INFORMATION MEMORANDUM - THE AWARD PROCESS

4 - THE AWARD PROCESS

Applications to bid are to be made, and Licences awarded, on a regional basis. Ownership restrictions and associations between Bidders and Existing Licensees should be considered accordingly.

4.1 Wireless Telegraphy Act Regulations and Notice

The award process will be conducted in accordance with Regulations to be made by the Secretary of State pursuant to powers in the Wireless Telegraphy Act 1998. Under the Regulations, a notice (the "Notice") will be issued which sets out the procedures in detail. The Regulations were issued in draft for statutory consultation on 17 August 2001, and it is intended that they come into force by mid-October 2001. Copies of the Regulations in the draft form issued for the statutory consultation and of the current draft of the Notice are at Appendices G and H. The final form of the Regulations will be placed on the BFWA pages of the Agency website once they have been laid before Parliament and shortly thereafter the final form of the Notice will be published by being placed on the BFWA pages of the Agency website. Applicants should refer to these documents. Companies wishing to submit applications should have read and understood the provisions of the award rules, as set out in the Notice. This section provides a summary of some of these rules. In the event of any discrepancy between the Memorandum and the provisions of the Regulations and the Notice, applicants should note that the Regulations and the Notice shall take precedence.

4.2 Timetable

The award process will follow the stages set out below:

The overall timetable of the award process is set out in the Notice, which also specifies time periods and time limits and allows the Secretary of State discretion in respect of certain time periods. Table 4.1 opposite provides an indicative timetable. There will be a separate award process for Licences in each of the Regions and it is likely that the timetable for each process will vary.

Table 4.1: Indicative Timetable

Preliminary

Regulations come into force and Notice is issued mid-October 2001

Applications may be submitted from mid-October 2001 until mid-October 2002

Application stage (with regard to each regional licence)

Submission of Application

Publication of first Bidder's details including Candidate Group membership

Publication of any subsequent Bidder's details

Closure of 20-day application period in that particular Region ("Application Date")

Pre-Qualification stage (with regard to each regional licence)

Determination of Qualified Bidders

Notification (by Bidders) of Associated Bidders (if applicable)

Issue of Associated Bidder Notice

Primary Bid stage (if Multiple-round Auction stage not required)

Notification of entitlement to a Licence: within 5 business days of date of issue of Associated Bidder Notice

Issue of Provisional Licence Award Notice(s): within 2 Business Days of notification of entitlement

Multiple-round Auction stage (if required)

Notice of Multiple-round Auction stage: within 5 Business Days of date of issue of the Associated Bidder Notice

Notice of auction start: not less than 5 Business Days before start of auction

Auction start

Auction finish

Issue of Provisional Licence Award Notices, within 2 Business Days of auction finish

Grant stage (for each regional licence)

Notification of Pre-Conditions: within 2 Business Days of receipt of Provisional Licence Award Notices

Notification of date of award of WT Act Licence: at least 3 Business Days prior to the issue of the Licence

Award of Licence and payment of Licence Fee or Initial Licence Fee: within 20 Business Days of Bidder's confirmation that no Pre-Conditions exist

Final Date for award of Licences ("Backstop Date"), 60 Business Days after either the Application Date or the finish of auction (as appropriate)

Some of the time periods indicated are to allow the Agency to undertake checks on the Bidders to ascertain that each is a fit and proper person to hold a Licence and that the award of the Licence would not be prejudicial to the interests of national security. If these checks are concluded more rapidly, the periods could be reduced.

4.3 Rules governing activities of Bidders and their Candidate Groups

This section describes the rules that govern the activities of Bidders and members of their respective Candidate Groups during the award process in relation to such matters as confidentiality and anti-competitive behaviour. Bidders should refer to the Notice for the detailed definitions of the terms. Appendix E also contains (for illustrative purposes) diagrammatic representations of the operation of these definitions. The Activity Rules will take effect from the date of submission of Applications. In the event of a breach of the Activity Rules by a Bidder, a member of his Candidate Group or his Insiders, the Secretary of State may, at her sole discretion, exclude that Bidder from the process. If a Bidder is excluded from the award process for a breach of the Activity Rules, the Secretary of State may also declare some or all of that Bidder's Deposit forfeit. Part 7 of the Notice sets out the Activity Rules.

4.3.1 Confidential information

Certain unpublished information relating to a bid is defined in the Notice as Confidential Information. Confidential Information means any information which, if known to other Bidders, would be likely to affect the price that the other Bidders would be prepared to bid in a Multiple-round Auction. Such information would include (but not necessarily be limited to) the Bidder's business case, auction strategy and the highest price it is willing to bid for any Licence. Any party to whom Confidential Information in relation to a Bidder or to an Existing Licensee is disclosed, if not already a member of the Candidate Group in relation to that Bidder or Existing Licensee, is deemed to be an "Insider" in relation to that Bidder or Existing Licensee. Bidders, members of Bidders' Candidate Groups and Insiders must not convey Confidential Information to any other Bidder, or any other Bidder's Candidate Group or Insiders. However, Bidders should note that information provided before the Application Date by one Candidate Group to a member of another Candidate Group for the purpose of determining whether to join that bidding group is not deemed to be Confidential Information.

4.3.2 Anti-competitive activity

Bidders, or members of their Candidate Groups, must not enter into any arrangements with suppliers of equipment or software, that would restrict the supplier's ability to supply such equipment or software to other Bidders or Existing Licensees and/or their Candidate Groups for the purposes of planning, building or operating a network to be operated under a Licence. Bidders or members of their Candidate Groups, are also not permitted to agree with suppliers of equipment or software any form of restriction as to the prices charged or other terms and conditions that such suppliers may agree with any other Bidder or Existing Licensee, or Candidate Group.

4.3.3 Directors and employees

The Bidder is responsible for ensuring that any person who is a director or an employee of a member of its Candidate Group, and who is also a director or employee of a member of any other Candidate Group does not:

take part in both Candidate Groups' preparations for the auction;
possess or receive Confidential Information relating to both Candidate Groups; or
pass Confidential Information in respect of one Candidate Group to another Candidate Group.

4.3.4 Candidate Groups

Bidders should refer to the detailed provisions of the Notice concerning ownership requirements. Illustrative diagrams are also attached at Appendix E. In summary, the Candidate Group is defined as those parties who are "connected" to a Bidder or an Existing Licensee in that Region, which may be summarised as the Bidder or Existing Licensee and:

those parties controlling or controlled by a Bidder or Existing Licensee;

those parties with a direct or indirect minority ownership interest in the Bidder or Existing Licensee

who are "concerned" with the Application, or were "concerned" with the Existing Licensee's Application, where "concerned" is defined as:

being in possession of Confidential Information in respect of that Bidder or Existing Licensee, or

having entered into any agreement or understanding to finance the Bidder or Existing Licensee

or assist it in any other way in connection with the bid; and

any party controlling or controlled by a party falling within i) or ii) above.

One party may be a member of more than one Candidate Group but only where the party concerned is not a "Relevant Member" of more than one Candidate Group. Relevant Members of a Candidate Group are not permitted to be Relevant Members of any other Candidate Group. In respect of any Application, Candidate Group and Associated Bidder rules are specific to the Region for which an Application is made.

4.3.5 Changes to Candidate Groups

The composition of a Bidder's Candidate Group is not permitted to change following submission of an Application, except in the circumstances set out below. In particular, new parties may not join a Candidate Group after the Application Date. The ownership structure of a Candidate Group is only permitted to change as a result of either:

withdrawal of a Candidate from the Candidate Group; or

corporate merger and acquisition activity.

Any change in the composition of a Candidate Group arising from mergers and/or acquisitions will be deemed to take place from the earliest of the date on which the transaction becomes unconditional, the date on which the transaction takes place and (in the case of recommended transactions) the date on which the UK or EC competition authorities announce clearance of the transaction (with or without conditions). If, as a result of merger and acquisition activity, a Relevant Member of one Candidate Group, becomes a Relevant Member of any other Candidate Group, those Candidate Groups must be re-organised to eliminate the double-membership within three Business Days, or a longer period as permitted by the Secretary of State.

Within two Business Days of a change to the composition of a Candidate Group during a Multiple-round Auction, the Bidder must submit an amended Application Form and Bidder Compliance Certificate. All Bidders are also required by the Notice to notify the Secretary of State of any actual or proposed changes to their Candidate Groups of which they become aware following submission of Applications. Bidders should also be aware that disclosure of Confidential Information during merger or acquisition talks would make the recipient an Insider to the disclosing Bidder. If such recipient was any other Bidder, or was a member of a Candidate Group in relation to any other Bidder, such disclosure would be in breach of the Activity Rules, and the Secretary of State may exclude the Bidder in relation to whom Confidential Information has been disclosed from the Auction.

4.3.6 Advisers to the Government

Bidders, or members of Bidders' Candidate Groups, are not permitted to receive advice on matters related to the Auction from any person who has been retained as an adviser to the Government (or a sub-contractor to such adviser) in relation to the award process since 1 January 2000. Advisers to the Government in this regard are:

Lovells;
KPMG Consulting;
ELSECo.

However, providers of finance to a Bidder, or to a member of a Bidder's Candidate Group, may receive advice from an adviser to the Government, provided that the finance provider is not itself a member of a Candidate Group.

4.4 Application stage

4.4.1 Application requirements

Companies wishing to apply for a Licence should submit applications in accordance with the requirements of Chapter 5. An application will constitute an irrevocable bid for the relevant Licence at the reserve price. Applications may be made for any available Licence between mid-October 2001 and mid-October 2002.

An Application Form in Word 7 format will be available from the Agency website, or on request. The Application Form contains detailed instructions to Applicants as to how information should be presented. It also makes clear which pages of the Application Form will be published to other Bidders as part of the pre-qualification process.

4.4.2 Form of responses and procedures for submission

On submission of an application, Bidders should provide all of the following:

Application Form and any required supporting documents;
Bidder Compliance Certificate.

This certificate requires the Bidder to certify, amongst other things, that:

it is legally capable of both bidding for and satisfying its obligations under a Licence;

it will comply with the provisions of the Notice;

the information provided in its Application is true, accurate and complete; and

it and the members of its Candidate Group are not the subject of criminal or civil proceedings that could be expected adversely to affect their business or the Bidder's ability to bid in the award process.

The Bidder Compliance Certificate must be signed by two directors, or a director and the company secretary, of the Bidder (defined in the Notice as "Authorised Officers").

The Initial Deposit payable by bank transfer

4.4.3 Deposits

On submission of an Application and as a condition of pre-qualification, each Bidder will be required to provide a deposit of 10% of the Reserve Price of a Licence in the Region which the Bidder has specified in its Application (the "Initial Deposit") which, together with any interest, less deductions, is collectively known as the Deposit. In the event that the Bidder is successful in the award process the Deposit will be offset against payment for the Licence. Bidders must notify the Agency in advance that the Deposit is to be submitted together with details of the amount to be deposited. Bidders should note that the Deposit will only be deemed to have been submitted when funds have cleared (i.e. been received) in the account of the Office of the Paymaster General.

4.4.3.1 Interest on Deposits

All Deposits will be held by the Paymaster General on behalf of the Secretary of State and will be invested by the National Investment and Loans Office ("NILO"). Initially these may be invested in the Treasury Ways and Means fund, and thereafter in Treasury Bills. Interest will accrue on Deposits, at the rate earned by the Deposits during the time over which they are invested. The rate applicable will be that made available to NILO by the National Debt Office, for the relevant period (the "Deposit Period") for the Bills in which the Deposits have been invested.

The Secretary of State will determine each Deposit Period for investment of the Deposits, having regard to the most favourable rates for any given period available to NILO, and the need to be able to return Deposits at the appropriate time. It is probable that Initial Deposits will initially be invested on a rolling weekly basis.

However, Bidders should note that, notwithstanding the above, the Secretary of State will retain the discretion to set the Deposit Period at any period between one and thirty-one days.

Interest earned on the Deposits whilst they are held by the Secretary of State will also be invested in Treasury Bills. However, the lowest denomination of Bill available to NILO is £5,000. If NILO is unable to invest the full sum of the combined Deposits in Treasury Bills owing to the £5,000 denomination threshold, the surplus will be invested in the Treasury Ways and Means, which attracts an overnight rate, set by HM Treasury, typically at 0.5% below the weekly weighted average tenders for three month Treasury Bills.

The interest earned on Deposits will be returned to unsuccessful Bidders with the Deposit (less any penalties incurred during the process - see Section 4.7.8). Successful Bidders' Deposits will cease to bear interest from the Initial Grant Date.

4.4.3.2 Refund of Deposits

Deposits may be returned at two points - following failure to pre-qualify, or following the end of a Multiple-round Auction. In each case, the Deposits will only be returned at the end of the current Deposit Period.

4.5 Pre-qualification stage

4.5.1 Pre-qualification tests

In order to pre-qualify, the Bidder must satisfy the following tests:

Application requirements

The Bidder must comply with the requirements for provision of information, the required certification and payment of the Initial Deposit (see Section 4.4.2 and Chapter 5 - Application Instructions). Failure to provide any of these documents or to make the payment at the time specified may result in the Bidder not qualifying for the award of a Licence.

Cross membership of Candidate Groups

The Secretary of State must be satisfied that the Bidder is not a Candidate in relation to any other Bidder or Existing Licensee, and also that no person who is a Relevant Member of the Bidder's Candidate Group is a Relevant Member in relation to any other Bidder or Existing Licensee. If a Bidder is a Candidate in relation to the Candidate Group of any other Bidder or Existing Licensee, then it will not pre-qualify. Similarly, if a Relevant Member in relation to the Bidder is also a Relevant Member in relation to the Candidate Group of any other Bidder or Existing Licensee, the Bidder will not pre-qualify.

General power of exclusion

The Secretary of State will retain a general power to exclude any Bidder if, in her opinion:

the grant of a Licence by that Bidder would be prejudicial to the interests of national security; or

the Bidder would not be a fit and proper person to hold a Licence.

During the pre-qualification stage, the Secretary of State may ask a Bidder to provide additional information or documentation relating to his Application. Any request must be reasonable, and must set a reasonable period for provision. Bidders must use their best endeavours to satisfy the request.

4.5.2 Announcement of Qualified Bidders

Following submission of Applications, the Secretary of State will notify all Bidders of the names of the other Bidders and the composition of their Candidate Groups.

Each pre-qualified Bidder ("Qualified Bidder") will be sent a Bidder Notice following its determination by the Secretary of State as a Qualified Bidder which will set out the identity of all other Qualified Bidders and the composition of their Candidate Groups (if any changes have occurred).

At the same time as notification of successful pre-qualification, the Secretary of State will also notify Bidders who have failed to pre-qualify.

4.5.3 Associated Bidders

As indicated above, applications are to be made, and Licences awarded, on a regional basis. Associations between Bidders and Existing Licensees should be considered accordingly. Bidders should refer to Section 3.6.8 of the Notice for the precise definitions of the ownership rules governing determination of whether a Bidder is associated with any other Bidder or Existing Licensee. The rules are summarised below, and diagrammatically at Appendix E. These rules are separate from those which determine whether a party is a member of a Bidder's Candidate Group. A Bidder ("the first Bidder") is an Associated Bidder in relation to another Bidder ("the second Bidder") or an Existing Licensee if:

a member of the Candidate Group in relation to the first Bidder:

is a Participant with more than a 15% interest in the second Bidder or Existing Licensee; or

has an Economic Interest of more than 15% in the second Bidder or Existing Licensee; or

a person, not being a Candidate in relation to the first or second Bidders or an Existing Licensee:

is a Participant with more than a 15% interest in both the first Bidder and the second Bidder or the Existing Licensee;

is a Participant with more than a 15% interest in the first Bidder and has an Economic Interest of more than 15% in the second Bidder or the Existing Licensee;

is a Participant with more than a 15% interest in the second Bidder and has an Economic Interest of more than 15% in the first Bidder or the Existing Licensee; or

has an Economic Interest of more than 15% in both the first and the second Bidder or the Existing Licensee.

Within a period notified to a Bidder by the Secretary of State (which will be between two and seven Business Days of receipt of notification that it has pre-qualified), that Bidder must notify the Secretary of State whether or not it is an Associated Bidder in relation to any of the other Bidders notified to it as having pre-qualified or to an Existing Licensee. If a Bidder is not associated with any other Bidder or Existing Licensee, it must at the same time return the Bidder Association Certificate (certifying the fact of no associations) to the Secretary of State. Any Bidder which is associated with one or more other Bidders or Existing Licensee(s) must within the same period disclose the details of the association to the Secretary of State.

The Secretary of State will issue to all Bidders an Associated Bidder Notice which will either notify all Bidders that no associations exist, or will set out:

whether each Bidder is an Associated Bidder or not; and
the identity of all Bidders or Existing Licensee(s) to which each Associated Bidder is associated.

A Bidder deemed to be associated will be allowed a period of two days from the Secretary of State's determination that an association exists within which to notify her of its proposed course of action.

4.6 Primary Bid stage

If, by the end of the 20 day application period following the publication of the first Application for a particular Licence in a Region, no more than one bidder has applied for any Licence in that Region, each Qualified Bidder will be notified, within five Business Days of the issue of the Associated Bidder Notice, that it is entitled to be awarded the Licence for which it has applied. The Agency will issue, within a further two Business Days, a Provisional Award Notice to each successful Bidder notifying it of the Licence which it has been provisionally awarded, the price at which the relevant Licence will be granted, and the identity of all other successful Bidders. Details of the provisional awards will be published on the Agency website. The process will then move to the Grant Stage (see Section 4.8).

4.7 Multiple-Round Auction Stage

4.7.1 Notification of start of a Multiple-round Auction

If, by the end of the twenty day application period following the publication of the first Application for a particular Licence in a Region, more than one Bidder has applied for any Licence in that Region, each Qualified Bidder will be notified within five Business Days of the issue of the Associated Bidder Notice, that all available Licences in the Region will be offered for award by a Multiple-round Auction. Once having announced that there will be a Multiple-round Auction, the Agency will notify all Qualified Bidders of the start of that Multiple-round Auction. The Agency will give at least five Business Days' notice, and at the time of notification will inform all Bidders of:

the Multiple-round Auction Date;
the identity of all Bidders who shall participate;
the details of the Licences to be included;
the time at which the first Round shall start;
the period of time for the first Round; and
the identity of the Current Price Bidder (if any) on each Licence.

Following notification of Qualified Bidders, the Secretary of State shall issue to each of the Qualified Bidders a Bidder Participation Notice which shall:

provide each Bidder with a set of numbered passwords which a Bidder shall use to confirm that any communication which the Secretary of State receives (and in particular the bids themselves) has originated from that Bidder;

specify the telephone number for that Bidder for the purposes of submitting bids by fax; and

provide the appropriate Bidding Schedules.

The Secretary of State will notify Bidders in the event of disruption to bidding by fax of one or more of the following:

that Bidders may continue to participate by telephone and notify the Bidder of the telephone number;

that Bidders may send Authorised Persons to the Auction Location;

that Bidders may send the Bidding Schedules by messenger to the Auction Location; and

an alternative Auction Location within 50 kilometres of the Auction Location for the purpose of continuing the Multiple-round Auction either by using fax, or in one or more of the ways specified in sub-paragraphs (i) to (iii) above.

Within two Business Days of the Business Day of receipt of a Bidder Participation Notice the Bidder shall notify the Secretary of State of the names of three Authorised Persons each of whom the Bidder has provided with authority to participate, either jointly or severally, in any way in the Auction on behalf of the Bidder. All communications during the auction will need to be authenticated by at least one Authorised Person.

4.7.2 Multiple-round Auction design

The design of a Multiple-round Auction is similar to the 28 GHz BFWA Auction held in November 2000 but unlike that Auction, during which Licences in all Regions were auctioned simultaneously, available Licences in a Region will be awarded independently of those in other Regions.

Bidding for the available Licences in each Region takes place in a sequence of Rounds. Bidders may only submit a bid for one Licence in each Round, but may bid for a different Licence in successive Rounds.

The highest bid for each of the Licences at the end of each Round is deemed to be the "Current Price" for that Licence for the purposes of the next Round and the Bidder holding the Current Price on a Licence is the Current Price Bidder for that Licence. No Bidder may place a further bid so long as it remains a Current Price Bidder. For the purposes of the First Round the first company that submitted a complete and valid Application for a Licence shall be the Current Price Bidder for that Licence. If two or more Bidders submitted applications on the same day for the same Licence, a random method will be used to select which should be the Current Price Bidder for that Licence in the First Round. If there is no Current Price for a Licence, the minimum bid for that Licence will be the Reserve Price, as shown in Table 1.1, Section 1.3 in this Memorandum.

In each Round, all Bidders (except the Current Price Bidder(s)) submit bids simultaneously. A Bidder who does not hold the Current Price on any of the available Licences and declines to place a bid is deemed to have withdrawn from a Multiple-round Auction. A Multiple-round Auction will end when all except Current Price Bidders have withdrawn. Each Current Price Bidder will then be provisionally awarded the relevant Licence at the Current Price.

In the event that there is a tie for the Current Price bid for any of the available Licences, the Auctioneer will use a random method to determine which of the tied Bidders will be deemed to be the Current Price Bidder. The other Bidder(s) will be able to bid more in the next Round and will not be arbitrarily prevented from further action in the Auction.

All bids are required to be in multiples of £10,000.

4.7.3 Bidding mechanics

Bids will be submitted using paper-based facsimile. The Notice sets out back-up procedures in the event of disruption to bidding by fax, including use of telephone, messenger delivery and attendance at the Auction Location or a specified alternative location.

The time that elapses between successive Rounds is at the discretion of the Auctioneer, who may choose to consult with the Bidders before changing the timetable. After the end of each Round, and at least thirty minutes before the start of the following Round, the Auctioneer will notify all Bidders of:

the Current Price for each Licence;
the numerical value of each bid made in the previous Round, the Licence to which it relates, and identity of the Bidder who submitted the bid;
the identity of any Bidders which have withdrawn or have been excluded;
the time at which the next Round will start and the period of time for its completion;
the minimum bid for each Licence. This will be determined by the Auctioneer as the greater of:
- the Reserve Price; and
- the Current Price on that Licence plus a minimum raise. The minimum raise will be 15% (or such lower percentage as the Auctioneer may specify) of the relevant Current Price, rounded up to the nearest £10,000);
and
the identity of any Current Price Bidders for each of the Licences.

4.7.4 Information on the progress of a Multiple-round Auction

Information on the progress of a Multiple-round Auction, including the most recent bids made by each Bidder, and the Licence on which those bids were made, will be published on the Agency website after the end of each Round (shortly after the Bidders themselves have been informed).

4.7.5 Announcement of successful Bidders

Within two Business Days from the end of a Multiple-round Auction, the Auctioneer will issue a Provisional Award Notice to each successful Bidder notifying it of the Licence which it has been provisionally awarded, the price at which the relevant Licence will be granted, and the identity of all other successful Bidders.

4.7.6 Communications with the Auctioneer

All communications between the Auctioneer and a Bidder in relation to the process must be made by one of the Authorised Persons notified to the Auctioneer as having authority to act on behalf of the Bidder. Bidders may notify the Auctioneer of a change in the identity of one or more of the Authorised Persons.

In any communication thereafter between the Auctioneer and an Authorised Person, the Auctioneer may request and check a password or other identifier to confirm the identity of the Authorised Person.

The Auctioneer may communicate with Bidders by any means, unless specifically required to use a particular method by the Notice. Any notice given to the Auctioneer by a Bidder in accordance with the Notice must be submitted either by fax to the fax numbers notified to the Bidder by the Auctioneer for such purposes or by some other method to the Auction Location.

In communicating with Bidders by telephone, the Auctioneer may record any conversation to keep accurate records of any bid received.

4.7.7 Restart of a Multiple-round Auction in the event of the exclusion of a Bidder

If the Secretary of State excludes one or more Bidders, and if she considers that the conduct of such Bidders (or their exclusion) would be likely to affect materially the identity of the Bidders who would be granted Licences, or the prices at which those Licences would be granted, she may decide either to continue or to re-start a Multiple-round Auction. In taking such a decision, the Secretary of State shall consult with the remaining Bidders and with any Bidders which have withdrawn (but have not been excluded), and may therefore be eligible to re-enter a re-started Multiple-round Auction.

However, the Secretary of State may refuse to re-admit any Bidder which had withdrawn, if such Bidder has contravened the Activity Rules even if that contravention has occurred after its withdrawal.

4.7.8 Penalties and forfeiture of Deposits

The Deposit will be forfeited in full if a Bidder fails to remove any Pre-Condition before the Backstop Date (see Section 4.8.1).

The Deposit may be forfeited in full or in part if a Bidder, or a member of that Bidder's Candidate Group breaches one or more of the Activity Rules set out in Part 7 of the Notice. The Secretary of State may also exclude that Bidder from the Auction.

The Notice also contains provision for minor penalties to discourage Bidders from committing misdemeanours or attempting to gain advantage by disrupting the Auction. The Secretary of State may deduct a sum of £10,000 from a Bidder's Deposit in each case.

If a Bidder has been subject to nine minor penalties then any future such penalty will be £20,000. This is further to discourage misdemeanours.

4.7.9 Location

The Auction will be run from the Agency's headquarters (the address is provided in Chapter 5), defined in the Notice as the "Auction Location".

4.8 Grant stage

4.8.1 Notification of pre-conditions

Within two Business Days of receiving a Provisional Award Notice a Bidder will be required to inform the Auctioneer of the details of any Pre-Conditions such as:

an association with other Bidders specified in that Notice or with an Existing Licensee; and
any shareholder or competition law authorisation required before the Licence can be awarded.

A Bidder will not be granted a Licence until the Bidder has notified the Auctioneer that it is no longer subject to any Pre-Condition.

The Secretary of State will grant the relevant Licence to the Bidder within 20 Business Days of receiving notification that the Bidder is not (or is no longer) subject to any such Pre-Conditions.

Bidders will be expected to have met all Pre-Conditions and have obtained all other necessary consents and approvals by the Backstop Date, which is 60 Business Days following either the Application Date or the end of the Multiple-round Auction, as the case may be. The Auctioneer may, at his discretion, extend the Backstop Date up to a maximum of 180 Business Days. However, if the Pre-Conditions have not been satisfied by the Backstop Date, the Licence will not be granted and any remaining Deposit will be forfeited.

4.8.2 Payment options

Successful Bidders can choose to pay the Licence Fee by either:

paying the full amount on grant of the Licence; or
paying 50% of the Licence Fee (the Initial Licence Fee) on grant of the Licence and the balance in equal instalments on the sixth, seventh, eighth, ninth and tenth anniversaries of the date of grant (Deferred Payments).

In the case of Deferred Payments, the instalment payments shall be an amount such that, when each of these payments is discounted from their payment date to the date of grant of the Licence at a nominal discount rate of 8.65%, the sum is equal to 50% of the Licence Fee as at the date on which the Licence was granted. The following example shows the amount payable in each case (rounded to the nearest £ thousand) taking the hypothetical example that the winning bid for a particular Licence is £2 million.

Deferred payment example

The two options are:

Full Payment on grant of Licence (eg. £2 million on date of issue)
50% Payment on grant of Licence (eg. £1 million on date of issue, then five1 equal payments of £386 thousand annually on the sixth, seventh, eighth, ninth and tenth anniversaries)

4.8.3 Payment

In both cases the Initial Licence Fee will be paid after netting off the Bidder's Deposit (including any accrued interest, less any penalties incurred).

4.8.4 Guarantee

If a Bidder chooses to utilise the Deferred Payments option as described in Section 4.8.2 above, that Bidder must also provide a Guarantee in respect of the Deferred Payments. The Guarantee must be provided by a bank with a long-term debt rating of at least A from Standard & Poors, Moody's or Fitch-IBCA. In the event that the rating of one or more guarantor banks is lowered beneath the required thresholds, and such bank is not replaced by another bank with an appropriate debt rating, the Secretary of State may revoke the Licence without compensation and seek to recover all outstanding and future payments for that Licence from the licensee.

4.8.5 Method and timing of payment

The Auctioneer will notify successful Bidders of the account to which payments of the Licence Fee must be made. Funds must have cleared before any date and time by which they are stated to be required.

4.8.6 Issue of Licence

Subject to meeting any Pre-Conditions, the Licence will be issued on receipt of the Licence Fee, or on receipt of the Initial Licence Fee together with the Guarantee. If no Guarantee is received the full Licence Fee shall be payable.

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