Industry Canada’s proposal to auction air-to-ground spectrum criticized

Bell Mobility and US-based Aircell - a provider of Internet services on airplanes - are criticizing Industry Canada's auction proposal for in-flight broadband services in the air-to-ground (ATG) spectrum band (849-851 MHz and 894-896 MHz). The department has determined that it will allow in-flight Internet services following a consultation held in 2006, but is now looking at the licensing requirements. While neither company agrees with the department's proposal, they take different tracks in offering a solution. Bell Mobility says Industry Canada might be jumping the gun in proposing to auction the 4 MHz of spectrum, and should first determine whether anyone is interested in bidding on the small swath of bandwidth. Aircell, which is the licence holder for similar spectrum in the US, says the department shouldn't be trying out unproven auction methodologies and should stick with the preferred simultaneous multiple round ascending (SMRA) approach. Industry Canada is proposing to depart from the SMRA auction method used in its previous three spectrum auctions and adopt what is called a Vickrey auction. Described as simple and expeditious, it's a sealed-bid, second-price auction process the department says is better suited for this auction - where only two licences are available and participants can bid on each licence separately or? both of them as part of a package. In this type of auction, the party with the highest bid wins, but then pays the second highest price. In the case of a single bid for a licence, the participant pays the reserve price. "The auction will be a single-round auction in which there will be no second round," reads the gazette notice. "In the event of a tie, tied bidders will be requested to enter a second sealed bid in an attempt to break the tie. Should there be a third tie, bidders will be requested to enter a third sealed bid in an attempt to break the tie and so on until there is no tie." In its comments to the consultation, Bell Mobility tells the department that it first has to determine that demand for the bandwidth exceeds the supply - an exercise it has yet to undertake through an expressions of interest process - before considering the type of competitive licensing process. If demand does exceed supply, then competitive licensing is appropriate. But if it doesn't, then the spectrum is awarded to the sole applicant. Aircell, through its Canadian counsel Goodmans LLP, recommends that Industry Canada implement the tried and true SMRA auction approach and institute spectrum rollout requirements. "Each of these measures will help ensure that the successful bidder is one who acquires the spectrum with the full intention to deploy a Canadian ATG network to serve Canadian demand at the earliest opportunity," writes Goodmans lawyer Michael Koch for Aircell. Pointing to spectrum deployment, Aircell says this is critical. "Given the unique nature of this service, Aircell proposes that this roll-out requirement stipulate that within two years of the licence being issued, the licensee must provide substantial coverage to Canadian airspace. The licence condition should provide further that this requirement will be met where the licensee either: (a) provides service to the airspace of five (5) of the ten (10) busiest airports in Canada (as measured by passenger traffic), or (b) provides service from at least six (6) cell sites in Canada." Other criticisms Licence terms should be longer than 10 years. Bell Mobility recommends indefinite licence terms or 20-year terms. Requirement for R&D investment should be eliminated. The wireless operators have argued over the past few years that the requirement to invest 2% of adjusted revenue in R&D is no longer needed. Bell Mobility says it's an antiquated policy that was instituted in the early days of wireless communications to stimulate the development of wireless facilities. Bell Mobility questions the value of reserve prices for the spectrum, noting that there is little evidence to suggest the bandwidth is of significant value. The company notes that even in the US where this in-flight broadband service has already been licensed, service is only at a nascent stage. "As a result, Bell Mobility would suggest that reserve prices, in the event of a competitive licensing process being used, should set at a level equivalent to one half of that proposed by the department in the notice."

Industry Canada’s proposal to auction air-to-ground spectrum criticized

News | January 22, 2009

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