Review of the Canadian 700 MHz and 2500 MHz Spectrum Auctions

1.0 PURPOSE

Innovation, Science and Economic Development (ISED) Canada requires an independent Contractor to review the Canadian 700 MHz and 2500 MHz auctions. The contractor is required to provide a comprehensive evaluation of the preparations (i.e. info sessions, mock auctions etc.), design, procedures and operations of the auction processes. These services will be required for a period commencing from contract award to January 31, 2017.

2.0 TITLE OF PROJECT

Review of the Canadian 700 MHz and 2500 MHz Spectrum Auctions

3.0 BACKGROUND

1. 700 MHz auction

The Canadian 700 MHz spectrum auction began on January 14, 2014 and concluded on February 13, 2014 after 108 rounds, which took place over the course of 22 business days. The auction generated $5,270,636,002 in revenue.

The auction made use of a Combinatorial Clock Auction (CCA) format with anonymous bidding.

A total of 68 MHz (7 blocks) of radio spectrum was auctioned in 14 service areas, which included 56 MHz of paired (5 blocks) and 12 MHz of unpaired (2 blocks) spectrum. Eight of the ten bidders (Rogers, TELUS, Bell, Videotron, Eastlink, SaskTel, MTS, and Feenix) won 97 of 98 licences available.

There was a cap of two blocks of prime spectrum for all companies. In addition, large service providers were restricted to one block of the prime spectrum (blocks B, C, C1 or C2).

1. 2500 MHz auction

The Canadian 2500 MHz spectrum began on April 14^th, 2015 and concluded on May 5th. The auction made use of a Combinatorial Clock Auction (CCA) format with an OR bidding enhancement. After 50 rounds, the auction concluded and generated $755,371,001 in revenue.

A total of 318 licences were offered in 61 service areas. The radio spectrum in each service area varied from 60 MHz to 125 MHz. A spectrum cap of 40 MHz (except in the Northwest Territories, Nunavut and Yukon) was applied to all bidders, including existing licence holders (Rogers, Bell, SaskTel and SSi Micro).Nine of the 11 bidders won 302 of the 318 licences available.

Consistent with the 700 MHz auction, the CCA format with anonymous bidding was used. To facilitate the submission of bids during the supplementary stage, bidders were given the opportunity to express their preferences using “OR” bids in addition to their supplementary package bids.

ISED published the policy and licensing frameworks as well as other related documents for the 700 MHz and 2500 MHz auctions on its website: https://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/h_sf01714.html.

Detailed 700 MHz auction bid data and results are available from ISED’s public auction website: . Results of the 2500 MHz auction are available at http://www.ic.gc.ca/eic/site/smt-gst.nsf/eng/h_sf10939.html.

4.0 PROJECT REQUIREMENTS/OBJECTIVES

The Department is seeking an independent Contractor to review the 700 MHz and 2500 MHz auctions. The contractor is required to provide a comprehensive evaluation of the preparations (i.e., info sessions, mock auctions, etc.), design, procedures and operations of both auction processes. The audience of the evaluation is ISED.

5.0 SCOPE OF WORK

The successful Contractor will be required to prepare a review of the 700 MHz and 2500 MHz auctions. The Contractor is required to provide a comprehensive evaluation of the preparations (i.e., info sessions, mock auctions, etc.), design, procedures and operations of the auction processes. For each spectrum auction, the review should evaluate whether the auction was efficient and effective and provide specific recommendations for ISED’s policies, processes, and operations for future spectrum auctions, including both good practices that should be continued, and practices that could be improved.

For each of the spectrum auctions, the work to be performed by the Contractor includes but is not limited to:

• A comprehensive assessment and analysis of the auction results and the efficiency and effectiveness of the auction;

• An analysis of the auction and its design features, as well as an assessment of the completed auction and an analysis of the bidding activity of all bidders. This should include a careful review of the auction round-by-round data with particular attention to bidders’ behaviour. Issues to be assessed include:

• Whether opening bid prices and eligibility points were set appropriately;
• The impact of the spectrum aggregation limit on the final outcome of the auction;
• The appropriateness and effectiveness of bid increments both initially and in the progression of the auction;
• Effectiveness of the activity rules during the clock rounds and supplementary round (e.g., hybrid eligibility point and revealed preference rule in the clock rounds, revealed preference and final price cap in the supplementary round);
• The effectiveness of the pricing rules, including the use of a second-price rule, in encouraging straightforward bidding and promoting price discovery throughout the auction;
• The use of the reserve bidder approach and its impact on allocation and prices;
• The sufficiency of the number of supplementary bids (500) in the supplementary round;
• The usefulness/impact of OR bids for the 2500 MHz auction
• The contiguity rules for the 2500 MHz licence assignment;
• The effectiveness of the defined generic and assignment round format and approach for each of the 700 MHz and 2500 MHz auction;
• An assessment of whether there were any signs or evidence of the use of gaming strategies in the auction, where gaming strategies refers to bidding behaviour that deviates from truthful bidding in an attempt to exploit the auction rules to their advantage or to the disadvantage of other bidders; and
• The effectiveness of the use of anonymous bidding on dissuading the use of gaming strategies. In addition, the information disclosure to bidders during the auction and effectiveness of the policy to withhold demand information from the final clock round;
• In light of the responses to the above, an assessment on whether the CCA was the most appropriate auction format or whether another format should have been used.

• A comprehensive assessment and analysis of the auction rules and procedures outlined in the policy and licensing framework. Analysis will include, but will not be limited to:
  • Rules concerning affiliated and associated entities; and
  • Prohibition of collusion rules.

• A comprehensive assessment of the efficacy of ISED’s training materials, information sessions, mock auctions and publications and how well they communicated ISED’s rules and processes.

• These assessments should include a comparison with similar spectrum auction processes in other countries; including, but not limited to, the 2013 Australian CCA auction, the 2013 UK CCA auction, the 2013 Austrian CCA auction, the 2012 Irish CCA auction and the 2015 US AWS-3 SMRA auction.

To complete this work the Contractor will have access to:

• All public ISED documentation on the auctions, including the licensing frameworks, and auction results;
• The auctions bid data; and
• ISED officials from the auction team.

The Contractor must be prepared to participate in an initial meeting with ISED staff within two (2) business days of the awarding of the contract, in an interim meeting to discuss the draft report and also in a final meeting to discuss its assessment, with the possibility of additional meetings for clarification purposes. These meetings will take place either, by teleconference or by video conference.

In addition, the Contractor will be required to provide a presentation, by teleconference, of the findings outlined in its report.

The related costs incurred by the Contractor shall be included in the total costs of the project.

6.0 PROJECT DETAILS

6.1 Client Support

The Contractor will be provided all published ISED consultation and decision documents, as well as training materials, mock auction documents, auction results and bid data.

6.2 Deliverables and Timelines

The deliverables and required timelines for the project are as follows:

• A draft report must be delivered to the Project Authority for review and approval within forty (40) business days of the initial meeting. The draft report must be submitted in both hard copy and/or electronic format (Word and/or PDF).

• The final report must be delivered within ten (10) business days of the receipt of comments from IC regarding the draft report. The final report must be submitted in both hard copy and/or electronic format (Word and/or PDF).