Future Auction Design in New Zealand

90. No one auction design is best in all situations. The form future auctions should take is dependent upon many factors, with each situation needing to be independently assessed in light of policy decisions, technical considerations, and the characteristics of participants. The examples below illustrates why each situation needs to be independently assessed.

91. Auction 6 (schedule 2) disposed of 45 FM broadcast licences through out the country, only two were won by participants not acquiring any other licences. It is reasonable to assume that some of the bidders would find synergies in having multiple licences, supporting the use of the SAA. However, an auction of similar licences in the future but with the participants subject a one licence spectrum cap and where licences were not seen to be substitutes, could mean another auction design is appropriate. Although the SAA rules could be adjusted to meet this requirement, local outcry auctions may be just as effective, and have been shown to allocate the licences over a much shorter period, lowering the cost to the participants. Where there are multiple identical licences to be auctioned in an area then a SAA could be considered.

92. The planning for the allocation of the 3.5 GHz spectrum licences demonstrated the difficulty in weighting the various factors pertinent to auction design. Government policy objectives impacted on participation and desired aggregations through limiting the number of licences that can be won, contiguity conditions, and bidder eligibility. Feedback on the lot design and the nature of the fixed wireless services to be provided by the licensees indicated that synergies exist among licences; therefore from an allocative efficiency view some form of simultaneous auction could have been appropriate, ideally incorporating package bidding. However the characteristics of the participants also needed to be taken into account. Many of the participants are small and medium sized enterprises that may not have the resources at their disposal to deal with a long and complicated auction process. The tension between these two requirements needed to be reconciled during the auction design process. Given the expected low value of these licences, the cost of altering and testing the auction software, the cost to participants of a lengthy internet based auction, and the availability of national and international market information, a single round closed tender auction with package bidding has been chosen.

93. Assuming a new spectrum allocation will be required for the development of 4G cellular technologies, auction design will need to cope with possible competition issues. Auction design and lot structure need to ensure that there is an efficient allocation but also credible bidding to ensure a fair return to the Crown. This market is dominated by strong incumbent cellular providers. Thus, either through lot specification or auction design, an opportunity needs to be created for others to effectively compete for the spectrum.