Executive Summary: Key Legal and Evidentiary Issues

• ISED's failure to disclose the "20% Guide" used to assess spectrum concentration rendered the decision procedurally unfair

• The decision maker did not meaningfully grapple with Xplore's and TELUS' submissions regarding the amount of low-band spectrum necessary to support a new entrant in the commercial mobile services market

• Procedural fairness required that Xplore be apprised of any formula, guideline, or supporting analysis the decision maker would rely upon

• ISED's framework analysis repeatedly invoked the 20% Guide as justification for the decision, in preference to the more fact-based and nuanced arguments advanced by Xplore and TELUS

• Xplore did not establish that ISED officials approached the decision with a closed mind or that there was bias in favor of Vidéotron

• The application for judicial review was granted, and the matter was remitted to the Minister for redetermination

Background to the spectrum licence transfer dispute

X-Spectrum 2 Inc., formerly known as Xplore Mobile Inc., launched as a mobile service provider in Manitoba in November 2018, becoming the fourth largest in the province. This followed Bell Mobility Inc.'s acquisition of Manitoba Telecom Services on May 2, 2016, after which Bell agreed to transfer five spectrum licences—four mid-band and one low-band—to Xplornet Communications Inc., Xplore's former affiliate, as a condition of regulatory approval of the merger. Despite entering the market, Xplore struggled to become viable and began winding up its Manitoba operations around November 2021. An advisory firm conducted a solicitation process to facilitate the sale of Xplore's business and assets, alerting every MSP and prospective MSP that Xplore's spectrum was available for transfer. Vidéotron Ltd, a subsidiary of Québecor Inc., expressed interest and submitted an offer, but the offer was deemed uncompetitive and was eventually withdrawn. TELUS Communications Inc. made an offer that was acceptable to Xplore.

The licence transfer application and ISED's response

On July 14, 2022, Christine Prudham, a representative of Xplore, telephoned Eric Dagenais, Senior Assistant Deputy Minister, Spectrum and Telecommunications, ISED, informing him that Xplore would cease operations in August 2022 and intended to seek ISED's approval to transfer its spectrum licences to TELUS. Mr. Dagenais urged Ms. Prudham to contact Vidéotron about a transfer to that company instead. Later that day, Xplore and TELUS submitted a joint application to ISED seeking regulatory approval for the transfer, requesting a decision by August 31, 2022, approximately six weeks later. By early August 2022, ISED had completed a preliminary assessment of the Licence Transfer Application and had identified concerns about the proposed concentration of spectrum in the hands of one of the "Big Three" national mobile service providers—namely Bell, Rogers Wireless and TELUS. If approved, the Licence Transfer Application would increase the concentration of low-band spectrum under the control of the NMSPs in Manitoba from 78.72% to 84.04%, leaving only 15.96% for non-NMSPs.

The undisclosed 20% Guide and procedural fairness concerns

The Court found that ISED's reliance on an undisclosed "20% Guide" for determining the minimum proportion of spectrum to be reserved for Fourth Players constituted a breach of procedural fairness. This guide figured prominently in the advice memorandum prepared for Mr. Dagenais in his capacity as the delegated decision maker, yet was never communicated to Xplore. When Xplore requested production of all documents, data, and other records and material considered by ISED in developing the 20% Guide and 40% Guide, counsel for the Attorney General of Canada responded: "We have nothing to produce on this matter." The Court held that as an aspect of procedural fairness, a party must be apprised of any formula, guideline or supporting analysis the decision maker will rely upon, and in response, that party is entitled to suggest that any such formula is wrong, inappropriate, unacceptable or indefensible on the facts. The decision maker's reliance on the 20% Guide was withheld from Xplore, leaving the company "in the dark."

ISED's failure to address substantive submissions

Xplore and TELUS provided supplementary written submissions on August 17, 2022, arguing that to operate a mobile service requires 10 MHz to 20 MHz of low-band spectrum, and offered practical examples to illustrate the point. They argued that having more than 20 MHz available for an existing or new entrant is demonstrably unnecessary, particularly in Manitoba, which has a lower population density than the national average. They also noted that on August 5, 2022, ISED issued the Notice of Upcoming Auction of Residual Spectrum Licences, which would result in the availability of 20 MHz of spectrum in the 600 MHz band as of January 2023, subject to a set-aside provision to prevent any NMSP from acquiring the spectrum. As a result, the concentration of low-band spectrum in the hands of the NMSPs would inevitably decrease in Manitoba following the auction. The Court found that ISED did not meaningfully grapple with Xplore's and TELUS' submissions regarding the amount of low-band spectrum necessary to support a new entrant in the commercial mobile services market; the significance of the upcoming auction of residual spectrum licences; and the characteristics of the region, including urban/rural status, population levels and density. Instead, the framework analysis repeatedly invoked the undisclosed 20% Guide as justification for the decision.

Allegations of closed mind and bias rejected

The Court rejected Xplore's argument that ISED officials approached the decision with a closed mind. While Mr. Dagenais had informed the Deputy Minister that he was "proposing" to reject the application, the Court accepted that the internal exchange of e-mail messages between August 4 and 8, 2022 conveyed a preliminary assessment of the Licence Transfer Application, not a final decision. Mr. Dagenais confirmed under oath that "the final decision had not been made" at this time. The Court also rejected allegations of bias in favor of Vidéotron. On July 22, 2022, Pierre Karl Péladeau, Chief Executive Officer of Québecor, sent a letter to the Minister urging him to refuse the Licence Transfer Application and facilitate the transfer of the spectrum to Vidéotron. However, Mr. Rochon testified under oath that ISED did not make use of this correspondence in the decision-making process and did not regard the letter as relevant to the spectrum analysis he was conducting. The Court found any similarities between the themes advanced in the letter from Québecor's Chief Executive Officer and ISED's rationale for rejecting the Licence Transfer Application to be unsurprising and inconsequential.

Ruling and outcome

The Federal Court, presided over by the Honourable Mr. Justice Fothergill, granted the application for judicial review, finding the decision to refuse the application to transfer Xplore's spectrum licences to TELUS was procedurally unfair and unreasonable. The matter was remitted to the Minister of Innovation, Science and Industry for redetermination in accordance with the Court's reasons. The Court noted that the additional guidance proposed by Xplore is superfluous to the constraints already imposed upon the Minister and ISED by binding and publicly available policies and procedures. The Court stated there is nothing inherently objectionable about ISED's use of a percentage guide to identify preliminary concerns about market concentration, provided that the existence of the guide is disclosed to applicants and they are given an opportunity to respond. Costs were awarded to X-Spectrum 2 Inc., formerly known as Xplore Mobile Inc., at the high end of Column IV of Tariff B, with the provision that if the parties are unable to agree upon the appropriate quantum of costs and disbursements, then the matter will be determined by an assessment officer. No specific monetary amount was determined.