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 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.
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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 we are now seeing mobile communication make a transition to fourth generation (4G) technology. However, the transition to fourth generation and what is truly considered "4G" has been a hot topic in the telecommunications because mobile companies use different technology for 4G. Some mobile networks use WiMAX (Worldwide Interoperability for Microwave Access) and other networks use LTE or Long Term Evolution. However, according to the ITU, true 4G use the International Mobile Telecommunications Advanced standard. International Mobile Telecommunications-Advanced (IMT-Advanced) systems are mobile systems that include the new capabilities of IMT that go beyond those of IMT-2000. Such systems provide access to a wide range of telecommunication services including advanced mobile services, supported by mobile and fixed networks, which are increasingly packet-based. IMT-Advanced systems support low to high mobility applications and a wide range of data rates in accordance with user and service demands in multiple user environments. IMT Advanced also has capabilities for high quality multimedia applications within a wide range of services and platforms, providing a significant improvement in performance and quality of service. [3]
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,[4] 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.[5] 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[5] to launch their U-verse and FiOs broadband services.
On 2008-05-08 Sweden's Post- & Telestyrelsen, PTS concluded an electronic 16-day SMRA auction, (Simultaneous multiple-round ascending) 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 50,000,000, but the total winning bids were SEK 2,099,450,000 or USD 38.60 / inhabitant.[6]
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%.[7] For an auction to come to a close there are several different options. One of these options, proposed by McAfee, suggested that auctions should come to a close after a predetermined number of rounds in which the license receives no new bids.[7] Another option, proposed by Wilson and Paul Milgram of Stanford University, says that all auctions should end simultaneously when there is no new bid on a license. To date, the latter of these two options is the only one to be used in the spectrum auctions.[7]
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."[8]
Despite the apparent success of spectrum auctions, an important disadvantage limiting both efficiency and revenues is 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.
Companies that participate in a spectrum auction "must give consumers the right to use any compatible device on the network and to use any software applications they choose on that device."[9]
The FCC has announced that it will hold the 700mhz band spectrum auction on July 19, 2011. The auction has been titled "Auction 92".[10] This year's auction will feature 16 licenses which were left over from auction 73 which were either unsold or not paid for. The licenses available are from block A and B of the spectrum and include:
| Block | Frequency (MHz) |
|---|---|
| A | 698-704 & 728-734 |
| B | 704-710 & 734-740 |
As outlined by the FCC, the bidding structure consists of five rules and regulations.
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.
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 licences 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.
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.
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.
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.
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[11] 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.[12] 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.[13]
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 will be making the switch from analog to digital television and plans to hold auctions for the 700 MHz and 2500 MHz bands of the spectrum in 2012 that will be freed up by the digital switch.[14][15] Minister of Industry, Christian Paradis, hopes that the auctioning of these two bands, sometimes referred to as "prime location", will help foster more competition in the telecom sector, particularly wireless, where Canada is just beginning to the feel the effects of competition from new wireless companies from the 2008 auction.[14]
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 7.5 Million Euros for two blocks in the 800 MHz band[16]
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]
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.[20] 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. See 3G Spectrum auction India