Policy Framework for the Auction for Spectrum Licences for Advanced Wireless Services and other Spectrum in the 2 GHz Range

November 2007

Introduction

This paper provides policy decisions on the key elements of the policy framework for the auctionfor spectrum licences in the 2 GHz range including AdvancedWireless Services (AWS).

On February 16, 2007, Industry Canada announced in Canada Gazette Notice DGTP-002-07, therelease of a paper entitled Consultation on a Framework to Auction Spectrumin the 2 GHz Range including Advanced Wireless Services.The deadline for the receipt of comments was May 25, 2007 and there was an opportunity to providereply comments by June 27, 2007. Sixty parties provided comments which were posted on IndustryCanada's Spectrum Management and Telecommunicationswebsite (http://www.ic.gc.ca/spectrumauctions).

The department has taken into account all comments received and wishes to thank participants fortheir views.

The policy decisions contained in this paper are final. The auction framework document will be issuedbefore the end of 2007 and will elaborate auction application procedures, licensing parameters, technicalconsiderations, bidder applications and timing for next steps such as a mock auction for bidder familiarization.In making this announcement now, the department's intention is to provide as much clarity and certaintyas possible for potential participants in the auction in a timely manner. The department intends tomove quickly to ensure there are no delays in the auction, which is expected to be held in the firsthalf of 2008.

In addition, Industry Canada will undertake a supplementary public consultation on specific changesto the conditions of licence for current licensees to implement the policy measures announced in thisdocument. This supplementary consultation will be announced in a notice in the Canada Gazette, Part Ito be published as soon as possible. The consultation will also be posted on Industry Canada's SpectrumManagement and Telecommunications website. Following the consultation, the final conditions of licencewill be made public so that all those affected are aware of the changes prior to the deadline forauction applications.

Considerations

As stated in the Spectrum Policy Framework for Canada, the policyobjective for managing the radio frequency spectrum resource is to maximize the economic and socialbenefits that Canadians derive from the use of the radio frequency spectrum resource. In consideringthe opening of this part of the radio spectrum to commercial applications through this auction, itwas important for the department to examine whether measures should be taken to increase access tospectrum and foster greater competition in the wireless market.

In reaching a decision on the auction policy framework, consideration was given to the comments received,the spectrum involved in the auction, the current state of the Canadian wireless market and the broadertelecommunications market in which wireless is an increasingly important segment. The department consideredlevels of competition and industry structure, barriers to entry, and the applicable legislation includingthe Radiocommunication Act, the Telecommunications Act and the Competition Act asthey apply to the largely deregulated wireless market.

Also considered were the Framework for Spectrum Auctions in Canada issuedin 2001, which is the basic policy document from which specific auction frameworks are developed,and the government's recent policy initiatives related to spectrum and telecommunications. In particular,these include both the Spectrum Policy Framework for Canada, released by the department inJune 2007 and the policy direction to the Canadian Radio-television and Telecommunications Commission(CRTC), issuedby the Governor in Council on April 4, 2007, in which the government stated its policy to relyon market forces to the maximum extent feasible. This approach is consistent with recommendationsof the Telecommunications Policy Review Panel (the Telecom Panel). As well, the Governor in Council,in its variance of the CRTC'sframework for deregulation (forbearance) of local telephone markets, established a new framework forforbearance based, in part, on the presence of three facilities-based competitors for residentialmarkets and two facilities-based competitors for business markets.

Industry Canada is aware of the importance of a modern and innovative telecommunications infrastructureto Canada's overall competitiveness in a global economy, and the growing reliance on wireless servicesby Canadians. As noted by the Telecom Panel, fostering the use of information and communications technologies(ICTs) is an important meansof improving overall productivity in modern economies. An advanced telecommunications infrastructureis essential to fostering ICT usage.

The department is committed to government policies which seek to rely on market forces to the maximumextent feasible for the provision of telecommunications services to Canadians. This policy approachcan only be pursued in an environment where market forces can be expected to deliver, now and in thefuture, a level of competition sufficient to protect the interests of users. Accordingly, in makingthis resource available, a critical consideration has been to implement an auction framework thatwill help ensure that market forces support a telecommunications infrastructure that delivers innovationand consumer choice at competitive prices.

The current wireless market includes a mix of national, regional and local providers. Three nationalnetwork operators that are integrated with wireline telecommunications carriers account for 94% ofthe national wireless market. A contributing factor in this market distribution was the acquisitionof wireless-only new entrants by integrated carriers. There are two regionally based wireless networkoperators also integrated with local wireline carriers and a few local network operators. There arealso Mobile Virtual Network Operators (MVNOs)which lease capacity from facilities-based wireless carriers on terms negotiated with those carriers.Many, but not all, Canadians have access to a choice of three facilities-based providers.

In considering the wireless market in Canada, the Telecom Panel expressed the view that: "Thesmaller number of mobile providers in Canada - and the fact that all three national wireless serviceproviders are also owned by large telecommunications service providers that also provide wirelineservices - may mean that there is less competition in the Canadian wireless market than in the U.S.market, which consequently has resulted in higher prices, less innovation, lower uptake and lowerrates of usage." The Panel expressed the belief that, "because of the growing importanceof this [the wireless] segment, Canada should develop a more efficient and vibrant wireless industry." ThePanel went on to recommend "continued use of regulatory mechanisms such as spectrum caps (aggregationlimits) where spectrum is scarce in order to provide an opportunity for new entrants to acquire spectrumand for Canadians to have an expanded choice of service providers." (Recommendation 5-9) It alsorecommended that the CRTC beempowered to regulate and promote the sharing of antenna towers used for wireless telecommunicationsas a further means to enable competitive entry. (Recommendation 5-5)

In the context of the public consultation on the auction for AWS spectrumlicences, there has been considerable debate about the extent of competition in Canada's wirelessmarket. Participants who were of the view that no measures are required to foster competition providedevidence that the wireless industry is sufficiently competitive. Those who supported measures to fostercompetition provided evidence that the industry is not as competitive as it could be; that competitioncould be enhanced; that consumers could benefit from greater competition; and that there are partieswith both the interest and the potential to compete in the market. A number of studies were submittedexamining the nature of competition in this market as well as providing international pricing comparisons.These studies presented divergent results and assessments. In supporting their arguments, partieshave also referenced the government policy initiatives noted above, the Telecom Panel's report, aswell as decisions of the CRTC toderegulate the wireless industry, and decisions by the Competition Bureau to permit certain mergers.

Industry Canada is of the view that the policy decision at hand raises issues distinct from thosepreviously considered by the CRTC andthe Competition Bureau. Radio frequency spectrum is a finite public resource essential to entry intowireless markets, and that resource is not readily available on the open market. Access to spectrumis a barrier to entry that only government can lift, and the amount and type of spectrum that canbe made available at any given time are dependent on a range of international and domestic factors.In this instance, the spectrum being made available for auction has characteristics and is of sufficientamount to make potential new entry feasible. The department must consider whether the market, andin particular consumers, could benefit from further competition which would strengthen Canada's abilityto rely on market forces to the maximum extent feasible. In this context, the department notes thatother countries with competitive wireless markets, notably the U.S. and the U.K., have taken and continueto take measures to facilitate access to spectrum resources and market entry.

In addition to access to spectrum, a consideration particular to the Canadian wireless market isthe presence of Canadian ownership requirements under the Telecommunications Act which applyto all facilities-based carriers. These requirements ensure that Canada's telecommunications infrastructureis owned and controlled by Canadians. However they also act as restrictions on foreign investmentwhich constitutes a barrier to market entry. The question of foreign ownership restrictions is beingstudied by the Competition Policy Review Panel. Removal or liberalization of these requirements wouldrequire legislative changes.

The telecommunications services market has characteristics which distinguish it from other industries.In particular, even new entrants that own and operate their network facilities (facilities-based entrants)require access to certain facilities of, and interconnection with, incumbents, while other serviceproviders require access to the established network infrastructure to compete with incumbent carriers'own services (e.g. VoIP, Internet access, and MVNOs).These characteristics unavoidably provide incumbent carriers with both incentives and opportunitiesto prevent market entry or constrain competition, even in markets with multiple providers. With respectto spectrum auctions, submissions received in the AWS consultationhave shown how incumbents have an incentive to pay a premium for spectrum to prevent market entry.The ability of incumbents to effectively act on these incentives and opportunities depends on a numberof factors. These include how competitive the market is, notably ease of entry, and the prevailingpolicy and regulatory framework. In the case of the forthcoming auction, the policy framework canserve to constrain such behaviour, thereby promoting competition.

Less than 20 years ago, telecommunication markets in Canada and around the world were generallymonopolies. In Canada, the past 20 years have seen periods of dynamic market entry followed byindustry consolidation. Most markets for telecommunications services, particularly services providedover the Internet, are competitive and virtually all retail market segments have been price-deregulatedexcept in geographic areas where there is little or no competition. However, the current market structureis such that the loss of a national or regional facilities-based carrier, either wireline or wireless,could be sufficient to remove, in one or more regions of Canada, the conditions established by theGovernor in Council for the deregulation of local telephone service. Ensuring opportunities for newfacilities-based entrants into telecommunications markets is therefore an important policy issue.

Industry Canada agrees with the Telecom Panel's characterization of the wireless industry's importance.The department also agrees with the Panel's assessment that measures which enable dynamic entry, viablemultiple providers and market incentives for innovation are important if Canada is to continue todevelop an efficient and vibrant wireless industry. In this context, and taking into account the barriersto entry and industry characteristics discussed previously, the department is of the view that policymeasures which seek to foster facilities-based wireless competition are consistent with the government'spolicy to rely on market forces to the maximum extent feasible. The Framework for Spectrum Auctionsin Canada identifies market conditions in which measures such as a spectrum set-aside or capwill be considered. The department is of the view that notwithstanding that wireless markets in Canadaare competitive at this time, market conditions are such that establishing measures for the auctionfor AWS spectrum licences to sustain and enhancecompetition is warranted.

In taking the measures outlined in this paper, Industry Canada recognizes that it can guarantee neithernew entry nor success of eventual new entrants. The measures being taken are intended to ensure anopportunity for entry by addressing the potential to exploit spectrum as an entry barrier. The departmentis satisfied that the potential benefits of new entry warrant these measures. Conversely, the departmentis also satisfied that in the absence of these measures, there exists a potential that reliance onmarket forces alone may serve to unduly restrict market entry, which could reduce innovation to thedetriment of the industry's advancement and, ultimately, to wireless users across Canada.

In developing these measures, Industry Canada has been cognizant of its policy to ensure that regulationis proportionate to its purpose and interferes with market forces only to the extent necessary toachieve the intended objective. The specific measures, and the degree to which measures are needed,were carefully considered and are intended to address the needs and concerns expressed by both potentialnew entrants and incumbent operators, and the interests of consumers. With these considerations inmind, the department is adopting the framework outlined below.

The current spectrum licensing regime recognizes the complementary nature and the division of responsibilitiesamong Industry Canada, the CRTC andthe Competition Bureau. These policy decisions are without prejudice or inference as to any existing CRTC tariffs,proceedings, future determinations or findings by the CRTC orthe Competition Bureau.

Spectrum Set-aside

Forty MHz of AWS spectrumwill be set aside for new entrants only in frequency blocks B, C and D (see Figure 1).

The amount of set-aside spectrum takes into account the need for new entry in all regions of Canadawhile considering the interests of incumbent operators and their current spectrum holdings.

Consideration was given to the use of a spectrum aggregation limit, also referred to as a spectrumcap. Given the amount of spectrum being auctioned and the varying spectrum needs expressed by respondents,a spectrum set-aside is considered the most appropriate approach as it provides the greatest flexibilityto auction participants in determining their needs.

To be eligible for the set-aside, a new entrant is defined as:

An entity, including affiliates and associated entities, which holds less than 10 percent of the national wireless market based on revenue.

An affiliate is defined as:

A person who controls the entity, or who is controlled by the entity or by anyperson who controls the entity. "Control" means control in any manner that results incontrol in fact, whether directly through the ownership of securities or indirectly through a trust,agreement or arrangement, the ownership of a body corporate or otherwise. Control in fact is theongoing power or ability, whether exercised or not, to determine or decide the strategic decision-makingactivities of an enterprise, or to manage or run the day-to-day operations of an enterprise.

"Affiliate", defined by reference to control in fact, differs from "affiliate" forthe purposes of the Competition Act. Consequently in order to avoid contravening section 47of the Competition Act, a bidder who enters into such an agreement or arrangement with any oneor more of its Affiliates may have to make the agreement or arrangement known to the departmentat or before the time when any subsequent agreement or arrangement is made.

An associated entity is defined as:

Any entities who enter into any partnerships, joint ventures, agreements (includingagreements in principle) to merge, consortia or any arrangements, agreements or understandingsof any kind, either explicit or implicit, relating to the acquisition of the licences being auctionedor relating to the post-auction market structure, will be treated as Associated Entities. The existenceof such agreements, arrangements or understandings must be disclosed in writing to the departmentat the time of application and this information will be disclosed to other bidders and to the public.Changes made after the application deadline which create an Association with another applicantare not permitted, and any applicant who has formed such an Association will be disqualified fromparticipating in the auction.

Should an entity qualify as a new entrant at the time of licensing, this designation would remainvalid throughout the term of its licence even if the entity is successful in growing its market sharebeyond 10 percent of the national market share based on revenue.

While all licence transfers must be approved by the Minister, licences obtained through the set-asidemay not be transferred to companies that do not meet the criteria of a new entrant for a period of5 years from the date of issuance.

Opening Bids

The opening bid for each service area and for both the set-aside spectrum and non-set-aside spectrumblocks will be equivalent to the lower of a) the current Personal Communications Services/cellularlicence fee or b) the 2001 PCS auctionresults. This amount represents rates currently paid for spectrum by incumbent operators. Bids ator above this amount ensure that Canadians obtain a return for the use of this spectrum comparableto returns currently being generated from similar spectrum resources. As in previous auctions, thedepartment will review bidding activity and may or may not reduce the opening bid. For set-aside spectrum,the opening bid values may be reduced only if bidding activity reveals a need to reduce opening bidvalues for non-set-aside spectrum. For all spectrum being made available, the department may decidenot to reduce the opening bid and in this event, the spectrum may remain unassigned to be re-auctionedat a later time.

The opening bids are provided in the tables found in Annex 1.

Frequency Blocks

Many respondents suggested the use of the same blocks as the U.S. to facilitate cross-border service.There are also advantages to the use of the U.S. block sizes to reflect equipment availability. Consequently,Industry Canada will use the same basic block structure as used in the U.S., described in Figure 1.Figure 1 also shows spectrum blocks B, C and D for the set-aside.

Figure 1 — AWS Frequency Blocks and Set-aside

Geographic Tiers

For spectrum auctions, Industry Canada divides Canada into geographic service areas called "tiers"based on the geographic areas of Statistics Canada 1996 census subdivisions as follows:

• Tier 1 is a single national service area;
• Tier 2 consists of 8 provincial and 6 large regional service areas;
• Tier 3 consists of 59 regional service areas; and
• Tier 4 comprises 172 localized service areas.

For the AWS spectrum, the department had proposeda range of Tier 2, 3 and 4 service areas. Comments received indicated that tier size should reflectthe potential use of the spectrum across the country and the costs of providing mobile services. Licensinglarge geographic areas may lead to rural/urban imbalances. On the other hand, licensing small areasmay fragment the geographic markets such that efficient use of mobile spectrum could be compromised.For example, a bidder who succeeds in winning an entire region except for the largest urban centremay not have a viable business opportunity. Taking into account these issues, the department is adoptingthe use of Tier 2 and 3 service areas as described in Figure 2.

Roaming

As part of the AWS consultation, Industry Canadaasked whether mandated roaming was needed to foster the development of competitive wireless communicationsservices; whether the lack of mandated roaming could unduly inhibit market entry; and, if mandated,to what bands and services this should apply and what mechanisms could best implement this measure.

In general, roaming allows a subscriber from one network to access another operator's network whenoutside the subscriber's home area. This is known as "out-of-territory" roaming. In addition,roaming is sometimes mandated within a new entrant's licensed service territory, known as in-territoryroaming, as a means to facilitate market entry. At various times, both in-territory and out-of-territoryroaming have been mandated in Canada and in other countries notably within the European Union. Whendigital PCS was introduced in 1995, incumbentcellular operators had the ability to offer new PCS providersaccess to their nationwide analogue cellular network. Since the value of mobile services is closelyrelated to the coverage of the network, any new entrants would have been at a considerable disadvantagevis-à-vis established incumbents. To allow the new entrants to establish themselves, mandatedroaming on the analogue cellular network was made a condition of licence on the PCS licenceof cellular incumbents. Also, a rule was established whereby incumbent cellular operators could notdeploy PCS until they had concluded a roamingarrangement with a new entrant or until all new entrants had obtained such an arrangement.

In the AWS consultation, potential new entrantsconsidered that mandated roaming is essential to the business case of any new entrant because of theimportance of coverage in a high-mobility service. Some argued that new entrants cannot negotiateas equals with established players even in a market with multiple providers. New entrants asked forthe same measures previously used by the department in 1995 with a somewhat different implementationmechanism. This argument was reinforced when the Federal Communications Commission mandated out-of-territoryroaming in the U.S. market for all commercial mobile radio services.

The department agrees that mandated roaming is important to promote competition and supports theorderly development of radiocommunication in light of the policy objectives of the TelecommunicationsAct. Recognizing that one or more regionally based new entrants may emerge from this auction,the department is mandating roaming outside of licensees' territories for at least the 10-year termof AWS licences. Roaming is to be made availableat commercial rates. As well, to facilitate new entry, incumbents will be required to make roamingavailable to new entrants within their licensed service areas, also at commercial rates, for a periodof 5 years while the licensee builds out its network. In the event that a national new entrant issuccessful in the auction, roaming within its licensed areas may be extended for an additional 5 yearsif the spectrum is used in accordance with the roll-out targets specified in Annex 2.

A national new entrant is defined as a new entrant that has acquired licences for all Tier 2or Tier 3 service areas, or a combination of Tier 2 and Tier 3 service areas, coveringall of Canada in the AWS or PCS bands.This definition includes a group of new entrants collectively holding all Tier 2 or Tier 3service areas, or a combination of Tier 2 and Tier 3 service areas, covering all of Canadain the AWS or PCS bandsand cooperating to provide a national service.

Specifically, Industry Canada will be requiring that, where technically feasible, cellular, PCS and AWS licenseesoffer automatic digital roaming on their networks:

• to all cellular, PCS and AWS licenseesoutside of their licensed area, for at least the 10-year term of AWS licences;
• to all new entrants, in their licensed areas for a period of 5 years commencing with thedate of issuance of their licence; and
• to national new entrants who have substantially met the 5-year roll-out requirements outlinedon their licence, as determined by Industry Canada, for an additional 5 years.

Roaming arrangements must be offered wherever technically feasible, negotiated expeditiously andin good faith. Negotiations between carriers will be time limited. Should the parties be unable tocome to an agreement within the established time frame, the parties will be required to undertakebinding arbitration. Binding arbitration is an approach consistent with the settlement of commercialdisputes. By using this process, the department expects that roaming would be offered at commercialrates that are reasonably comparable to rates that are currently charged to others for similar services.

The department will undertake a supplementary consultation process addressing amendments to existingspectrum licences. This supplementary consultation will deal with the implementation of the abovenoted policy measures, procedures and time frames for the arbitration process. Further details onthis consultation are provided in the paragraph dealing with conditions of licence later in this document.

Antenna Tower and Site Sharing

On June 28, 2007, Industry Canada released updated antennasiting procedures which come into effect January 1, 2008 (http://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/sf01031.html).These procedures apply to all towers in all frequency bands. Key changes include clear processesfor public notification, consultation and added community involvement. The revised procedures requireany licensee wishing to construct a new tower to first consider sharing and co-locating with existinginfrastructure. Further, operators of existing antenna systems are expected to negotiate in goodfaith to facilitate sharing. The issue of amending all or some existing authorizations to facilitatecompliance with the tower sharing part of the policy was deferred to this AWS policyfor further consideration.

Canadians are increasingly expressing concern about new antenna towers due to issues that includethe impact of towers on their property values, environmental, and "right to enjoy" considerations.Sharing sites is a method of alleviating these concerns, thereby meeting the real technical requirementsof carriers without the need to install new towers. As suitable antenna sites become increasinglyscarce and strategic, competition issues arise as well. For many commercial operators, the costs associatedwith antenna sites, which can be in the millions of dollars, turn into an asset over time.

New entrants contend that they cannot gain ready access to new antenna sites and that rates chargedare artificially high so as to preclude new entrant access. On the other hand, there can be completelyvalid reasons, normally technical in nature, which make sharing impractical or impossible. Such reasonsinclude structural stability, incompatibility due to radio interference and, in the case of government-ownedtowers and sites, national security issues, for example.

The reports of the Telecom Panel and the National Antenna Tower Policy Review indicate that thereare compelling social and economic reasons to mandate antenna tower and site sharing. These reasonsinclude dealing with antenna tower proliferation and local concerns as well as how these facilitiescan be used as barriers to entry and competition.

Industry Canada has concluded that it is in accordance with the orderly development and efficientoperation of radiocommunication in Canada to mandate antenna tower and site sharing and to prohibitexclusive site arrangements for all licensees including broadcasting certificate holders. Licenseeswill be directed to binding arbitration to resolve disputes where they cannot finalize an agreementto share within certain time frames. Before the auction commences, the department will undertake asupplementary consultation to add these conditions to existing licences, excluding those where sharingwould affect national security or where the site is used for personal enjoyment (e.g. amateur radio).The final decision on the operation and wording of the licence conditions regarding sharing will betaken before the auction starts.

Roll-out Obligations, Licence Term and Renewal

Roll-out obligations are normally used to ensure that the spectrum is used and to deter access tothe spectrum either for speculation without use, or spectrum warehousing with no specific use intended.Roll-out obligations have been used in previous licensing processes. A further purpose of roll-outobligations may be to encourage the delivery of service in all regions of Canada.

Taking into account the overall policy framework for this auction, and the stated intentions of bothincumbents and new entrants, the department is of the view that specific roll-out obligations areappropriate only in relation to roaming provisions for national new entrants. Allowing general flexibilityin this respect will enable winning bidders to respond to market factors in determining infrastructurebuild-out decisions. Nonetheless, the department will take into account the roll-out targets in Annex 2,both in considering eventual renewal of AWS licencesas discussed below and in considering any application from a national new entrant for extension ofin-territory roaming beyond the initial 5 years.

The AWS licences will be issued for a 10-yearterm similar to other spectrum licences. AWS licencerenewal will be subject to a public consultation process initiated in year eight, as proposed in the AWS consultationpaper. The nature and details of this process will be developed through a separate consultation tobe initiated by the department in the context of the Framework for SpectrumAuctions in Canada. The renewal process developed through that consultation may apply toall auctioned licences, including AWS.

The renewal process, which will form the basis of the follow-up consultation, will include considerationof:

• the extent of geographic coverage across the licensed area;
• whether there is interest in the licence from other parties;
• whether licence fees should apply for a subsequent licence term; and
• whether renewal in whole or in part supports the orderly development of radiocommunication inlight of the policy objectives of the Telecommunications Act given known future factors,pressures and the spectrum environment.

Beyond consideration of the above factors, other reasons for non or partial renewal may include:

• a fundamental reallocation of spectrum to a new service is required;
• an overriding policy need or spectrum management concern arises;
• national security, treaty or other international obligations or requirements;
• a breach of licence condition;
• the spectrum has not been deployed, or not sufficiently deployed over the licensed area;
• whether there is interest from others for access to the spectrum; and
• other relevant factors which might be raised in the public consultation.

While licences are renewable where the spectrum is used in accordance with the AWS licence,the department will make appropriate decisions at the appropriate time.

PCS Expansion Band

In the AWS consultation paper, Industry Canadasought comments on the proposed use of the spectrum 1910-1915 MHz /1990-1995 MHz (5+ 5 MHz) as an extension to the existing PCS band.Comments received generally supported the proposal.

In the auction process, the department will use geographic Tier 2 as proposed in the AWS consultationpaper. The department will apply the same technical standards currently used for PCS.The Standard Radio System Plan (SRSP)and Radio Standards Specification (RSS) willbe updated by the department in consultation with the industry in accordance with usual practices.The opening bids and roll-out conditions for this spectrum are the same as for the AWS bandwhich are outlined in Annexes 1 and 2.

The Band 1670-1675 MHz

Comments received showed interest in having this band opened for flexible use by fixed and mobileservices. Comments supported the proposal by the department with respect to block size and geographicarea. To support all known technologies, including those identified as IMT-2000(i.e. International Mobile Telecommunications), this spectrum will be auctioned in a single 5 MHz block.Furthermore, the department will allow licensees to employ either Frequency Division Duplexing orTime Division Duplexing technology in this band subject to conformity with technical standards.

In the auction process, Industry Canada will use geographic Tier 2 as proposed in the AWS consultationpaper. The technical specifications including Standard Radio System Plan and Radio Standards Specificationwill be developed by the department in consultation with the industry in accordance with usual practices.The opening bids for this spectrum will be one-half the 10 MHz amountas shown in Annex 1, as it is only 5 MHz of spectrum.Roll-out conditions for this spectrum are the same as for the AWS band.

Auction Design

Industry Canada will use its existing simultaneous multiple-round ascending auction software forthis auction. This is the auction software that has been used in the previous four auctions conductedby the department. More details will be elaborated in a subsequent paper that will be released beforethe end of 2007. This paper will contain all necessary technical and procedural aspects related tothe auction as well as timing, pre-auction deposits, and the auction application process.

Conditions of Licence

To implement measures such as mandatory antenna tower and site sharing and mandatory roaming forall licensees, conditions of licence will have to be added to existing licences.

Section 5(1)(b) of the Radiocommunication Act givesthe Minister the power to amend any existing condition of licence. Industry Canada will undertakea public consultation on the conditions of licence being proposed. This consultation will be confinedto the implementation of the policy measures announced earlier in this document. It will address conditionsof licence for both mandatory antenna tower and site sharing and mandated roaming and will propose:

• wording of the conditions of licence; and
• provisions on the operative conditions such as dispute resolution mechanisms and time frames.

This supplementary consultation on the conditions of licence will be announced in a Canada Gazette noticeto be published as soon as possible. The consultation will also be posted on Industry Canada's SpectrumManagement and Telecommunications website.

The comment period will be 30 days so as to ensure that affected licensees are aware of thenew provisions and have an opportunity to provide comments. A reply comment period is not considerednecessary in this circumstance.

Following the consultation, the final conditions of licence will be made public so that all thoseaffected are aware of the changes. They will be announced before the deadline for applications forthe auction, to allow parties to make fully informed decisions, in a Canada Gazette noticeand also posted on Industry Canada's Spectrum Management and Telecommunications website.

Other conditions of licence that are similar to existing cellular and PCS spectrumlicences also apply. These will be provided in the auction framework document and include divisibilityand transferability, lawful access, displacement of incumbents, radio station installations, provisionof technical information, compliance with legislation, regulations and other obligations, internationalcoordination, research and development and annual reporting.

The department will apply similar technical standards to AWS ascurrently used for PCS where possible.The Standard Radio System Plan and Radio Standards Specification will be updated by the departmentin consultation with the industry in accordance with usual practices.

Timing for the Auction and Next Steps

Interested parties should note the following milestones for the auction:

December - Publication by the department of the auction framework

January - Clarification period on policy and procedures - Parties submit questions

February - Finalization of clarification process - The department responds to questions

March - Bidder applications

May - Mock auction and auction

Annex 1 — Opening Bids

Annex 2 - Roll-out Targets

The following table lists the minimum 5-year roll-out targetsfor each Tier 2 service area.

The following table lists the minimum 5-year roll-out targetsfor each Tier 3 service area.