On March 7, 2013, Industry Minister Christian Paradis made a number of significant announcements impacting the wireless industry in Canada “to increase competition in the wireless sector, providing Canadians with more choices and access to the latest technology at better prices.”
In addition to the much anticipated announcement of the final licensing framework for the upcoming auction of the 700 MHz spectrum for commercial mobile services, the Minister announced a consultation on a policy for considering spectrum licence transfer requests, introduced revised mandatory roaming requirements and antenna tower and site sharing rules as well as related arbitration procedures, and the release of the Ministry’s Commercial Mobile Spectrum Outlook which contemplates the possible allocation of up to a further 415 MHz of spectrum for commercial mobile services by 2017.
Framework for the Upcoming 700 MHz Spectrum Auction
The Minister released the long-awaited rules that will apply to the upcoming auction of licences for key 700 MHz spectrum for commercial mobile services. The Government believes this framework ensures at least four providers in every region can acquire spectrum in the auction which starts on November 19, 2013. The consultation process preceding issuance of these rules was lengthy and certain important policies relating to the licensing process for 700 MHz band were announced in March 2012, including:
- licences will be “spectrum licences in respect of the utilization of specified radio frequencies within a defined geographic area”;
- licences will be auctioned using Tier 2 service areas (14 service areas1) for all frequency blocks;
- a total of five blocks of paired spectrum (A, B, C, C1 and C2) and two blocks of unpaired spectrum (D and E) will be available in each service area;
- a total of 98 licences will be offered;
- a spectrum aggregation limit of two paired frequency blocks will apply to all licensees, and no spectrum aggregation limit will be applied to the unpaired blocks; and
- a spectrum aggregation limit of one paired spectrum block from within blocks B, C, C1 and C2 will apply to all large wireless service providers (defined as companies with 10% or more of the national wireless subscriber market share, or 20% or more of the wireless subscriber market share in the province of the relevant licence area2).
Highlights in the final rules for the 700 MHz auction published on March 7, 2013 include the following:
- Confirmation that there will be no set aside of particular spectrum bands for new entrants.
- Rather than employing a simultaneous multiple round ascending (SMRA) auction format, the combinatorial clock auction (CCA) format will be used for the 700 MHz auction. The CCA is a variation of the SMRA format in that all licences are auctioned at the same time over multiple rounds. The framework sets out the activity rule and anonymous bidding rules for the clock rounds and supplementary rounds, the number of supplementary bids permitted, and the application of the second-price rules, and confirms that Industry Canada will act as a reserve bidder placing a bid on every licence at the opening bid price.
- The total amount of the opening bids for all spectrum blocks is $897,294,000.
- A bidder’s initial eligibility is based on its pre-auction financial deposit which defines the upper limit of licences for which the bidder can bid. The amount of the pre-auction deposit is approximately proportionate to the population covered by the licence, with larger deposits required to bid on paired blocks in Southern Québec, Southern Ontario, Eastern Ontario and the Outaouais, Alberta and British Columbia to reflect their higher expected value. An individual bidder requesting to be eligible to bid on the equivalent of one national paired block will be required to submit a total deposit of $158,730,000. Five percent of the required pre-auction deposit is due June 11, 2013 with the remainder due September 10, 2013.
- Clarification of the definitions of “affiliated entities” and “associated entities”, the circumstances under which associated entities may bid separately in the auction and be subject to separate spectrum aggregation limits and the application of the anti-collision rules to affiliated and associated entities.
- Confirmation of the grouping of the seven spectrum blocks into four categories: A, B/C (generic), D/E (generic), and C1/C2 (generic). Generic licences are blocks of spectrum that are similar enough and of comparable value such that they can be offered in a single category. Industry Canada will conduct three sequential assignment rounds (i.e. one for each category of generic licence).
- Confirmation that service providers will bid on a package of spectrum licences rather than for individual licences.
Among other terms and conditions, the 700 MHz spectrum licences will have an initial 20 year term, require compliance with the spectrum aggregation limits for five years from the date of the licence, require prior Ministerial approval for a change of control of a licence, a transfer of spectrum, or the granting of a right or interest in spectrum, and require compliance with mandatory antenna tower and site sharing policies and mandatory roaming conditions. Importantly, the licences will include rural deployment requirements which will require licensees with access to two or more paired blocks of 700 MHz spectrum in a licence area to deploy the 700 MHz spectrum to cover 90% of the population of its HSPA network footprint (as of March 2012) within five years of the issuance of the initial 700 MHz licence and 97% of the population within seven years.
Applications to be qualified as an eligible bidder in the 700 MHz auction are due on June 11, 2013, and the auction is scheduled to commence on November 19, 2013. A table of key dates is available here.
The full auction and licensing framework is available here.
Consultation on Policy on Spectrum Licence Transfer Requests
The Minister commenced a new consultation on proposed revisions to its procedures for reviewing requests involving the transfer, division or subordinate licensing of spectrum licences. Currently, approval by Industry Canada is required for all spectrum licence transfers, and licences issued to new entrants in the 2008 auction are subject to a restriction on transfer until 2014. In examining the background that prompted this consultation, Industry Canada focused on the measures the Government of Canada has taken to increase and sustain competition in the provision of wireless telecommunications services, specifically:
- setting aside 40 MHz of spectrum for new entrants in the auction for Advanced Wireless Services (AWS) spectrum in 2008 in order to facilitate the entry of new competitors into the wireless services;
- introducing mandatory roaming requirements and tower sharing rules in conjunction with the 2008 AWS auction;
- in 2012, relaxing the foreign investment restrictions in the Telecommunications Act on wireless providers with less than 10% of the market (See Osler Update: Canada to Lift Certain Restrictions on Foreign Ownership in the Telecommunications Sector, March 26, 2012); and
- imposing spectrum caps that will provide four or more service providers in each region of the country the opportunity to obtain access to spectrum in both the 700 MHz and the 2500 MHz bands.
Industry Canada pointed out that “[w]ith the rapid shift to smart phones and the increasing use of data in the mobile market, the minimum amount of spectrum required to be a viable operator is increasing” and that “issues concerning spectrum aggregation and competition are not unique to Canada. Regulators worldwide have employed a wide range of measures to ensure that access to spectrum is not limited to only a small number of operators.”
Specifically, Industry Canada is seeking comments on criteria for determining when a detailed review of a proposed transfer will be required, including examination of current licence holdings, overall distribution of licences, current and/or prospective use of the spectrum and/or the existence and availability of alternative spectrum with similar properties. The government is also seeking comments on whether a concentration or MHz-pop threshold, screen or cap should be applied in deciding whether to conduct a detailed review.
Under the proposed criteria, Industry Canada would review a spectrum licence transfer request and, within four weeks of receipt of a request, either approve the request or advise the parties that a detailed review will be required. Where a detailed review is required, additional information and documentation may be requested, and Industry Canada will either approve the request or communicate reasons for a refusal to approve the request within sixteen weeks of receipt of all required information.
Initial comments on the consultation are due on April 3, 2012, and reply comments will be accepted until May 3, 2013. No date has been set for release of a decision on the consultation, though the announcement indicated that a decision will be made “well in advance of the 700 MHz auction” (scheduled to commence November 19, 2013).
Expanded and Extended Frameworks for Mandatory Roaming and Antenna Tower and Site Sharing
In conjunction with the 2008 AWS auction, Industry Canada required all carriers to offer roaming on their network. Some of the roaming provisions were only available to non-incumbent service providers and for a limited period of five years. Terms and conditions for roaming, including rates, are negotiated independently between licensees, but conditions attached to the AWS licences provide for mandatory arbitration to set fair market rates if the parties cannot agree. At the same time, Industry Canada also introduced licence conditions mandating antenna tower and site sharing and providing for mandatory arbitration of disputes regarding such sharing.
The Minister announced on March 7, 2013 that the mandatory roaming provisions would be extended to cover all service providers, including incumbents, and will be applied indefinitely, and that the antenna tower and site sharing conditions will be extended to apply to all telecommunication service providers. Additionally, telecommunication service providers will be required to submit regular reports on the status of antenna tower and site sharing negotiations. The Minister also announced an acceleration of the timelines for arbitration of disputes in relation to the mandatory roaming and antenna tower and site sharing provisions.
For more on these improvements to mandated roaming and antenna tower sharing, please see the following documents:
Commercial Mobile Spectrum Outlook
Also announced on March 7, 2013 was a new Commercial Mobile Spectrum Outlook, which provides an overview of Industry Canada’s approach and plans relating to spectrum resources for commercial mobile services over the next five years.
The Outlook indicates that the biggest challenge for spectrum managers around the globe today is the rapid growth of demand for commercial mobile services, which may require up to 650 MHz of wireless spectrum by 2017 and up to 1000 MHz of spectrum by the start of the next decade. Following the 700 MHz auction, Industry Canada plans to auction a further band of 2500 MHz spectrum within a year of the 700 MHz auction, which will increase the total available spectrum allocated to commercial mobile services to 528 MHz.
The Outlook identifies six potential bands of 300 to 415 MHz of additional spectrum that could potentially be allocated to commercial mobile services by 2017. Potential future auctions for these spectrum bands would follow separate consultation processes which have not yet been scheduled. Industry Canada noted that the timing of specific decisions relating to these bands will be subject to international developments and that, given Canada’s proximity to the United States, spectrum coordination within North America is most critical.
1 The 14 service areas are Newfoundland and Labrador; Nova Scotia and P.E.I.; New Brunswick; Eastern Québec; Southern Québec; Eastern Ontario and Outaouais; Northern Québec; Southern Ontario; Northern Ontario; Manitoba; Saskatchewan; Alberta; British Columbia; Yukon; Northwest Territories and Nunavut.
2 Calculation of market shares will be based on market shares will be based on the 2012 CRTC Communications Monitoring Report.