Overseas Auction Methods

40. The use of auctions is common overseas for the competitive allocation of licences. Where multiple licences are available that have strong complementary or substitutable attributes, the SAA is the method most commonly used. Where there is only one licence, ascending auctions are often preferred due to the additional information provided to participants in the form of other bids. In some cases, however, single-shot sealed bid auctions are preferred for single licences to attract more bidders than might otherwise participate, to mitigate possible collusive behaviour, and if implementation costs would be lower.

41. Differences in the implementation of the SAA design exist from country to country, but most now replicate the USA design. In New Zealand's case there are differences in rules around the mechanics of the auction, in particular the rules around bidder activity and the withdrawal of bids.⁹

USA

42. In the USA SAA design, the activity rule is based on participant eligibility. Each licence is given a value in bidding units (based on coverage and bandwidth - e.g. MHz*pops). Participants are required to indicate the maximum number of bidding units that they hope to acquire - their initial eligibility. A deposit based on the bidder's initial eligibility is also required. The activity rule is given as a percentage of the participants' eligibility; participants must either submit bids or hold the standing high bid on licences with bidding units totalling (or exceeding) the required level. If a bidder does not meet the activity requirement their maximum bidder eligibility is decreased. The required activity level rises over the course of the auction. In the early rounds bidders may be required to be active on say, 60 percent of their initial eligibility level in order to maintain that level for the next round. Near the end of the auction the requirement may be set at or near 100 percent. A set number of activity waivers are provided to minimise the impact of human errors and technical problems, and to provide bidders the opportunity to take a "time out" to assess strategy or seek guidance from senior management.

43. The USA design for the withdrawal of bids allows any number of withdrawals in a round,¹⁰ but limits the number of rounds in which withdrawals can be made. Withdrawals relating to high bids may incur a penalty payment depending on any subsequent bid withdrawals and the price the licence is sold. The general principle is to ensure the auctioneer is no worse off if the ultimate selling price of a licence is below the value of a withdrawn bid and to encourage sincere bidding.

44. Spectrum auctions in the USA are conducted by the Federal Communications Commission (FCC). The USA was the first country to use the SAA to auction spectrum and has led many of the developments in the auction rules.

45. Where multiple licences are to be auctioned the FCC uses the SAA. When one licence is being offered, the FCC has continued to use an ascending auction design, with the bidding rules adjusted to meet the requirements of a single licence being offered, for instance, requiring the activity level to be set at 100% from the outset.

46. In 2003 the FCC completed its first package bidding auction (Auction 51) which allocated five of the six licences available to one bidder. Bidding between the two eligible bidders concluded in two days after three rounds. The FCC has included features in its latest auction software to allow package bidding in their SAA. Package bidding would allow participants to place a single bid for a group of licences rather placing a bid for each licence within that group (see paragraphs 54 to 57 for further discussion). The FCC has envisaged a SAA with package bidding for licences in the upper 700 MHz band. The auction date, however, has been progressively moved back and at this stage no date is set.

Australia

47. The agency involved in spectrum allocation in Australia is the Australian Communications and Media Authority (ACMA), which replaced the Australian Communications Authority (ACA) and the Australian Broadcasting Authority (ABA).

48. When allocating spectrum licences, ACMA states that it will use the most appropriate auction design for the licences being allocated; both the English open oral outcry auction and the SAA have been used. The SAA has been used for the 2 GHz and 3.4 GHz auctions, while the outcry auction is most often used in relation to broadcasting licences.

United Kingdom

49. The United Kingdom has carried out four spectrum auctions, the last in 2003 for 3.4 GHz FWA. In each case the SAA method was used. In the Spectrum Framework Review, published in November 2004, Ofcom (UK's spectrum regulator) indicated that their preferred method of spectrum allocation (particularly where demand was likely to exceed supply) is by way of auction. For each future auction an assessment and consultation process will be undertaken to determine the most appropriate method of auction to suit the spectrum/licences in question and the make up of the likely bidders. A caveat was included that where there were strong policy reasons for an auction not to be used then alternative allocation methods would be considered.

50. For the allocation of the spectrum: 1781.7-1785 MHz paired with 1876.7-1880 MHz, Ofcom has proposed to hold a single round closed tender. Participants will be allowed to bid on only one licence (all licences are identical) but will be allowed to value the licence differently in relation to the total number of licences awarded, ranging from five to ten. The total number of licences awarded will be the option which results in the highest aggregate revenue, with those participants with the highest bids for that option winning a licence and paying their bid amount. In this way the allocation process determines the number of licences in the market and the winning bidders.

Canada

51. A framework for spectrum auctions in Canada was produced in 1998 and was revised in 2001. It sets out the three broad conditions to be met in determining whether an auction will be used as the spectrum assignment mechanism. These conditions are:

• demand for spectrum exceeds the available supply;
• government policy objectives can be fully met through the various means available; and
• reliance on market forces to select licensees is deemed to be in the public interest.

52. Industry Canada has chosen the SAA as the general auction design, however, as the theory and practice related to spectrum auctions will continue to evolve, new developments in auction design such as combinatorial bidding will continue to be examined and adopted when appropriate.

53. The last spectrum auction held in Canada was in 2005 for spectrum in the 2300 MHz and 3500 MHz Frequency Bands, a SAA format was used.

⁹ See paragraph 32 for some comments on the New Zealand rules.

¹⁰ Bid "withdrawals" within a bidding round - in contrast to across rounds - sometimes are referred to as cancelled or replaced bids.