Policy and Licensing Framework for Spectrum in the 3500 MHz Band - Annexes

Table B1 outlines the bundled products that will be available for auction. The bundles include individual licences outlined in tables A2 and A3 of annex A. The table may be updated prior to the application date to participate in the auction.

1. A clock auction (CA) is a bidding process that includes a price discovery stage (allocation (clock) stage) and an assignment stage. The allocation stage determines the number of generic blocks that a bidder will win for each product and the price for these blocks. The assignment stage determines the specific frequencies that will be assigned to each winning bidder and the associated price. For this particular auction, the assignment stage will also determine the specific frequencies for which existing licensees will be eligible to apply through the transition process.

C1. Allocation (clock) stage products

2. Upon application to participate in the auction, each applicant will be required to indicate, for each Tier 2 service area, if it is applying as a set-aside-eligible bidder. Set-aside eligibility will be subject to ISED approval. If an applicant is qualified as a set-aside-eligible bidder in a Tier 2 service area, it will be considered as set-aside-eligible in all Tier 4 service areas within this Tier 2 service area.

3. The number of blocks available for the auction in each service area will vary because existing licensees will be eligible to apply for flexible-use licences for a predetermined amount of spectrum based on their existing holdings through the transition process. In addition, some blocks will be unencumbered and others will be encumbered because existing licences may include sub-divided licences and/or grid-cell licences. Table A1 of annex A provides information on the availability of spectrum for the 3500 MHz auction. In some cases, there are multiple levels of encumbrance within the same service area, denoted by encumbrance levels (1, 2, 3, …) as shown in tables A2 and A3 of annex A. Within a service area, a lower encumbrance level indicates a larger unencumbered population. If there is a single level of encumbered blocks in a service area, its encumbrance level is denoted by 1 following the tier service area number (e.g., 4-021-1). The encumbrance level of the unencumbered blocks is denoted by 0 (e.g., 4-021-0).

4. In some service areas, where existing sub-divided or grid-cell licences are encumbering the majority of the service area, the remaining portions of the encumbered areas will 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. The service areas with bundled blocks are listed in table B1 of annex B. The encumbrance level of the bundled blocks is denoted by 10, following the service area number (e.g., 4-071-10). All bundled blocks are open to all bidders.

5. A triple consisting of a service area, an encumbrance level (0, 1, 2, 3, …), and a set-aside status (set-aside or open) is referred to as a "product". In the case of an encumbrance level and service area combination with a single product (set-aside or open), the product’s supply equals the number of available blocks in that encumbrance level and service area combination. In the case of an encumbrance level and service area combination with only set-aside product, the set-aside-eligible bidders can collectively win up to the supply of blocks in this encumbrance level and service area combination and the set-aside-ineligible bidders cannot win any spectrum in this encumbrance level and service area combination. In the case of an encumbrance level and service area combination with only open product, the set-aside-eligible bidders and set-aside-ineligible bidders can collectively win up to the supply of blocks in this encumbrance level and service area combination.

6. In the case of an encumbrance level and service area combination with two products (set-aside and open), an initial supply and a maximum supply is defined for each of the two products, and the actual supply of each product will be determined from the auction. The maximum supply of a product indicates the maximum number of blocks that can be won by bidders bidding for that product. The maximum supply of the open product equals its initial supply. That is, set-aside-ineligible bidders can collectively win up to the initial supply of the open product. The maximum supply of the set-aside product equals the supply of blocks in that encumbrance level and service area combination. That is, set-aside-eligible bidders can collectively win up to the supply of blocks in the encumbrance level and service area combination.

7. If the number of unencumbered blocks available in a service area is greater than or equal to five, then five unencumbered blocks will be reserved for set-aside-eligible bidders. The initial supply of open unencumbered blocks will equal the number of unencumbered blocks minus five. All encumbered blocks (if any) will be open. This is the most common scenario for a service area.

8. For a service area with a large population centre, if the total number of encumbered and unencumbered blocks is less than five, then all available blocks will be reserved for set-aside-eligible bidders and there will be no open product in this service area. For a service area without a large population centre, if the total number of encumbered and unencumbered blocks is less than five, then all available blocks will be open and there will be no set-aside product in this service area.

9. For some service areas, the number of unencumbered blocks available in the service area is less than five but the total number of blocks that are unencumbered or have encumbrance level of 1 is five or greater. For such a service area, all unencumbered blocks will be reserved for set-aside-eligible bidders and some of the encumbered blocks with encumbrance level of 1 will be reserved for set-aside-eligible bidders. The total number of unencumbered and encumbered blocks reserved for set-aside-eligible bidders will equal five. The initial supply of open blocks with encumbrance level 1 will equal the total number of blocks that are unencumbered or have encumbrance level 1, minus five.

10. Specifically, let M denote the number of unencumbered blocks available in a service area and N denote the number of encumbered blocks with encumbrance level of 1 in the service area. In the most common scenario for a service area, M > 5. In this scenario, the service area has an unencumbered set-aside product with an initial supply of 5 and an unencumbered open product with an initial supply of M – 5. In this scenario, any encumbered blocks in the service area will be offered only as open product.

11. If M = 5, there is a single unencumbered product in the service area which is set aside and has a supply of 5. In this scenario, any encumbered blocks in the service area will be offered only as open product.

12. If M < 5 but M + N  5 in a service area, the following products will be available: an unencumbered set-aside product with a supply of M blocks, an encumbered set-aside product for the encumbrance level of 1 with an initial supply of 5 – M, and an encumbered open product for the encumbrance level of 1 with an initial supply of N – (5 – M). (If M + N = 5, then there will be no open product with encumbrance level of 1.) In this scenario, any other encumbrance level available in the service area (i.e. 2 or 3) will be offered only as open product.

13. For a service area with at least one set-aside product, all blocks won by set-aside-eligible bidders, including blocks in open products, will be considered as set-aside blocks, and be subject to the set-aside limitations on transferability, as specified in section 10.3 of this Framework. For a service area without a set-aside product, any blocks won by set-aside-eligible bidders will not be considered as set-aside blocks and, therefore, they will not be subject to the set-aside limitations on transferability.

14. Table C1 lists the initial supply and the maximum supply for the set-aside product as well as the initial supply of the open product for each scenario where there is both an open product and a set-aside product in a given encumbrance level. Because it is not possible for an encumbered category with encumbrance level 2 or 3 in a given service area to have both products, those encumbrance levels are not included in the table C1. A dash is used to indicate that a product is not available.

*For an open product, the maximum supply equals the initial supply.

C2. Allocation (clock) stage overview

15. The allocation 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).  All products with a given encumbrance level in a given service area have the same opening bid price.

16. In subsequent rounds, a range of prices is associated with each product. The start-of-round price is the lowest price in the range and the clock price is the highest price in the range. 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.

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

18. Set-aside-eligible bidders can bid on set-aside products and, for an encumbrance level for which only an open product is available in the service area, set-aside-eligible bidders can also bid on the open product. Set-aside-ineligible bidders can only bid on open products.

19. For an encumbrance level and service area combination with a single product, the quantity of blocks in a bid for a product cannot exceed the product’s supply. For an encumbrance level and service area combination for which there is both an open product and a set-aside product, a set-aside-eligible bidder’s bid for the set-aside product can be up to the maximum supply of the set-aside product, while a set-aside-ineligible bidder’s bid for the open product can be up to the maximum supply of the open product. For an open product, the maximum supply equals the initial supply.

20. 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.

C3. Intra-round bids to change demand

21. A bidder will be able to make intra-round bids by indicating a price between (including both end points) 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.

22. 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.

23. 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 C7 of this annex.

24. A bid indicates a desired quantity of a product at a particular 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 C7 of this annex for details.

25. 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.

26. 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.

C4. Bid processing

27. Sections C5-C8 of this annex describe how bids are processed after a round. First, missing bids are included as described in section C5. Then, the order in which bids will be processed is determined as described in section C6. Bids are processed in that order to determine the processed demand for each bidder and each product for the round, as described in section C7. Finally, the posted prices for the round are calculated as described in section C8.

C5. Missing bids

28. 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.

C6. Order of processing bids

29. 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 products as well as for bids for set-aside products in an encumbrance level and service area combination without an open product. 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%.

30. Paragraphs 31 and 32 of this annex consider the case of a set-aside product, when an open product is also offered with the same encumbrance level and in the same service area. Because of the way that bids are processed, the start-of-round price of the set-aside product can never exceed the start-of-round price of the open product. Moreover, clock prices are set in a way that ensures that the clock price of the set-aside product never exceeds the clock price of the open product. The price point of a bid for the set-aside product is defined based on whether the price range for the set-aside product overlaps the price range for the open product.

31. 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).

32. 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), 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%.

33. 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 is less than or equal to 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, set-aside 0% bids will be considered to have higher priority than open 0% bids, for purposes of bid processing. Pseudo-random numbers are used to break any ties.

C7. Processing bids to determine the processed demands

34. 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.

35. 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.

36. For a product (set-aside or open) that is the unique product in that encumbrance level and service area combination, a bid to reduce demand 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).  

37. When there is both a set-aside product and an open product in the same encumbrance level and service area combination, the treatment of bids to reduce demand is described in paragraphs 38-40 below.

38. A bid to reduce demand for the 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; and
2. the aggregate demand for the open and set-aside products does not drop below the supply for that encumbrance level and service area combination.

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 supply for that encumbrance level and service area combination, then a bid to reduce demand for the set-aside product is not applied at all.

39. 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 for that encumbrance level and service area combination. If the aggregate demand for the open and set-aside products is less than or equal to the supply for that encumbrance level and service area combination, then the bid to reduce demand for the open product is not applied at all.

40. 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.

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

42. 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.

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

C8. Determining the posted prices

44. After the round’s processed demands have been determined, the auction system calculates the posted price of each product.

45. For a product (set-aside or open) that is the unique product in that encumbrance level and service area combination, the posted price 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.

46. The remainder of this section describes how posted prices are set when there is both a set-aside product and an open product in the same encumbrance level and service area combination. In that case, the posted prices of the open product and the set-aside product are generally set as described in (a), (b), and (c) in paragraph 45 of this annex, assuming that for the purposes of paragraph 45 the supply of a product is the product’s initial supply. There are two exceptions, dealing with the interplay between open and set-aside products when the price ranges of the two products overlap. These exceptions are described in the following two paragraphs.

47. Exception for open products: Suppose that 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 45, 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. Furthermore, if the aggregate demand for the set-aside product is greater than its initial supply, for purposes of paragraph 45, the open product’s supply equals the supply of blocks in the encumbrance level and service area minus the aggregate demand for the set-aside product.

48. Exception for set-aside products: An exception in setting the posted price for the set-aside product applies if the following three conditions all hold in a given service area: (i) the price range of the open product overlaps the price range of the set-aside product for the round, (ii) the aggregate demand for the set-aside product exceeds the initial supply of the set-aside product, and (iii) the aggregate demand for the open and set-aside products is less than or equal to the supply of blocks in that encumbrance level and service area combination. 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).

C9. Bid processing examples

49. Example of a reduction in demand for a product (set-aside or open) that is the unique product in that encumbrance level and service area combination: The product has a supply of two blocks. In Round 2, the product’s start-of-round price is $100,000 and the product’s clock price is $110,000. 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 45, 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 45, 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 45, 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).

50. Example of a reduction in demand and price point priority when there is both a set-aside product and an open product in the same encumbrance level and service area combination: 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 for the encumbrance level and service area combination 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.

51. Example of a demand increase and a reduction in the same round when there is both a set-aside product and an open product in the same encumbrance level and service area combination: 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 first 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.

52. 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 in this encumbrance level and service area combination. 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 encumbrance level and service area combination, 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 one block and there is no excess demand in this encumbrance level and service area combination.

53. 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 (or at about the 17% price point). 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 encumbrance level and service area combination, 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.

C10. Next round’s clock prices

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

55. 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. Clock prices greater than $10,000 will be rounded up to the nearest $1,000; clock prices less than $10,000 will be rounded up to the nearest $100. The round’s clock price is then equal to the start-of-round price plus the price increment.

56. However, when there is both a set-aside product and an open product in the same encumbrance level and service area combination, if 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.

57. 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.

C11. Information in the clock rounds

58. 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 demand and the posted price of each set-aside product and each open product for the round, as well as the clock price of each product for the next round. Bidders will not be informed about the individual bids submitted by other bidders or about the remaining eligibility of other bidders.

C12. Eligibility points

59. Each product 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 the population covered by the incumbent or the incumbents within the corresponding service area. Annex D lists the eligibility points associated with each product.

60. 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 in the allocation stage of the auction 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.

61. Bidders will not be able to increase their eligibility points after the application deadline to participate in the auction.

C13. Activity rule in the clock rounds

62. 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.

63. In order to maintain its eligibility from the previous round, the bidder’s activity must correspond to a certain percentage of its eligibility for that round. 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 requirement will be communicated to all qualified bidders before the auction begins. The activity requirement may change during the auction at ISED’s discretion. Bidders will be notified prior to these changes taking effect.

64. A bidder’s submitted activity for a round is equal to the eligibility points associated with its submitted demands for the round before these demands have been processed. In other words, a bidder’s submitted activity level reflects the bidder’s demands before they are applied by the auction system during bid processing. 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.

65. In Round 1, a bidder’s eligibility to bid is determined by the number of points acquired with its financial deposit. In Round 2, a bidder’s eligibility to bid is determined by its processed activity in Round 1, that is, the eligibility points associated with its processed demands in Round 1 divided by the activity requirement (e.g. divided by 0.95, if the activity requirement is 95%) and rounded down to a whole number. Further, the bidder’s eligibility for Round 2 is not allowed to exceed the bidder’s eligibility for Round 1. Mathematically, a bidder’s eligibility for Round 2 is defined as the minimum of:

1. The bidder’s eligibility for Round 1; and
2. PA(1) / AR(1), rounded down to a whole number;

where PA(1) denotes the bidder’s processed activity for Round 1, and AR(1) denotes the activity requirement for Round 1. For Round 1, the bidder’s processed activity equals its submitted activity.

66. In subsequent rounds, a bidder’s eligibility to bid in the next round is determined by: the maximum of its processed activity in the current round; and the minimum of its processed activity in the previous round and its submitted activity in the current round. This maximum is divided by the activity requirement and rounded down to a whole number. Further, the bidder’s eligibility for the next round is not allowed to exceed the bidder’s eligibility for the current round. Mathematically, a bidder’s eligibility for Round t+1, where t+1>2, is defined as the minimum of:

1. The bidder’s eligibility in Round t; and
2. max{PA(t), min[PA(t-1), SA(t)]} / AR(t), rounded down to a whole number;

where PA(t) denotes the bidder’s processed activity for Round t, SA(t) denotes the bidder’s submitted activity for Round t and AR(t) denotes the activity requirement for Round t.

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

• At the start of Round 5 the activity requirement is 95% and Bidder X has 620 eligibility points. In Round 4 the processed activity of Bidder X is 600 points. In Round 5 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 submitted activity in Round 5 is equal to bidder’s processed activity in Round 5. An application of the formula from paragraph 66 b) yields 631 points. At the start of the round the bidder had eligibility of 620 points. Thus, the bidder will maintain this eligibility (620 points) for the next round.
• At the start of Round 6 the activity requirement is 95% and Bidder Y has 2,400 eligibility points. In Round 5 the processed activity of Bidder Y is 2,280 points. 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. 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 divided by the activity requirement and rounded down—i.e. 1,700/0.95). If some of the bidder’s bids to reduce demand are not applied during bid processing and the bidder’s processed activity for the round is 2,000, then its eligibility in the next round will be 2,105 points (2,000 divided by the activity requirement and rounded down—i.e. 2,000/0.95).
• In Round 7 the activity requirement is 100% and Bidder Z has 600 eligibility points. In Round 6 the processed activity of Bidder Z is also 600 points. 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. 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 but the bidder’s eligibility in the next round will be 600 points because the bidder’s submitted activity for Round 7 and the bidder’s processed activity for Round 6 are both equal to 600 points.
• In continuation of the previous example, suppose that in Round 8, Bidder Z again submits a bid to reduce its demand for B to 0 blocks; and a bid to increase its demand for C to 1 block. If the bid to reduce demand for B is not applied again due to insufficient excess demand, the bidder’s eligibility in Round 9 will be 400 points (400 divided by the activity requirement—i.e. 400/1). However, if in Round 8, Bidder Z submits a bid to increase its demand for A to 1 block and to maintain its demand for B for 1 block (i.e. if the bidder chooses to return to its bids as they were at the start of Round 7), this bidder will have enough eligibility to submit these bids and will keep its eligibility for Round 9 at 600 points.

C14. Conclusion of bidding in the allocation (clock) stage

68. The allocation 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 blocks with any encumbrance level (including unencumbered) 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 C16 of this annex).

C15. Information at the end of the clock rounds

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

70. 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.

C16. The assignment stage

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

72. The assignment stage will assign specific frequency blocks to winning bidders and incumbents for full service areas. 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 unencumbered blocks or encumbered blocks or existing licences in the service area.

73. 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 (across all products) that the bidder won in the allocation 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.

74. 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.

75. 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 allocation stage winnings and eligible existing holdings in those service areas.

76. 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. 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 will not include more than one Tier 4 service area from within the same Tier 2 service area, except when there are fewer than six Tier 4 service areas remaining to be assigned. The details of the order of the assignment rounds are outlined in annex E. ISED may adjust the order of the assignment rounds if necessary.

77. 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 area 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 all products within a service area are treated the same when deciding whether service areas are to be combined. For example, if Bidder A has won two unencumbered set-aside licences and one encumbered open 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.  

78. As an example of service areas being combined into a single assignment area, let us consider two contiguous service areas in the same Tier 2 area shown in the tables C2 and C3. Service areas II and III would be eligible to be combined into a single assignment round.

79. 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.

80. 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 stage. Each qualified existing Tier 4 licensee has a right to bid on the frequency range options presented to it in the assignment stage, but should it choose not to participate, a frequency range will be assigned through the assignment stage.

81. For each service area (or assignment area), 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 solver will prefer assignments where all unsold blocks are contiguous. Any further ties will be broken by a pseudo-random number generator built into the auction software.

82. Specifically, if there are two or more unsold blocks in the service area or assignment area, ties will be broken in two steps. First, the solver will determine whether the highest bid amount remains the same when all unsold blocks in the service area (or assignment area) are assigned contiguous spectrum. If this is the case, then the solver will select an assignment that achieves the maximum value where each bidder is assigned contiguous spectrum and all unsold blocks are assigned contiguous spectrum. Otherwise, the solver will select an assignment that achieves the maximum value where each bidder is assigned contiguous spectrum (but unsold spectrum is not contiguous).

83. 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).

84. 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 service area (or assignment area), 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.

85. 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 a given bidder will be weighted based on the number of blocks being assigned to that bidder in the given service area (or assignment area).

C17. Assigning contiguous spectrum in the assignment stage

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

87. ISED will 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 behaviour in the assignment stage.

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

C18. Information at the end of each assignment round

89. 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.

C19. Final price

90. At the end of the assignment stage, ISED will determine the final price that each winning bidder will be required to pay for the 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).

C20. Information at the end of the assignment stage

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

C21. Information after the end of the auction

92. 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;
• specific frequencies that were assigned to licensees which are eligible to apply for flexible-use licences as part of the transition process;
• 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; and
• the assignment bids submitted by each bidder, including the bidder’s identity and the corresponding assignment prices.

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

Table D2 outlines the opening bid prices for encumbered blocks and bundles based on the population and $/MHz/pop for each Tier 4 service area. Population is based on 2016 Census data. The table also outlines the number of eligibility points for a 10 MHz block for the unencumbered blocks and bundles.

Table D3 outlines the deposit amount an existing 3500 MHz spectrum licensee must provide if they wish to participate only in the assignment stage.

E1. Order for the assignment rounds

1. ISED will 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 will 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. This rule will not be applied for the last session when there are less than six remaining service areas.

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 allocation 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 of this annex. 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. Pricing for the assignment stage

8. ISED will use a second-price rule to determine the prices to be paid by winning bidders in the assignment stage. More specifically, ISED will apply bidder optimal core prices and use the "nearest Vickrey" approach in determining the assignment prices. The final price paid by a winning bidder would be the sum of the allocation 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. The procedure for the calculation of this extra payment is called a core-selection adjustment. In the event that an additional payment above the Vickrey prices is required, the calculation of the additional payment to be paid by a given bidder will be weighted based on the number of blocks being assigned to that bidder in the given service area (or assignment area).

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 number of blocks being assigned to that bidder (including pre-existing holdings) in the service area or assignment area. 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 allocation 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. Because the same number of blocks are being assigned to Bidder 1 and to Bidder 2, 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 each bidder was being assigned a different number of blocks, the two bidders would split the extra payment proportionately, in reference to the number of blocks being assigned to each bidder (the fourth condition). For example, if two blocks were being assigned for Bidder 1 and one block was being assigned for Bidder 2 then Bidder 1 would pay twice as much as Bidder 2 of the extra payment.

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.

Population in table F2 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.

The following conditions will apply to licences in the 3500 MHz band as defined in the Policy and Licensing Framework for Spectrum in the 3500 MHz Band (referred to as the Framework).

It should be noted that the 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 of Innovation, Science and Industry (the Minister) continues to have the power to amend the terms and conditions of spectrum licences, under 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.

H1. Licence term

The term of this licence is 20 years from the date that the first licences are issued immediately following the auction procedure (the initial licence issuance date) set out in the Framework. Whether the licence was issued on the initial licence issuance date or issued at any later time, in accordance with the 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 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.

The process for issuing licences after this term and any issues relating to renewal, including the conditions of the new licence, will be determined by the Minister following a public consultation.

H2. Fees

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

H3. Eligibility

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 Framework. 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

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

The licensee must make the Transfer Request in writing to the Minister. 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. In all cases, the licensee must follow the procedures as outlined in CPC-2-1-23.

The licensee must apply in writing to the Minister 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 the Minister 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 the Minister 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 the Minister 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.

Upon licence transfer or subordination, the Minister may impose specific conditions on any new licence, including additional deployment conditions, in order to ensure that the intent of the 2019 Decision and Framework is maintained.

Set-aside licences: The following additional provisions apply to set-aside licences as defined under the Framework:

1. For the first five years of the licence term from the initial licence issuance date 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 licence being issued allows for mobile services) of CPC-2-1-23 are met and that the Minister 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 through a licence transfer application, subject to the provisions of section 5.6 of CPC-2-1-23.
2. A set-aside spectrum licence may only be transferred to a set-aside-ineligible licensee after the five-year period set out above and once the licensee has satisfied the first mid-term deployment requirement.

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

H5. Treatment of existing spectrum users

As set out in the 2019 Decision, existing licensees are permitted to continue to operate in absence of a formal displacement notice given by the Minister. Once a displacement notice has been issued, the licensee must deploy their system(s) in accordance with the submission plan provided to the Minister. 

Except as authorized by ISED as set out in the 2019 Decision, licensees will not be permitted to operate on a flexible-use licence in areas where they hold a fixed-use licence in this band.

H6. Radio station installations

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

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.

Compliance with legislation, regulation and other obligations: 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.

H7. Technical considerations, and international and domestic coordination

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.

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

A 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.

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

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

The licensee will be required to demonstrate to the Minister that the spectrum has been put to use, as specified below. In all cases, the licensee is required to meet the relevant conditions and to continuously provide services throughout the term of the licence in accordance with these requirements. For services to be considered "continuously provided", the service provider must maintain an active service offering throughout the term of their licence.

General deployment requirements

In Tier 4 areas that include a large population centre (as listed in annex G), all licensees will be required to demonstrate to the Minister that the spectrum has been put to use to actively provide service to a minimum percentage of the population as specified in table F1 of annex F, within 5, 10, and 20 years of the initial licence issuance date. In all other Tier 4 areas, licensees will be required to demonstrate to the Minister that the spectrum has been put to use to actively provide service to a minimum percentage of the population as specified in table F2 of annex F, within 7, 10, and 20 years of the initial licence issuance date.

As an exception to the above deployment requirements, ISED will use modified timelines for licensees that are displaced through the transition process after year four of the initial flexible-use licence issuance date.  These exceptions will be as follows:

1. 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.
2. For licences issued between years 5 and 10 of the licence term, licensees will only be required to meet the 20-year deployment requirement.
3. 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.

Additional deployment requirements for mobile LTE service providers

In addition to the general deployment requirements, a licensee offering mobile LTE services will be required to demonstrate to the Minister that the spectrum has been put to use to cover the following deployment requirements within its mid-band mobile LTE network footprint (coverage in effect as of June 5, 2019), using the 3500 MHz band.

In tiers that contain a large population centre as listed in annex G:

• 90% of the population within its mid-band mobile LTE network footprint  within five years, and
• 97% within seven years of the initial licence issuance date

In tiers that do not contain a large population centre:

• 90% of the population within its mid-band mobile LTE network footprint within seven years, and
• 97% within 10 years of the initial licence issuance date

In addition, in the tiers that contain a large population centre as listed in annex G:

• 95% of the population outside the large urban population centres within 10 years of the initial licence issuance date. (When assessing compliance with this condition, ISED will take into account any spectrum subordinations. ISED may also consider evidence of efforts to reach subordination agreements and efforts to communicate a willingness to subordinate to other service providers.)

The general deployment requirements continue to apply to all licences by default, and must be satisfied in all cases where the requirements for mobile operators listed above may be lower than the general requirements.

Licensees will be required to provide to ISED,  their mid-band mobile LTE network footprint as of June 5, 2019, as defined by the service provider's AWS-1/3/4, BRS, PCS, and WCS deployments, when requested by ISED.

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.

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

The licensee must provide the Minister with any documentation or information related to spectrum access or LTE network footprints at the Minister's request.

Six months prior to the end of the 20-year licence term, all licensees wishing to undergo the future licence renewal process must provide proof to ISED that they meet or will meet the 20-year deployment requirements for their licence.

ISED will review licensees' compliance with their deployment conditions at the dates noted above. Where, at any point in the licence term, the licensee is not in compliance with its deployment conditions, ISED may invoke various compliance and enforcement measures.

These measures may include warnings, administrative monetary penalties, legal action, licence amendments, suspensions, or other measures. In certain cases of non-compliance, ISED may determine that the most appropriate course of action is to revoke the licence.

H11. Mandatory antenna tower and site sharing

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

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

H13. Annual reporting

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 (the Minister 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 the Minister

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.

Reports are to be submitted to the Minister at the following address:

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

Where a licensee holds multiple licences, spectrum implementation reports should be broken down by licence 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 the Minister to monitor the effectiveness of these conditions in meeting the policy objectives regarding the band and the Minister's intent that the spectrum be deployed in a timely manner for the benefit of Canadians.

H14. Amendments

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

Fixed-use restriction

This licence may only be used for providing fixed-use services. This restriction may be removed upon application by the licensee and approval by the Minister. As this licence is restricted to fixed services only, any subordinate licences will also be restricted to fixed-use. Confirmation that the licence is being used only for fixed services is part of the annual reporting requirements of the licensee.

The licensee must fulfill the general deployment requirements as outlined in the Policy and Licensing Framework for Spectrum in the 3500 MHz Band. However, if this fixed use restriction is removed, the additional deployment requirements for LTE network providers will apply; LTE network providers may be required to demonstrate that the previous LTE network deployment requirement milestone has been met prior to the restriction being removed.

This restriction will follow the licence when transferred. When transferred to a service provider that also provides fixed services only, it will be evaluated based on the general terms, conditions and guidelines of CPC-2-1-23 (excluding section 5.6.4). When transferred to a service provider that also provides non-fixed use services, it will be evaluated according to CPC 2-1-23 (including section 5.6.4).

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

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 of Innovation, Science and Industry (the Minister) continues to have the power to amend the terms and conditions of spectrum licences (paragraph 5(1)(b) of the Radiocommunication Act).

J1. Licence term

The licence will expire on the date indicated on the licence. The term of this licence will not exceed one year. This licence is also subject to termination in accordance with the transition plan as 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).

J2. Licence fees

Licensees must pay applicable annual licence fees by March 31. Prorated fees will not be available. Fees will continue to apply, as per DGRB-08-99, Radio Authorization Fees for Fixed Wireless Access Systems in Rural Areas in the Frequency Range 3400-3550 MHz, to grid-cell licences issued before 2004 until new Tier 5 licences are issued under the transition process. As noted in this Framework, any new licence issued will be subject to fees once they are established.

J3. Eligibility criteria

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

J4. Licence transferability and divisibility

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

In all cases, the licensee must follow the procedures as outlined in Client Procedures Circular CPC-2-1-23, Licensing Procedure for Spectrum Licences for Terrestrial Services.

Due to the potential for flexible use in the 3500 MHz band, which allows for commercial mobile use, any transfer request for this licence will be considered a transfer of commercial mobile spectrum and assessed according to section 5.6.4 of CPC-2-1-23.

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

J5. Displacement/flexible-use licence eligibility

This licence is subject to the transition provisions and provisions for eligibility for flexible use licences as set out in the 2019 Decision and the 3500 MHz Transition Manual. Operation under this licence is not permitted in areas where the licence holder is also operating under a flexible use licence. In addition, the licensee may be subject to following specific directions from the Minister as provided for in any clarifications of the transition process or as set out on a case-by-case basis.

J6. Radio station installations

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

J7. Provision of technical and other information

The licensee must provide the Minister 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 CPC-2-1-23, as amended from time to time. In particular, the licensee must ensure that information on each radiocommunication system is updated and that data is submitted prior to the operation of each new radiocommunication installation.

In addition, all licensees must provide points of contact in order to facilitate coordination of the transition process and potential displacement of existing systems. Contact information is to be sent to ic.3500mhzspectrumoperations-operationsduspectrede3500mhz.ic@canada.ca by the date indicated in the Table of Key Dates related to this Framework. Any modification to this contact name in the future, must also be provided to ISED as soon as it is known.

J8. Compliance with legislation, regulations and other obligations

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.

J9. Technical considerations, and international and domestic coordination

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.

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.

J10. Lawful interception

Any 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.

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 to the requirement can be expected.

J11. Implementation of spectrum usage

The licensee must deploy the system(s) and provide the services described in its most recent relevant application in relation to this licence and maintain such coverage throughout any subsequent licence terms.

While licensees may expand services under this licence, the minimum service coverage in the licence area must be maintained at the levels indicated in annex A of DGSO-004-13, Decisions Concerning the Renewal of 2300 MHz and 3500 MHz Licences.

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

J12. Mandatory antenna tower and site sharing

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.

J13. Amendments

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