least $32.

Figure E1: Example of calculating assignment prices

22. If the opening bid prices for blocks won by Bidder 1 and Bidder 2 are the same (e.g. that both bidders won unencumbered blocks in the clock stage), the additional payment of $6 is split equally between the two bidders in this example. 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.

23. However, if the opening bid prices for the two blocks are different amounts (e.g. Bidder 1 obtained an unencumbered block and Bidder 2 obtained an encumbered block in the clock stage), 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 of the block that was allocated to Bidder 1 is $8 and the opening bid of the block that was allocated to Bidder 2 is $4, then the opening bid price of Bidder 1’s assignment is twice as large as that of Bidder 2. Therefore, in this example, 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.

Population in table F1 is based on 2016 Census data. The deployment requirements will be based on the most recent census information available at the time of the assessment.

Table G1 outlines the 24 Tier 4 service areas, which contain at least one large population centre, as defined by 2016 Census of Population from Statistics Canada.

1. The following conditions will apply to all flexible use licences in the 3500 MHz band as defined in the resulting licensing framework (referred to as “the Framework”).

2. 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.

3. ISED will review the licensees' compliance with the conditions set out below. Where, at any point in the licence term, the licensee is not in compliance with any condition, ISED may invoke various compliance and enforcement measures. These measures may include administrative monetary penalties, licence amendments, suspensions, revocations, or prosecution of an offence in accordance with the provisions of the Radiocommunication Act.

H1. Licence term

4. The term of this licence is 20 years from the date that licences are first issued following the auction procedure (“the initial licence issuance date”) set out in the Policy and Licensing Framework for Spectrum in the 3500 MHz Band (the Framework). Whether the licence was issued on the initial licence issuance date or issued at any later time, in accordance with transition provisions of the Framework, all licences will terminate on the same date, 20 years after the initial licence issuance date.

5. At the end of the 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.

6. 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, Science and Economic Development (the Minister) following a public consultation.

H2. Fees

7. Licences obtained through the transition process as described in the 2019 Decision will be subject to any new licence fees established for this band.

H3. Eligibility

8. The licensee must comply on an ongoing basis with the applicable eligibility criteria in subsection 9(1) of the Radiocommunication Regulations and, where applicable, with the eligibility criteria for set-aside licences as defined under the Policy and Licensing Framework for Spectrum in the 3500 MHZ Band. The licensee must notify the Minister of any change that would have a material effect on either type of eligibility. Such notification must be made in advance for any proposed transactions within its knowledge.

H4. Licence transferability, divisibility and subordinate licensing

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

10. The licensee must make the Transfer Request in writing to ISED. 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.

11. The licensee must apply in writing to ISED 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 ISED will be considered a breach of this condition of licence.

12. 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), the licensee must apply in writing to ISED 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 ISED 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.

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

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

If a set-aside is applied the following would also apply:

15. The following provision applies to set-aside licences as defined under the  Framework:

• For the first five years of the licence term, a set-aside licence is not transferable to a set-aside-ineligible entity (as defined in the Framework) with two exceptions:
  1. a Subordinate Licence to a set-aside-ineligible entity may be granted in support of a spectrum sharing agreement provided that the requirements in section 5.6.3 and section 5.6.4 (in cases where the service being deployed is mobile) of CPC 2123 are met and that ISED is satisfied that the relevant entities will actively and independently provide wireless services in the applicable licence areas, based on the assessment factors set out in  the Framework; and
  2. an exchange of equal amounts of 3500 MHz spectrum within the same licence area between a set-aside-eligible entity and a set-aside-ineligible entity may be allowed, subject to the provisions of section 5.6 of CPC-2-1-23.

If a spectrum cap is applied the following would also apply:

16. The spectrum cap put in place for the 3500 MHz auction will continue for five years from the date of the licence issuance. Therefore, no transfer of licences or issuance of new licences will be authorized if it would result in a licensee exceeding the spectrum cap during this period or causes a licensee whose prior holdings already exceed the spectrum cap to further exceed the spectrum cap. Any change in ownership or control granting a right or interest to another licensee in this band may be considered as 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 for any change that would have a material effect on its compliance with this spectrum aggregation limit. Such a request must be made in advance of any proposed transactions within its knowledge.

17. The licensees may also apply, in writing, to use a subordinate licensing process. ISED approval is required for each proposed subordinate licence. Subordinate licences will not count towards the subordinate licensee’s spectrum cap if the primary licensee and the subordinate licensee demonstrate to the satisfaction of ISED 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 spectrum cap being in place, licensees must implement their plans to the satisfaction of ISED. Any modifications to these plans must be submitted to ISED for approval.

H5. Treatment of existing spectrum users

18. The licensee must comply with the displacement and transition policies set out in SLPB 001-19, Decision on Revisions to the 3500 MHz Band to Accommodate Flexible Use and Preliminary Decisions on Changes to the 3800 MHz Band (the “2019 Decision”).

19. As per the 3500 MHz Decision, existing fixed stations are permitted to continue to operate in absence of a formal displacement notice given by ISED. Once a displacement notice has been issued, the new licensee must deploy their system(s) in accordance with the submission plan provided to ISED. ISED will retain oversight and monitor the transition process related to the displacement of incumbent systems. ISED may intervene, where appropriate, to ensure that all licensees are adhering to the transition process for the band.

H6. Radio station installations

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

21. 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 CPC-2-1-23, as amended from time to time.

H7. Technical considerations, and international and domestic coordination

22. 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.

23. 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.

H8. Lawful interception

24. 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.

25. The licensee may request the Minister 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 with the requirement can be expected.

H9. Research and development

26. The licensee must invest, at a minimum, 2% 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.

H10. Deployment requirements

27. The licensee will be required to demonstrate to the Minister that the spectrum has been put to use, as specified within the timeframes of their deployment requirements.

General deployment requirements

1. Licensees will be required to demonstrate to the Minister of Innovation, Science and Economic Development that this spectrum has been put to use to actively provide service, as specified in annex F, within 5, 10 and 20 years of the initial licence issuance date.
2. Licences issued more than four years after the initial licence issuance date will have modified deployment requirements as set out in the Framework.
3. The licensee is required to meet these conditions at all relevant times during the licence term and to continuously provide services throughout the term of the licence in accordance with these requirements.
4. Where a licence is transferred, the requirement for the new licensee to deploy will continue to be based on the initial licence issuance date.  

Service providers offering mobile services

1. Licensees will be required to demonstrate to the Minister of Innovation, Science and Economic Development that this spectrum has been put to use in the licence areas where they offer existing mobile broadband LTE service to cover the following deployment obligations:
   1. 90% of the population within its mobile LTE network footprint as of June 5, 2019, within five years of the initial licence issuance date
   2. 97% of the population within its mobile LTE network footprint as of June 5, 2019, within seven years of the initial licence issuance date, and
   3. 95% of the population outside the large urban population centers, as listed in annex G of this document, in the tiers that contain the large urban population centre within 10 years of the initial licence issuance date
2. Licensees will be required to provide ISED with their mobile LTE network footprint as of June 5, 2019, when requested by ISED.
3. The licensee is required to meet these conditions at all relevant times during the licence term and to continuously provide services throughout the term of the licence in accordance with these requirements.
4. Where a licence is transferred, the requirement for the new licensee to deploy will continue to be based on the initial licence issuance date.
5. The licensee must provide the Minister with any documentation or information related to spectrum access or LTE network footprints at the Minister's request.

28. Deployment by a subordinate licensee will count towards the requirement of the primary licensee.

29. ISED will review licensees' compliance with their deployment conditions within the timeframes of their deployment obligations. In addition, the licensee must provide the Minister with any documentation or information related to spectrum access or LTE network footprints at the Minister's request.

H11. Mandatory antenna tower and site sharing

30. 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.

H12. Mandatory roaming

31. The licensee must comply with the roaming requirements set out in CPC-2-0-17as amended from time to time.

H13.   Annual reporting

32. In addition to any reporting requirements required by any CPC, Technical Standard, SRSP or RP 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 (ISED may request, at its discretion, an audited statement of R&D expenditures with an accompanying auditor's report)
• 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
• other information related to the licence as specified in any notice updating the reporting requirements as issued by ISED

33. 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.

34. Reports are to be submitted to ISED at the following address:

Innovation, Science and Economic Development Canada
Spectrum Management Operations Branch
Manager, Operational Policy
235 Queen Street (6th Floor, East Tower)
Ottawa  ON  K1A 0H5

35. 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 ISED to monitor the effectiveness of these conditions in meeting the policy objectives regarding the band and ISED's intent that the spectrum be deployed in a timely manner for the benefit of Canadians.

H14. Amendments

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

1. The following conditions will apply to all new and existing fixed wireless access (FWA) spectrum licences in the band 3400-3650 MHz.

2. It should be noted that all 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).

3. Each time a licensee applies for a licence, it will be required to submit an application to ISED indicating the services that it intends to provide along with a coverage map required for the implementation of these services and the appropriate fees. 

I1. Licence term

4. The licence will expire on the date indicated on the licence. The term of this licence will not exceed one year.

I2. Licence fees

5. The licensee must pay the applicable annual licence fee prior to the issuance of their licence. For Grid Cell licences that cover only a portion of the Tier 4 licence area, the fee will be calculated according to grid-cell usage based on DGRB-008-99, Radio Authorization Fees for Fixed Wireless Access Systems in Rural Areas in the Frequency Range 3400-3550 MHz. Other licences will be subject to fees after they are established as noted in SLPB-002-19.

I3. Eligibility criteria

6. The licensee must conform to eligibility criteria as set out in subsection 9(1) of the Radiocommunication Regulations.

I4. Licence transferability and divisibility

7. This licence is transferable in whole or in part (divisibility), in both bandwidth and geographic dimensions, subject to ISED's approval. A Subordinate Licence may also be issued in regard to this licence, subject to ISED's approval.

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

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

I5. Displacement

10. The licensee must adhere to the transition plan as set out in SLPB-001-19.

I6. Radio station installations

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

I7. Provision of technical information

12. The licensee must provide ISED with, 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.

I8. Compliance with legislation, regulations and other obligations

13. 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.

I9. Technical considerations, and international and domestic coordination

14. 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 to facilitate the reasonable and timely development of their respective systems, and to coordinate with other licensed users in Canada and internationally.

15. 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.

I10. Lawful interception

16. 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.

17. The licensee may request the Minister of Innovation, Science and Economic Development 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.

I11. Implementation of spectrum usage

18. The licensee must deploy the system(s) and provide the services described in its application and maintain such coverage and service delivery throughout any subsequent licence terms.

19. Licensees whose licence covers an entire Tier 4 service area must maintain coverage at the levels indicated in annex A of DGSO-004-13, Decisions Concerning the Renewal of 2300 MHz and 3500 MHz Licences.

20. The licensee must provide information regarding its deployment and service delivery at ISED's request.

21. Failure to maintain deployment or provide reports is a breach of these conditions and may result in suspension or revocation of this licence or other enforcement action under the Radiocommunication Act.

I12. Mandatory antenna tower and site sharing

22. The licensee operating as a telecommunication common carrier 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.

I13. Amendments

23. The Minister of Innovation, Science and Economic Development retains the discretion to amend these terms and conditions of licence at any time.