Frequently Asked Questions: Industry Canada's Two Phase Residual Licence Auction in the 2300 MHz and 3500 MHz Frequency Bands

NOTE: Please refer frequently to this document as it may be updated regularly. All new questions and answers will be posted at the end of this document.

1. Will a list of applicants and the spectrum licences on which they bid be made public? If yes, when?

The Department will publish a list of qualified bidders and the spectrum licences on which applicants have bid. This list will be published in early September 2004, prior to the withdrawal period. The end of the withdrawal period will be the close of Round 0. As soon as possible after the close of Round 0, the Department will publish a list indicating the provisional licence winners of licences on which only one bid remains active, as well as the status of the other remaining licences.

2. In round 0, for licences where there is more than one continued application, will the Department identify a standing high bidder?

For licences where the applicant is the sole bidder, the applicant will be treated as the standing high bidder on those licences. For licences where there is more than one continued application, the Department expects to use a mechanism similar to that used in past auctions to identify a standing high bidder prior to phase two. Following the close of Round 0, the Department will issue a notice with more details on the timing as well as the form and format of phase two of the residual licence auction.

3. In Gazette Notice-002-04, it is stated: "It should be noted that withdrawals which reduce contention but still result in at least one standing high bidder on the withdrawn licence will not generally result in a withdrawal penalty." What do you mean by "not generally"?

For phase one, bidders will be given the opportunity to withdraw their bids but, to encourage meaningful bids and to ensure that no loss of revenue occurs as a result of such withdrawals, a bid withdrawal penalty corresponding to the incurred loss of revenue caused by this withdrawal will be imposed. However, in phase one, where the withdrawal on a licence does not result in a loss of revenue owing to at least one bidder remaining on the licence, the Department does not expect to impose a withdrawal penalty. For example, if three qualified bidders bid, in Round 0, on the same spectrum block. During the withdrawal period, two of the qualified bidders withdraw their bids for that licence, leaving one qualified bidder. If the remaining qualified bidder is declared the provisional licence winner for that licence, and does not subsequently withdraw on that licence, then no withdrawal penalties will be imposed. If however, all three qualified bidders withdraw their bids, the three bidders would be assessed a withdrawal penalty equal to the full bid amount. Please refer to additional details and examples of withdrawal penalties in the Policy and Licensing Procedures for the Auction of Spectrum Licences in the 2300 MHz and 3500 MHz Bands found at: http://strategis.ic.gc.ca/epic/internet/insmt-gst.nsf/en/sf06438e.html.

4. If an applicant withdraws their bid in Round 0, will their eligibility points be reduced prior to phase two?

An applicants' eligibility points will not be automatically reduced prior to phase two, as the applicant will not have had the opportunity to bid on other licences in order to maintain their activity level.

5. What is meant by "exposure risk"?

The Department recognizes that it is introducing an exposure risk for those applicants who are interested in a package of licences. For example, an applicant may be interested in a package of licences, whose value to the bidder is linked to the entire package, and not the individual licences. By bidding in the first phase on all of the licences within the package, the applicant may, in the first phase, win (and have to pay for) some of the licences - but may be left exposed to the possibility of not being the standing high bidder at the end of the second phase on the remainder of the licences within the preferred package. The applicant would then be left with an incomplete package of licences, which may not be as desirable. The applicant would need to balance this risk against the possible outcome if the applicant were to not bid in the first phase on all of the licences within the package, that some or all of the licences may be won by another applicant simply by reason of that other applicant being the sole bidder on those licences.

6. Please clarify what is meant by "If the second phase does not occur shortly after the close of phase one, the financial deposits will be returned to the applicants and they, and others will be invited to reapply for phase two at a later date."

The Department will make every effort to start phase two relatively shortly after then end of phase one. However, if an extended delay is expected (e.g. more than 6 months), the Department expects to return the financial deposits to the applicants, and to invite them (and other applicants) to reapply for phase two at a later date.

7. How are the withdrawal penalties calculated?

For licences where the applicant is the sole bidder, the applicant will be treated as the standing high bidder on those licences. As in previous auctions, bidders will be given the opportunity to withdraw their standing high bids but, to encourage meaningful bids and to ensure that no loss of revenue occurs as a result of such withdrawals, a bid withdrawal penalty corresponding to the incurred loss of revenue caused by this withdrawal will be imposed. For example, if the applicant is the sole bidder on a licence with an opening bid of $625, the withdrawal penalty will be equal to this bid (i.e. $625). Please note that the licence would also revert to Industry Canada. Withdrawals which reduce contention but still result in at least one standing high bidder on the withdrawn licence will not generally result in a withdrawal penalty. For additional information, please consult the Policy and Licensing Procedures for the Auction of Spectrum Licences in the 2300 MHz and 3500 MHz Bands.

8. What happens to those licences receiving NO bids in phase one, Round 0?

Licences receiving no bids in phase one, Round 0, as well as those where there is more than one continued application, will continue to be available for bidding in the second phase of the auction.

9. What is the eligibility requirement for this two phase residual licence auction?

Section 10.7.4 of Amendments and Supplements section of the Policy and Licensing Procedures for the Auction of Spectrum Licences in the 2300 MHz and 3500 MHz Bands, states that at the close of the February 2004 auction of the 2300 MHz and 3500 MHz frequency bands, as stated in Section 9.7 of the Policy, the requirement that licensees be eligible to become radiocommunication carriers will be removed on post-auction licensing of unassigned licences. As such, radiocommunication carriers, radiocommunication service providers and radiocommunication users granted spectrum license as defined in these categories under Radiocommunication Regulations will be eligible for any post-auction licensing of unassigned spectrum. The successful licensees of the spectrum are reminded that the use of the spectrum to establish transmission facilities which offer service to the public for compensation and which interconnect into a public switched network, will be required to operate under a radiocommunication carrier licence and meet the Canadian ownership and control requirements, such as in the case of a facility-base Internet service provider.

10. If an applicant is the provisional winner on some, but not all, of their bids, will their total eligibility points be reduced prior to Phase 2?

Yes, an applicant's total eligibility points will be reduced by the amount of eligibility points associated with the provisional high bids. For example, an applicant submits two bids on licences each worth 2 points, for a total of 4 eligibility points. After Round 0, the applicant is the provisional winner on one licence (worth 2 eligibility points), with the other licence receiving continued contention. Prior to Phase 2, the applicant's total eligibility points will therefore be reduced from 4 points to 2 points.

11. Does the spectrum aggregation limit for the Two Phase Residual Licence Auction in the 2300 MHz and 3500 MHz Frequency Bands (hereafter referred to as the Residual Licence Auction) include spectrum acquired in the Auction of the 2300 MHz and 3500 MHz Frequency Bands (hereafter referred to as the February 2004 Auction)?

To ensure that existing and potential licensees will continue to operate in a competitive marketplace, the Department has placed a limit on the amount of WCS or FWA spectrum that any one entity or its affiliates can hold. This spectrum aggregation limit is set at 100 MHz per service area and consists of frequency assignments for WCS at 2300 MHz, and FWA at 3500 MHz. To provide maximum flexibility for bidders, the 30 MHz WCS block will be counted as 25 MHz towards the spectrum aggregation limit. The spectrum aggregation limit will remain in place for the duration of the Residual Licence Auction and will continue to apply for two years after the close of the Residual Licence Auction. It will be enforced during the Residual Licence Auction through the use of penalties.

To ensure that this penalty is an appropriate deterrent, it has been set equal to the greater of: (a) 2% of the value of bids placed on licences in service areas where the spectrum aggregation limit is exceeded; or (b) $10,000 for each round in which the spectrum associated with their bids exceeds the spectrum aggregation limit. This penalty will be assessed in addition to any applicable withdrawal and forfeiture penalties. Moreover, for each round in which a bidder exceeds the spectrum aggregation limit, the bidder will lose one of its waivers. If the bidder does not have any available waivers, any future waiver allocations will be reduced accordingly.

Total spectrum aggregation is comprised of: (i) current spectrum holdings, i.e., licences acquired in the February 2004 Auction; (ii) licences won in Phase 1 of the Residual Licence Auction; and (iii) standing high bids and new bids placed in Phase 2 of the Residual Licence Auction. All FWA spectrum acquired prior to the Residual Licence Auction through the First-Come, First-Served (FCFS) process in the band 3400-3650 MHz, will not be considered to be part of the 100 MHz spectrum aggregation limit during the Residual Licence Auction. However, at the end of the Residual Licence Auction, holders of FCFS licences who have successfully bid on spectrum that puts them over the 100 MHz limit, will be required to divest some of their holdings to meet the 100 MHz limit.

At the close of the Residual Licence Auction, any bidder who is the standing high bidder on licences such that the bidder, including his/her Affiliates and/or Associated Entities, exceeds the aggregation limit in any service area, must forfeit bids on all licences in this service area. Forfeiture penalties will apply, as discussed in Section 9.3 Bid Forfeiture and Related Penalties of the Policy and Licensing Procedures for the Auction of Spectrum Licences in the 2300 MHz and 3500 MHz Bands document (published in September 2003 and revised in June 2004). Note that forfeiture penalties will not apply to FCFS licence holders who divest some of their holdings to meet the 100 MHz aggregation limit.

Aslo note that the auction system will not provide a warning if bidders have exceeded their spectrum aggregation limit.

Licensees must notify the Minister of any change that would have a material effect on their compliance with these spectrum aggregation limits. Such notification must be made in advance of any proposed transactions within a licensee's knowledge.

Refer to the Policy and Licensing Procedures for the Auction of Spectrum Licences in the 2300 MHz and 3500 MHz Bands document, available online at http://strategis.ic.gc.ca/epic/internet/insmt-gst.nsf/en/sf06013e.html, including Sections 3.2 Competition Principles, 3.4 Spectrum Aggregation Limit, 6.3 Spectrum Aggregation Limit, 8.11 Penalty for Exceeding Spectrum Aggregation Limit, 9.5 Enforcement of Spectrum Aggregation Limits, and 10.4.3 Responses to Clarification Questions Related to the Spectrum Aggregation Limit Question 25.