Frequently Asked Questions: Industry Canada’s Auction of Spectrum in the 2300 MHz and 3500 MHz Frequency Bands

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

1. What is WCS? What is FWA?

WCS stands for Wireless Communication Services in the 2300 MHz band. WCS will be licensed under the fixed and mobile services. Deployments may have elements of both services however technical restrictions will be placed on the mobile service limiting their applications to low mobility or portable terminals to ensure compatibility with other services operating in adjacent spectrum. Licensees may deploy a full range of terminal devices including broadband point-to-point although it is anticipated that WCS will be used predominantly for the provision of local broadband access services in point-to-multipoint configurations.

FWA stands for Fixed Wireless Access in the 3500 MHz band. FWA systems are licensed under the fixed service. Licensees may deploy a full range of fixed applications (i.e. point-to-multipoint/point-to-point) in support of fixed wireless access applications, including ancillary portable terminals.

2. Why is Industry Canada initiating a licensing process for WCS and FWA spectrum?

The Department is making this spectrum available through an auction in order to facilitate the expansion and enhancement of innovative wireless services, such as high-speed Internet, in the WCS band at 2300 MHz and in the FWA band at 3500 MHz throughout the country. In proceeding with an auction of these spectrum licences, the Department reflected on the commitments the Government made in the 2001 Speech from the Throne, to work with the private sector towards the goal of making broadband access widely available to citizens, businesses, public institutions and to all communities by 2005.

With the release of this spectrum, the Department is taking an important step towards fulfilling the Government of Canada's goal. This spectrum provides an opportunity for the provision of wireless broadband services as a complement to, or in competition with, Digital Subscriber Line (DSL) and cable modems.

3. Why is Industry Canada going to use an auction to assign this spectrum?

The Department believes that the demand for this spectrum will exceed the available supply in some areas of the country and that the reliance on market forces to select licensees is in the public interest. Therefore, the Department has decided to use an auction, similar to those that were successfully used for the 24 GHz and 38 GHz frequency bands (Broadband Wireless Access) spectrum in 1999 and for additional Personal Communications Services (PCS) spectrum in 2001.

Auctions offer a number of advantages over the other options that are available to governments to assign access to the radio spectrum such as: their ability to promote economically efficient use of spectrum; their openness and objectivity as an assignment mechanism; their procedural efficiency; and their ability to return appropriate compensation to Canadian taxpayers for the use of a public resource.

4. Who will be eligible to participate in this licensing process?

Consistent with our policy to foster competitive telecommunications markets, all entities are eligible to apply and participate in this auction. However successful bidders in the auction must be eligible to become radiocommunication carriers.

5. How much money does Industry Canada expect to generate from this auction?

The Department will not be making any estimates concerning potential revenue generated from auctions. The Government’s objective in conducting auctions is not to raise revenue, but rather to award licences fairly, efficiently and effectively so as to ensure that the Canadian public derives the maximum possible benefit from the spectrum resource.

6. Do auctions mean higher prices for consumers?

No. Prices for consumer services will be set according to supply and demand in the consumer services marketplace. In a competitive market, if one firm raises its prices, consumers will switch to a competitor. Firms will base their bids upon, among other things, the prices at which they will be able to sell their services to consumers. Auction bids thus depend on consumer prices; consumer prices do not depend on auction bids.

7. What spectrum will Industry Canada be auctioning?

The Department will be auctioning WCS as a paired block ‘W’
(2305-2320/2345-2360 MHz) in what is commonly referred to as the 2300 MHz band. The paired block ‘W’ consists of 15 + 15 MHz of spectrum.

Figure 1 WCS Band

The Department will be auctioning FWA blocks ‘D’, ‘E’, ‘F’, and ‘G’, in the band 3475-3650 MHz which is commonly referred to as the 3500 MHz band. The spectrum will be auctioned in three paired 25 + 25 MHz blocks, namely ‘D’ and ‘H’, ‘E’ and ‘J’, and ‘F’ and ‘K’, and one standalone block, ‘G’, of 25 MHz.

Figure 2 FWA Band

8. Will these frequency blocks align with those in other countries?

The band plan for WCS aligns with the United States which assigned this spectrum in 1997, through an auction process in 126 markets and to 17 individual winners. Initial expectations suggested that the WCS would be used to provide a variety of services. Current activity is focussed on multipoint fixed wireless access applications with considerable interest in offering high-speed access services to residential and business customers. Applicants should be aware that in the U.S., S-DARS is adjacent to the WCS band and that Canada is also considering aligning with the U.S. by allowing for the operation of satellite radio terrestrial repeaters in the band 2320-2345 MHz. See Question 21 for further details.

For the FWA band plan, the Department recognizes that respondents to the consultation paper emphasized the importance of accommodating equipment designed for the European market. However, due to sharing considerations with the radiolocation service, the Department has adopted a band plan that, while consistent with ITU-R Recommendation F.1488, Frequency block arrangements for fixed wireless access in the range 3400 - 3800 MHz, differs from that used in Europe. The equivalent U.S. spectrum is used for radiolocation.

9. What type of auction will be used?

A simultaneous multiple-round auction process will be used. This means that multiple licences will be open for bidding at the same time and bidding will remain open on all licences as long as acceptable bids are placed on any of the licences. Bidding will occur in a sequence of rounds. The results of each round will be announced to the bidders prior to the start of the next round. The auction will be conducted over the Internet, using the latest in Public Key Infrastructure (PKI) encryption and digital signatures to ensure the integrity of the bids.

10. How long will an auction take?

The Department estimates auction itself will take anywhere from several days to several weeks to complete depending upon the level of bidding activity.

Provisional winners of spectrum licences will have those licences issued to them on completion of the following: (1) payment of the sum of their standing high bids and the sum of their penalties, if any; and (2) a determination by the Department that Canadian ownership and control requirements have been met. Depending on the complexity of the provisional winners' ownership and control structures and the responsiveness of the winners in providing any required additional documentation, this determination may take several months to complete.

11. What are the main steps of this licensing process?

The main steps include:

Further information regarding the auction schedule is available on Industry Canada’s Spectrum Management and Telecommunications Web site at: http://strategis.gc.ca/spectrumauctions.

12. How many licences will be auctioned, and are there any exceptions?

There are 848 spectrum licences available in 172 Tier 4 service areas across the country. The only exception is on Vancouver Island, including the Gulf Islands. The potential for interference to FWA systems in these areas is of particular concern due to radiolocation operations. Because of this concern, these areas will not be available for licensing through the spectrum auction.

Note: For the auction of spectrum in the 2300 MHz and 3500 MHz frequency bands a new feature has been added to the Auction Management System (AMS). Since the display of 848 licences is very long and difficult to scroll through within a single Internet browser window, bidders may now pre-select 'preferred licences' during the bidder profile setup process (a checklist to select preferred licences will be included as an annex in the Bidder's Information Document). Bidders will then have the option of only viewing specific licences related to their business plans. Bidders will also have the option of viewing all licences should their bidding strategies change during the auction.

13. What type of licences will be granted?

The authorizations available for assignment are spectrum licences which are defined in subparagraph 5(1)(a)(i.1) of the Radiocommunication Act as authorizations "in respect of the utilization of specified radio frequencies within a defined geographic area".

To ensure that licensees can continue to quickly and efficiently adapt their public service offerings to changing consumer demands, the Department will provide licensees with the maximum possible flexibility in determining the services they will offer and the technologies they will employ.

14. What are the attributes of 2300 MHz and 3500 MHz Licences?

• 5 licences will be auctioned within 172 areas of the country (with the exception of FWA systems on Vancouver Island);
• Ten year licence terms;
• Transferability and divisibility - Successful bidders will be able to transfer their licences to a third party, either in whole or in part. The third party will be subject to the eligibility restrictions and conditions of licence existing at the time of the transfer;
• Spectrum aggregation limit - 100 MHz to all participating companies, their Affiliates and Associated Entities;
• Implementation requirement - licensee must demonstrate to the Department that the spectrum has been put to use at a level acceptable to the Department, within 5 years of the receipt of the licence;
• R&D requirement - 2% of adjusted gross revenue with the exception of small businesses with less than $5 million in annual gross operating revenues;
• Open eligibility - successful bidders must be eligible to become radiocommunication carriers; and
• Other conditions of licence will apply (e.g. interference management, ownership and control, international and domestic coordination).

15. Will the Department set-aside spectrum for new entrants?

The Department found no compelling arguments demonstrating that spectrum set-aside for new entrants would significantly advance new service offerings and expansion of wireless services. Thus, the Department will not set-aside spectrum for which only new entrants can apply. However, new entrants are eligible to bid on all spectrum blocks available through this licensing process.

16. What measures has the Department taken to ensure that one company doesn’t buy all the spectrum?

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, commonly referred to as a spectrum cap, 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 auction and will continue to apply for two years after the close of the auction. It will be enforced during the auction through the use of penalties.

17. Will FWA spectrum acquired prior to the auction through the First-Come, First-Served (FCFS) process count towards the spectrum aggregation limit?

All FWA spectrum acquired prior to the auction through the FCFS process in the band 3400-3650 MHz, will not be considered to be part of the 100 MHz spectrum aggregation limit during the auction. However, at the end of the 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. This provision will provide FCFS licence holders the flexibility to change their original choice of spectrum blocks. The incumbent FCFS FWA licensees may also find it advantageous to acquire their own area in the auction to expand their licence to include the entire tier, and to gain a 10-year licence term with transferability and divisibility.

18. How will the Department treat existing licensees (incumbents) in the WCS and FWA frequency Bands?

In the 2300 MHz band, all fixed microwave point-to-point system incumbents are subject to the transition policy provisions. All fixed point-to-multipoint system incumbents are protected from displacement by WCS systems and not subject to these transition policy provisions. Mobile Aeronautical Telemetry Systems (MATS) are authorized on a secondary basis, only where they do not constrain the implementation of WCS.

In the 3500 MHz band, licensed FWA systems in rural areas, and existing fixed-satellite receive earth stations are protected and not subject to the transition policy provisions. All fixed point-to-point systems operating in the band 3475-3650 MHz are subject to the transition policy.

The successful WCS or FWA licensees from this auction must coordinate, where required, with other systems within the guidelines set in Policy and Licensing Procedures for the Auction of Spectrum Licences in the 2300 MHz and 3500 MHz Bands(policy paper).

19. What happens to the previous FWA First-Come, First-Served (FCFS) licensing process?

In August 1998, Industry Canada released the document Spectrum Policy and Licensing Provisions for Fixed Wireless Access in Rural Areas in the Frequency Range 3400-3700 MHz(DGTP-013-098) which provided access to FWA spectrum to radiocommunication carriers on a FCFS basis in rural and high-cost serving areas. Licences issued under the FCFS policy had one-year terms with a six-month implementation requirement, and did not include transferability or divisibility rights. Since that time, two Gazette Notices (DGTP-002-03 and DGTP-006-03) have been issued announcing rearrangements of the spectrum in the band 3400-3650 MHz to better accommodate FWA systems and radiolocation operations. As a result of these rearrangements, FCFS FWA spectrum is currently available in the band 3475-3650 MHz, in rural areas and high cost serving areas.

Licensing on a FCFS basis will continue until one month prior to the commencement of the auction, based on the restructured band and additional licensing guidelines outlined in the April 2003 Gazette Notice DGTP-006-03. At that point, all licensing activity for new FWA system applications in the band 3475-3650 MHz will cease. Anyone who has received a licence or an approval-in-principle will be treated as an FWA incumbent licensee.

20. What has been done to facilitate spectrum usage near the Canada-US border?

On July 25 ^th2003, the Federal Communications Commission (FCC) and Industry Canada announced the signing of an Interim Arrangement regarding the Wireless Communications Service (WCS Arrangement). The WCS Arrangement will facilitate deployment of WCS systems near the border, bringing a broad range of fixed, mobile and other terrestrial wireless services to businesses and consumers such as video distribution, programming, digital broadband and Internet services.

The WCS Arrangement entitled Interim Arrangement Concerning the Use of the Frequency Bands 2305-2320 MHz and 2345-2360 MHz by Stations in the Wireless Communications Service (WCS) Near the Canada/United States Border sets forth the principles and mechanisms for spectrum sharing by WCS licensees operating in the 2305-2320 MHz and 2345-2360 MHz bands near the border. Full text of the agreement is available at http://strategis.ic.gc.ca/epic/internet/insmt-gst.nsf/vwGeneratedInterE/sf01238e.html.

With respect to FWA spectrum, the Department has undertaken discussions with the Canadian Department of National Defence and the U.S. Administration, including U.S. Government users to better understand radiolocation operations, the spectrum requirement and the potential for interference between Fixed Wireless Access (FWA) systems and radiolocation systems within Canada, along the Canada - U.S. border and in coastal waters. As a result of these discussions it was necessary to realign the spectrum to be made available for FWA so as to ensure minimal interference to commercial FWA systems (see Canada Gazette Notices DGTP-002-03 and DGTP-006-03). Thus, the FWA block plan shown in this policy will not require cross-border coordination by FWA licensees.

21. How will the potential introduction of Satellite Digital Audio Radio Service (S-DARS) affect WCS spectrum in Canada?

The Department has indicated that it will consider making spectrum available for satellite radio applicants wishing to pursue a broadcasting licence from the CRTC using U.S. S-DARS satellite radio in the band 2320-2345 MHz.

S-DARS terrestrial repeaters will likely be a part of any application to the CRTC to obtain a satellite broadcasting licence in Canada using either the U.S. XM and/or Sirius Radio satellite capacity. These terrestrial repeaters would be used to improve reception of the satellite radio service in a number of urban centers. In view of the potential of satellite radio services being implemented it is important that applicants bidding for WCS spectrum licences take into account the potential operation of satellite radio terrestrial repeaters in the band 2320-2345 MHz.

Potential bidders are advised to read Section 5.3.2 of the policy paper for further information.

22. How were the opening bids determined?

In order to ‚kick-start‛ the auction and avoid unnecessary delays in ultimately assigning licences, the Department has established minimum opening bids. The Department has adopted a two-level schedule, linking the number of people in a service area to the amount of the opening bid per point as follows:

• the opening bid is $625 per point for service areas with a population less than 300,000;
• the opening bid is $2,125 per point for service areas with a population of over 300,000.

Each of the licences has been assigned a specific number of eligibility points ("points") that are indicative of the population covered by the licence. One eligibility point is approximately equal to 25 MHz of spectrum and a population 20,000.

The sum of all of the opening bids is $18,165,750.

23. Will the licence fees of incumbents be recalibrated to match auction results when similar spectrum is auctioned?

No. Incumbents' licence fees will not be recalibrated on the basis of auction results for similar spectrum. The Department recognizes that recalibrating fees could create significant uncertainty for licensees who acquired their licences in good faith with certain expectations regarding their licence fees.

24. Will successful bidders pay for their licences in lump-sum or installment payments?

Winning bidders will be required to pay for their licences up front. Successful bidders will be required to pay 20% of their winning bids plus 100% of the sum of any penalties that it has incurred within 10 business days of the auction’s close and the remaining 80% within 30 business days of the auction’s close.

25. What happens if a winning bidder cannot pay for a licence?

After the conclusion of the auction, any bidder who has submitted the high bid on a licence but fails to comply with the specified payment schedule will forfeit their right to the licence. A subsequent licensing process will take place and, if the price is lower than the forfeited bid, the bidder will be required to pay a penalty in the amount of the difference between the forfeited bid and the eventual selling price of the licence. Furthermore, an additional penalty for each forfeited bid will be charged, regardless of the eventual selling price.

26. Other administrations have encountered some difficulties with spectrum auctions. How will the Department address this in Canada?

Although most, if not all, administrations that have run spectrum auctions have considered them to be successful, a few difficulties have been encountered. These include bid withdrawals and defaults, possible bid signalling, and submission of erroneous bids.

Based on the advice we have received from some of the world's leading auction experts and our continued analysis of auctioning around the world, we are very confident that we have effective solutions to these problems: bid withdrawal problems can be alleviated by implementing withdrawal penalties, defaults can be avoided by requiring bids to be paid in lump sum amounts, and bid signalling and erroneous bid submissions can be addressed with simple auction design modifications.

27. What happens to unsold spectrum following the auction?

Thirty days following the auction, licences which receive little or no bidding activity during the auction, and remain unsold at the close of the auction may be made available on a First-Come, First-Served (FCFS) basis.

Licences that received significant bidding activity but remain unsold at the auction’s close (e.g. withdrawn bids) or are not sold due to bid forfeitures (see Section 9.3 of the policy paper), may be made available via a future re-auction.

The FCFS post-auction licences will have similar attributes and conditions as the licences available during the auction. Specifically, they will be issued for 10-year terms and with the exception of the eligibility criteria (see Section 9.7.1 of the policy paper), will carry the same terms and conditions as the auctioned licences. The Department will make the FCFS spectrum available for licensing by grid cell (Footnote 1), as well as by Tier 4 service area. The transition for the displacement of incumbents outlined in Appendix 3 will apply to spectrum licences issued on a FCFS process and also to the licences issued before the auction.

28. Why should I participate in the auction instead of waiting for the FCFS post-auction licensing?

In waiting for the FCFS post-auction licensing process, a company runs the risk of losing a chance to acquire valuable spectrum that could be vital to the provision of services in their territory. There is also little financial incentive to wait for the FCFS licensing process, as the Department expects the FCFS licence fees for a tier to be comparable to the opening bids of the auction. The Department expects the grid cell pricing, in the FCFS post-auction process to be derived from the tier pricing system.

1. Spectrum grid cells are six-sided figures that cover 25 square kilometres and inter-lock to give a geographical representation of Canada (see http://strategis.ic.gc.ca/epic/internet/insmt-gst.nsf/vwGeneratedInterE/h_sf01627e.html).