CHRISTINE J. PRUDHAM CHIEF LEGAL OFFICER DIRECT LINE: 905‐944‐7952 E‐MAIL: [email protected] December 17, 2012 BY E-MAIL Director General Spectrum Auctions Branch Industry Canada 300 Slater Street Ottawa, Ontario K1A 0C8 Re: Canada Gazette Notice Part I, October 2012 – Notice No. DGSO-004-12 Consultation on a Licensing Framework for Broadband Radio Service (BRS) — 2500 MHz Band Please find attached the reply comments of Xplornet Communications Inc. and Xplornet Broadband Inc. in response to the above referenced consultation. Yours truly, CJP/hb Christine J. Prudham Enclosure XPLORNET COMMUNICATIONS INC. ● XPLORNET BROADBAND INC. 625 Cochrane Drive ● Suite 1000 ● Markham, Ontario ● L3R 9R9 ● www.xplornet.com Consultation on a Licensing Framework for Broadband Radio Service (BRS) — 2500 MHz Band Canada Gazette Notice DGSO-004-12 Reply Comments of Xplornet Communications Inc. and Xplornet Broadband Inc. December 17, 2012 Introduction 1. Xplornet Communications Inc. and Xplornet Broadband Inc. (collectively, “Xplornet”) are pleased to submit the following reply comments in response to Canada Gazette, Part I (9 October 2012) titled Consultation on a Licensing Framework for Broadband Radio Service (BRS) - 2500 MHz Band (Notice DGSO-004-12, hereinafter the “2500 MHz Licensing Consultation Document”). 2. Xplornet has reviewed the comments submitted by Bell Mobility Inc. (Bell); the British Columbia Broadband Association (BCBA); the Canadian Wireless Telecommunications Association (CWTA); Bragg Communications Inc., carrying on business as Eastlink (Eastlink); Globalive Wireless Management Corp. (WIND); Data & Audio-Visual Enterprises Wireless Inc., doing business as Mobilicity (Mobilicity); MTS Inc. and Allstream Inc. (MTS Allstream); Public Mobile Inc. (Public Mobile); Quebecor Media Inc., on behalf of itself and Videotron G.P. (Quebecor); Rogers Communications Partnerships (Rogers); Saskatchewan Telecommunications (SaskTel); TELUS Communications Company (TELUS); the Kativik Regional Government (KRG); and Drs. Catherine Middleton and Gregory Taylor of Ryerson University. 3. Xplornet, as Canada’s leading rural Internet service provider, cautions the Department against any proposals that will facilitate continued spectrum hoarding by larger carriers with market power and little demonstrated intention to deploy to rural and remote areas. 4. Xplornet notes that there is widespread support for many of the Department’s proposals, including the products and categorization of licences available for auction, and most (but not all) of the proposed conditions of licence, and there is widespread opposition to certain of the Department’s proposals, namely, (i) proposal 6-11 to continue to mandate a research and development condition of licence; and (ii) proposal 7-6 to expand the condition of licence related to lawful intercept requirements for existing BRS licensees. 5. As noted by a number of parties in their initial comments on the 2500 MHz Licensing Consultation Document, the Department’s proposed 2500 MHz licensing framework is DGSO‐004‐12 Xplornet Reply Comments December 17, 2012 2 of 17 largely identical to the Department’s proposals for the 700 MHz Licensing Framework Consultation1, with certain notable, important differences2. Especially significant and disappointing is the Department’s proposal to use, and set rules for, the untested Combinatorial Clock Auction (CCA) format for the 2500 MHz auction given the 2500 MHz auction will be even more complicated than the 700 MHz auction at which the CCA format will be first tested. 6. Given none of the parties to the 2500 MHz Licensing Framework Consultation realistically expect the Department to withdraw its proposal to use the CCA format, Xplornet will restrict its reply comments to the issues that divide the parties. 7. The issues that divide the parties are those in respect of (i) the revealed preference rule in the CCA format; (ii) the rules governing how Associated Entities may participate in the 2500 MHz auction; (iii) information disclosure before, during, and after the 2500 MHz auction; and (iv) the general deployment requirement. These issues, Xplornet submits, are the issues that affect what matters most to Canadians – cost-effective deployment of affordable, competitive wireless technologies to all regions of Canada – not just urban areas. 8. The issues are listed in the table below. Section Issue Consultation Identification Question The combined eligibility point and 4-1(c) revealed preference activity rule in the A clock rounds, and the revealed preference limit in the supplementary round The information to be disclosed prior to, 5-1(b); 4-1(e) B during, and post-auction 1 Canada Gazette, Part I (5 May 2012), Consultation on a Licensing Framework for Mobile Broadband Services (MBS) – 700 MHz Band. 2 Notable, important differences are (i) the service areas for licensing (Tier 3 instead of Tier 2); (ii) the much greater volume of licences and packages of licences available for auction; (iii) the unique licensing areas (Canada divided into 3 regions); and (iv) the deployment obligations (general deployment obligations for all licences, rather than specific obligations for specific licences). DGSO‐004‐12 Xplornet Reply Comments December 17, 2012 3 of 17 The types of agreements that should be 5-1(a) C captured under the definition of associated entities The proposal that entities that are deemed 5-1(d) associated entities may apply to be treated D as separate entities for participation in the auction The proposal that associated entities may 5-1(e) request to have the spectrum aggregation limit apply to them separately, based on an E analysis of their association and of whether they intend to compete in the same licence service area Comments on the proposed wording of the 6-2 F condition of licence related to the spectrum aggregation limit Comments on the proposed wording of the 6-3 G condition of licence related to transferability and divisibility The proposed time-frame for satisfaction 6-12(b) H of the general deployment condition of licence Comments on the proposed wording of the 7-1 through I condition of licence related to the existing 7-6 BRS licensees J Opening Bids 8-1 K Pre-auction deposits 8-3 Bid payment and forfeiture penalties (Not L consulted) A. The revealed preference limit in the supplementary round 9. As in the case of the 700 MHz Licensing Framework Consultation, Industry Canada has proposed that (i) bids in the Supplementary Round be limited by revealed preference with respect to the bids that a bidder submitted in the clock rounds; and (ii) supplementary bids for a package - comprised solely of the bidder’s final clock package plus some or all DGSO‐004‐12 Xplornet Reply Comments December 17, 2012 4 of 17 of the unallocated licences - only need to satisfy revealed preference with respect to the final clock round. 10. Also as in the case of the 700 MHz Licensing Framework Consultation, with varying degrees of enthusiasm, Bell3, Videotron4, TELUS5, WIND6, and Mobilicity7, support the Department’s proposed Revealed Preference Limit in the Supplementary Round, or at least the preservation of the proposed rule and not the weakening of it. 11. The Revealed Preference Rule, as proposed by the Department, requires that bids which exceed a bidders’ current eligibility must be consistent with preferences choices made in every previous round in which the bidder reduced eligibility. 12. In their comments, Rogers8 and Public Mobile9 repeat their proposal from the 700 MHz Licensing Framework Consultation to weaken the constraints by requiring that supplementary bids which exceed the eligibility of the bidder in the final clock round only be constrained on the basis of revealed preference in the last round in which the bidder had sufficient eligibility to bid on the package, as opposed to the Department’s proposal which constrains bids to every previous round in which the bidder reduced eligibility. Rogers and Public Mobile argue that, as currently formulated, the Revealed Preference Rule is an impediment to switching between substitutable blocks.10 13. The Revealed Preference Rule, in conjunction with the activity rule, is designed to promote truthful bidding throughout the 2500 MHz auction and to curb vexatious gaming behaviour. It therefore makes no sense for the Department to adopt proposals to undermine the very rule designed to promote truthful bidding at the outset of the auction. 14. Furthermore, given the un-refuted risk under the proposed CCA format that large combinatorial bids in the clock rounds would likely trump the bids of smaller regional 3 Comments of Bell at para. 20. 4 Comments of Videotron at paras. 50-59. 5 Comments of TELUS at paras. 50-51. 6 Comments of WIND at para. 14. 7 Comments of Mobilicity at para. 9. 8 Comments of Rogers at para. 52. 9 Comments of Public Mobile at para. 58. 10 Ibid., at para. 67. DGSO‐004‐12 Xplornet Reply Comments December 17, 2012 5 of 17 service providers and of new entrants, it makes no sense to give larger players with a high degree of market power even more leverage flexibility to trump smaller players. This risk is particularly acute in light of the demonstrated behaviour of larger players not to deploy to rural and remote areas served by smaller regional players such as Xplornet. 15. Accordingly, Xplornet respectfully recommends that the Department reject the Rogers/Public Mobile proposal to undermine the CCA format. B. Information to be disclosed prior to, during, and post-auction 16. A wide range of parties also submitted proposals in respect of the level of information that should be disclosed to the Department, and to the public, prior to the auction. 17. Prior to the auction: A wide range of parties recommended that the Department provide greater detail and clarity as to what relationship gives rise to an Associated Entity relationship. 18. Most of the parties agree that some level of disclosure of existing relationships, prior to the auction, is necessary in order to allow the Department and the parties to understand how the Associated Entity rule will apply.