Spectrum auction

A spectrum auction is a process whereby a government uses an auction system to sell the rights (licences) to transmit signals over specific bands of the electromagnetic spectrum and to assign scarce spectrum resources. Depending on the specific auction format used, a spectrum auction can last from a single day to several months from the opening bid to the final winning bid. With a well-designed auction, resources are allocated efficiently to the parties that value them the most, the government securing revenue in the process.[1] Spectrum auctions are a step toward market-based spectrum management and privatization of public airwaves, and are a way for governments to allocate scarce resources. Alternatives to auctions include administrative licensing, such as the comparative hearings conducted historically (sometimes referred to as "beauty contests"), or lotteries.

Innovation

In past decade, telecommunications has turned into a highly competitive industry where companies are competing to buy valuable spectrum. This competition has been triggered by technological advancements, privatization, and liberalization.[2] Mobile communication in particular has made many transitions since 2000, mobile technology has moved from second generation (2G) to third generation (3G) and is now in transition to fourth generation (4G) technology.

With more providers in the mobile industry, the competition during spectrum auctions has increased due to more demand from consumers. When the United States made the transition in June 2009 from analog to digital broadcast television signals,[3] the valuable 700 MHz spectrum became available because it was no longer being used by analog TV signals. In 2007, search giant Google announced that they would be entering the mobile business with their highly popular Android operating system and plans for a mobile broadband system.[4] Google said that they planned to bid for the "C" block of the spectrum auction which correspond to channels 54, 55, and 59 of the lower 700 MHz spectrum and channels 60, 61, 65, and 66 of the upper spectrum 700 MHz which are normally used to construct nationwide broadband services. Around the time of Google's announcement, AT&T and Verizon also announced plans to enter the spectrum auction in order to purchase "C" block spectrum.[4]

Advantages and disadvantages

Advantages of auctions:[5]

Countries

Canada

The Canada 2008 Wireless Spectrum Auction beginning on 2008-05-27 Industry Canada commenced an auction for 105 MHz of spectrum with 40 MHz reserved for new entrants. The auction concluded on July 23, 2008 after 331 rounds and raised $4.25 billion.

In August 2011, Canada has made the switch from analog to digital television. In February 2014, the country auctioned additional spectrum in the 700 MHz and 2500 MHz bands to the four major players in the country and raised over $5.3 billion.[6] Christian Paradis, Minister of Industry at the time, has been quoted as hoping that the auctioning of these two bands (sometimes referred to as "prime location") will help foster more competition in the telecom sector, particularly the wireless sector, where Canada is just beginning to feel the effects of competition from new wireless companies from the 2008 auction.[7]

Germany

From 2000-07-31 to 2000-08-18, the German government conducted an auction for 12 frequency blocks for the new UMTS mobile telephony standard. The total of the bids exceeded expectations by reaching the staggering amount of DEM 98.8 billions (EUR 50.8 billions). (See de:Versteigerung der UMTS-Lizenzen in Deutschland)

In 2010, the highest bid in the German spectrum auction was 1,213 Million Euros for two blocks in the 800 MHz band[8]

India

Further information: Indian Telecom Spectrum Auction

India was among the early adopters of spectrum auctions beginning auctions in 1991. Despite the early start in auctions, services have been slow to roll out caused by unforeseen problems with the design and rules of the auction.[9] Potential service providers were required to seek foreign partners, as the Department of Telecom (DoT) felt that no Indian company alone had the financial means to enter the industry. Bidding for all licenses required a two-stage screening process. After the new BJP government came into power it has streamlined the auction process. It wants the effective allocation of frequency so that programmes like digital India, smart city etc. are realized. During March 2015 auctions the government has earned a revenue of Rs. 82,000 crore ($13 billion) from spectrum allocation.

Ireland

On 2012-11-15 the Commission for Communications Regulation (ComReg) announced the results of its multi-band spectrum auction (Primarily for 4G (LTE)).[10] This auction awarded spectrum rights of use in the 800 MHz, 900 MHz and 1800 MHz bands in Ireland from 2013 to 2030. The winners of spectrum were 3, Meteor, O2 Ireland and Vodafone. All of the winning bidders in the auction have indicated that they intend to move rapidly to deploy advanced services.[11]

Licences were issued in respect of two time slices, the first ending contemporaneously with the expiry of the last existing licence in the 900 MHz band and close in time to the expiry of existing licences in the 1800 MHz band.

The auction consisted of:[12]

The existing licences in the 900 MHz and 1800 MHz bands were restricted to GSM use only. As the licences to be issued on foot of the auction are liberalised licences permitting use of the spectrum for UMTS, 4G and other technologies, existing licensees were permitted to bid to win their existing spectrum holdings on a liberalised basis and a rebate is payable in respect of the residual value of existing licences where this was done.

Pakistan

Slovakia

During the year 2013 Telecommunications Regulatory Authority of the Slovak Republic concluded a CCA electronic auction for spectrum licences from the 800 MHz, 1800 MHz and 2600 MHz frequency bands.[14] These frequencies are reserved for operation of 4G networks (especially LTE technology). The auction was accompanied by strict information embargo. Neither the public nor the auctioneers did not know who are the auctioneers nor how many auctioneers participates in the auction. During the primary clock rounds the auctioneers knew only a limited aggregate demand at the end of auction day.

Before the auction the Slovak Republic executed the process of releasing the 790–862 MHz frequency band (e.g. digital television transition), defined as a digital dividend for broadband networks to provide electronic telecommunication services. The process of releasing formed a free range of 2 x 30 MHz, which after splitting into 6 blocks (each of size 2 x 5 MHz) was the subject of the auction. The maximum frequency spectrum that could be assigned to one company on the 800 MHz band was 2 x 10 MHz. Reserve price for each block was set at EUR 19 million.

Most frequencies from the 1800 MHz band had been already used to provide public electronic communication services in the Slovak republic. Before the auction three existing national mobile operators had leased 2 x 15.2 MHz each. Remaining fragments of frequencies with a total size of 2 x 20.4 MHz became the subject of the auction. These fragments ranged from 2 x 0.4 MHz to 2 x 10.6 MHz. The Authority created a total of 8 blocks in 7 categories with the largest blocks of 2 x 5 MHz. The reserve price ranged from EUR 200,000 to EUR 2,200,000 per block. The maximum frequency spectrum that could be assigned to one company on the 1800 MHz band was 2 x 20 MHz, thus existing mobile operators could gain only 2 x 4.8 MHz each.

According to ECC decision 2600 MHz band was split into two categories: FDD with 14 blocks of 2 x 5 MHz and TDD with 10 blocks of 1 x 5 MHz each. Reserve price was set at EUR 1.1 million per FDD block and EUR 400,000 per TDD block. In 2600 MHz frequency range no operator had leased the spectrum before the auction. The maximum frequency spectrum that could be assigned to one company on the 2600 MHz band was not limited.

Most of the frequencies were sold to the three existing national providers (Orange, Slovak Telekom, Telefónica Slovakia).[15] The auction brought also a new mobile operator, company called Swan. Total revenue of auction has been EUR 163.9 million that is 15% above the sum of reserve prices. All of the auctioned blocks were sold. The sold licences are valid till 2028. Successful auctioneers undertook the obligation to enter into a contract with any parties interested in national roaming or wholesale offer.

Sweden

On 2008-05-08 the Swedish Post and Telecom Authority (PTS) concluded an electronic 16-day simultaneous multiple-round ascending auction for nine 15-year 4G-licenses; for a total bandwidth of 190 MHz in the 2.6 GHz band. The total required minimum bids were SEK 50 million, but the total winning bids were SEK 2,099,450,000 (approx USD 38.60 per inhabitant).[16]

United Kingdom

From 2000-03-06 to 2000-04-27, the Radiocommunications Agency of the UK government raised £22.5 billions (EUR 38.3 billions) from an auction of five licences for radio spectrum to support the 3G mobile telephony standard.[17][18] The auction was conducted in a simultaneous ascending auction, similar to the US format with a slight deviation. In the UK's version of the simultaneous individual auction, each high bidder is only allowed to win one of the five auctions whereas in the US, many regions have multiple licences which multiple bidders can win.[19] After the auction in the UK, a severe recession in the telecom development industry was seen.

United States

In the United States, the Federal Communications Commission (FCC) conducts auctions of licenses for electromagnetic spectrum. The FCC has been conducting competitive auctions since 1994 rather than assigning spectra through comparative hearings under which the specific merits of each applicant is litigated, or through lotteries. Since July 1994, the FCC has conducted 87 spectrum auctions, which raised over $60 billion for the U.S. Treasury (not all of which has been collected). The auctions assigned thousands of licenses to hundreds of licensees. The auction approach is widely emulated throughout the world. To be considered a qualified [bidder] by the Commission, companies or individuals have to submit an application and an upfront downpayment. FCC auctions are conducted electronically and are accessible over the Internet. Bidders can follow the progress of an auction and view the results of each round.

The FCC auctions have used a Simultaneous Multiple Round Auction (SMRA, also referred to as the Simultaneous Ascending Auction) in which groups of related licenses are auctioned simultaneously over many rounds of bidding. At the start of each round, bidders simultaneously make sealed bids for any licenses in which they are interested. When the bidding for the round has concluded, round results are posted, which include the identities of the new bids and bidders along with the standing high bid and the corresponding bidder. The initial standing high bid at the start of an auction is zero ($0) and the corresponding bidder is the auctioneer. As the auction progresses, the standing high bid changes to highest new bid and the corresponding bidder is the person who makes said bid. In addition to posting the round results, minimum bids for the next round are also posted. A minimum bid is computed from taking the standard high bid and adding a predetermined bid increment, such as 5% or 10%.[20] For an auction to come to a close there are several different options. McAfee, suggested that auctions should come to a close after a predetermined number of rounds, in which the license receives no new bids.[20] Wilson and Paul Milgrom of Stanford University proposed that all auctions should end simultaneously, when there is no new bid on a license. To date, the latter is used in the spectrum auctions.[20]

The US Congress set multiple goals for FCC when spectrum auction was first launched: "In designing auctions for spectrum licenses, the FCC is required by law to meet multiple goals and not focus simply on maximizing receipts. Those goals include ensuring efficient use of the spectrum, promoting economic opportunity and competition, avoiding excessive concentration of licenses, preventing the unjust enrichment of any party, and fostering the rapid deployment of new services, as well as recovering for the public a portion of the value of the spectrum."[21]

Despite the apparent success of spectrum auctions, important disadvantages limiting efficiency and revenues are demand reduction and collusive bidding. The information and flexibility in the process of auction can be used to reduce auction prices by tacit collusion. When bidder competition is weak and one bidder holds an apparent advantage to win the auction for specific licenses, other bidders will often choose not to the bid for higher prices, hence reducing the final revenue generated by the auction. In this case, the auction is best thought of as a negotiation among the bidders, who agree on who should win the auction for each discrete bit of spectrum.

History

In certain cases, the FCC has imposed conditions on specific blocks of spectrum being auctioned. For example, in the 2007 700 MHz auction, the FCC required the winning bidder of the C Block to comply with open platform conditions, "allow[ing] customers, device manufacturers, third-party application developers, and others to use or develop the devices and applications of their choice, subject to certain conditions."[22]

The FCC held the 700mhz band spectrum auction on July 19, 2011. The auction, entitled "auction 92" featured 16 licenses which were left over from auction 73, as either unsold or not paid for.[23] Licenses available were from block A and B of the spectrum and included:

Block Frequency (MHz)
A 698-704 & 728-734
B 704-710 & 734-740

In mid 2015, the FCC will start the 600 MHz incentive auction. This spectrum is "valuable" because of "high quality wireless airwaves which penetrate walls" and work better over long-distance than higher frequency spectra. The FCC said that a portion should be reserved for smaller carriers.[24] AT&T and Verizon control the majority of the high quality spectrum less than 1 Gigahertz, while Sprint and T Mobile hold much less.

Bidding structure

As outlined by the FCC, the bidding structure consists of five rules and regulations.

Simultaneous multiple-round auction

Every license is up for bidding at the same time. Participants may bid on multiple licenses at once. All licenses will continue to be for sale until there are none left or there are no buyers.

Anonymous bidding

The amount of information available about the participants in the auctions is limited until the auction is officially over. This means that the amount of money a company has bid (or withdrawn) on a license will not be available to the public until the auction is closed. The names of the companies participating and what licenses they were going for when they filled out their applications is also protected. This rule also states that bidders are not allowed to cooperate with one another, or share bidding strategies, or have discussions on bids and what they would do with them in the market.

Bidding rounds

Auction bidding will run in a sequence with the schedule for the sequences being given out before the auction starts. This year's spectrum auction will be conducted over the internet and over the telephone. Qualified bidders will receive access to the toll free number for the bidding hotline.

Stopping rule

This rule was enacted to end the bidding at a reasonable time. The bidding in the auction will stop when bidding closes on the licenses available which means that if no one challenges or submits a bid, the auction will be stopped. Also, in the first round, if participants don't make a bid, the auction will be closed.

Auction delay, suspension and cancellation

The FCC reserves the right to cancel, delay or suspend the auction in case of technical difficulties, weather, security breaches and unlawful bidding activity. This is another method to maintain media ownerships would serve at its best in the public interest.

Voluntary surrender of licenses

In order to prevent network congestion, FCC chairman Julius Genachowski is looking for companies who will voluntarily surrender their unused spectrum in exchange for a share of the money made from the spectrum auction[25] With the growing demands for wireless services, the Obama Administration approved a plan, called the National Broadband Plan of making 500 MHz of spectrum, below 3 GHz, available over the next 10 years. The majority of the spectrum being examined by the FCC and NTIA are federally owned or federally shared bands. In addition, regulators and carriers have been considering blocks of the 300 MHz spectrum which is normally used for television broadcasters.[26] If a company agrees to volunteer their spectrum, the FCC will ask for 120 MHz of it. Also, the FCC has been thinking about spectrum sharing which would allow wireless ISPs to purchase DTV licenses

In January 2011, Clearwire agreed to sell off its unused spectrum in order to raise money for company spectrum and to seemingly allow other companies to pick up on some unused space.[27]

See also

References

  1. ↑ Cramton, Peter (February 2001). "Spectrum Auctions, Ch. 14" (PDF). Handbook of Telecommunications Economics: 605–649.
  2. ↑ Gerhard Illing and Ulrich Kluh, ed. (2003). Spectrum Auctions and Competition in Telecommunications. Cambridge, Massachusetts: The MIT Press.
  3. ↑ "What you need to know about the digital tv transition". United States Government. Retrieved 5 May 2011.
  4. 1 2 Stone, Brad (December 1, 2007). "Google to Join Spectrum Auction". New York Times. Retrieved 21 April 2011.
  5. ↑ Ken Binmore: Auctions versus Beauty Contests
  6. ↑ Meyer, Dan. "Vidéotron wins wireless licences outside Quebec in 700MHz auction". Retrieved 20 February 2014.
  7. ↑ http://kbspectrum.com/blog/?p=556
  8. ↑ How Far and How Fast 15 February 2013
  9. ↑ Jain, R; R.S. (2001). "Spectrum auctions in India: Lessons from experience". Telecommunications Policy 25 (10–11): 671–688. doi:10.1016/S0308-5961(01)00047-7.
  10. ↑ "ComReg Announces Results of its Multi-Band Spectrum Auction" (PDF). comreg.ie. Retrieved November 15, 2012.
  11. ↑ "ComReg reveals 4G auction results - €450m instant windfall for Irish Govt". www.siliconrepublic.com. Retrieved November 15, 2012.
  12. ↑ "Multi-band Spectrum Release Information Memorandum" (PDF). www.comreg.ie. Retrieved November 15, 2012.
  13. ↑ "Frequency Arrangements and Results of the Multi-Band Spectrum Award Process" (PDF). www.comreg.ie. 5 December 2012. Retrieved December 6, 2012.
  14. ↑ "An invitation to tender to use 800 MHz, 1800 MHz, and 2600 MHz frequency bands" (PDF). www.teleoff.gov.sk. 27 August 2013. Retrieved January 17, 2014.
  15. ↑ "Results of Slovak spectrum auction 2013". www.telegeography.com. 9 January 2014.
  16. ↑ "Sweden rents out 190 MHz chunk for 226 million euros". Blog.anta.net. 2008-05-08. ISSN 1797-1993. Retrieved 2008-05-08.
  17. ↑ Binmore, Ken; Klemperer, Paul (2002-03-01). "The Biggest Auction Ever: the Sale of the British 3G Telecom Licences" (PDF). The Economic Journal 112 (478): C74–C96. doi:10.1111/1468-0297.00020.
  18. ↑ "Radiocommunications Agency : The Auction of Radio Spectrum for the Third Generation of Mobile Telephones". National Audit Office. 2001-10-19.
  19. ↑ Cramton, Peter (5 May 2001). "Lessons learned from the UK 3G Spectrum auction". From the Selected Works of Peter Cramton (University of Maryland): 48/49. Retrieved 2011-05-05.
  20. 1 2 3 Milgrom, Paul (1999) [1996]. Sharon E., Gillett, ed. Competition, Regulation, and Convergence: Current Trends in Telecommunications Research. Vogelsang, Ingo. Mahwah, New Jersey: Lawrence Erlbaum Associates, Inc. p. 20. ISBN 0-8058-3484-2.
  21. ↑ Rose, Gregory F.; Mark Lloyd (May 2006). "The Failure of FCC Spectrum Auctions" (PDF). Center for American Progress.
  22. ↑ "Service Rules for the 698-746, 747-762 and 777-792 MHz Bands, Second Report and Order" (PDF). Federal Communications Commission. August 10, 2007. p. 79, Paragraph 195. Retrieved 27 November 2012.
  23. ↑ "Public Notice" (PDF). Federal Communication Commission. Retrieved 5 May 2011.
  24. ↑ Knutson, Ryan (April 21, 2014). "Verizon, AT&T Are Facing Spectrum Bidding Limits". WSJ. Retrieved 23 April 2014.
  25. ↑ Carew, Sinead; Melvin, Jasmin (7 January 2011). "FCC eyes broadcast spectrum auction as soon as 2012". Reuters. Retrieved 5 May 2011.
  26. ↑ Lasar, Matthew (2011-04-16). "Pickpocketing or Voluntary Auctions? The Wireless Spectrum Standoff". Wired. Retrieved 6 May 2011.
  27. ↑ Meyer, Dan (January 6, 2011). "Sprint Nextel, Clearwire attempt to clear the air". RCR Wireless. Retrieved 5 May 2011.

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