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Government auction of radio spectrum

A spectrum auction is a process whereby a government uses an auction system to sell the rights 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. 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.

In the 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. Mobile communication in particular has made many transitions since 2000, mobile technology has moved from second generation (2G) to third generation (3G) to fourth generation (4G) and is now in transition to fifth generation (5G) 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, 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. 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. A well designed auction is the method most likely to allocate resources to those who can use them most valuably. Rather than rely on government to assess the merits of competing firms' business plans, an auction forces businesses to put their "money where their mouths are" when they make their bids. An auction is more transparent, and gives rise to less political controversy when compared to other allocation mechanisms, since there is no room for subjectivity in assessing whether an undertaking accomplishes criteria for allocation (unlike a beauty contest or the direct allocation of a license). Auctions usually raise important sums of money provided there is competition among many bidders. As such, auctions are generally set up to favour smaller telecom providers, such as setting aside certain wavelengths that the "Big Three" firms—Bell, Rogers and TELUS—are precluded from bidding on, or reserving certain valuable wavelengths (e. g. those that can more easily penetrate elevators or tunnels) for small firms. Canada held its first spectrum auction in 1999, for Broadband Wireless Access (BWA) spectrum in the 24 GHz and 38 GHz bands. In May 2008, ISED 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 made the switch from analog to digital television, freeing up spectrum in the 700 MHz band for other uses. In February 2014, the country auctioned additional spectrum in the 700 MHz and 2500 MHz bands to the four major telecommunications players in the country and raised over $5.3 billion. Christian Paradis, Minister of Industry at the time, was quoted as hoping that the auctioning of these two bands (sometimes referred to as "prime location") would 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. In order to maximize compatibility and prevent cross border interference, the FCC in the United States (America's broadcast regulator) and ISED agreed on August 14, 2015, to coordinate their frequencies in their border zone.

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. 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 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 ₹ 82,000 crore ($11 billion) from spectrum allocation.

New Zealand's 1989 Radiocommunications Act of 1989 authorized Radio Spectrum Management (RSM) to create private property rights for spectrum and to use market driven allocation mechanisms for the granting of these newly created licenses. Initially, spectrum licenses were sold using a tender system, but the first New Zealand spectrum auction was held in 1996, "making New Zealand the first country to sell rights to use spectrum in this way." An internet based computer system was developed for the second auction, held in 1998.

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. 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). 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.

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 US$38.60 per inhabitant).

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). When initially planning and designing the spectrum auction, major telephone companies and the federal government relied on the input of various theorists including Paul Milgrom, Charles Plott, Barry Nalebuff, Preston McAfee, and John McMillan among others. 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. 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.

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 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. The foregoing notwithstanding, due to the complicated structure of spectrum auctions, it is not easy to identify collusive from non collusive bidding, although simple analyses of bid behavior can provide an important basis for recommended changes to the rules and structure of the auctions.

In a simultaneous ascending multiple round (SMR) auction, all licenses are available for bidding at the same time throughout the entire auction, thus the term "simultaneous." Unlike most auctions in which bidding is continuous, SMR auctions have discrete, successive rounds, with the length of each round announced in advance by the commission. Participants may bid on multiple licenses at once. After each round closes, round results are processed and made public. Only then do bidders learn about the bids placed by other bidders. This provides information about the value of the licenses to all bidders and increases the likelihood that the licenses will be assigned to the bidders who value them the most. The period between auction rounds also allows bidders to take stock of, and perhaps adjust, their bidding strategies. In an SMR auction, there is no preset number of rounds. All licenses will continue to be for sale until there are none left or there are no buyers. In other words, bidding continues round after round, until a round occurs in which all bidder activity ceases. That round becomes the closing round of the auction.

Information about anonymous bidding can be found under the section “Information Procedures During the Auction Process” within the FCC's Public Notice for any particular auction. For example, the established procedures for the FCC's 2018 5G Spectrum Auction 101 state that information to be made public after each round of bidding will include, for each license, the number of bidders that placed a bid on the license, the amount of every bid placed, whether a bid was withdrawn, the minimum acceptable bid amount for the next round, and whether the license has a provisionally winning bid. 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.

For each auction, the initial schedule for bidding rounds is typically released by the FCC in the Public Notice listing the qualified bidders before bidding in the auction starts. A Simultaneous Multiple Round Auction offers every license for bid at the same time and consists of successive bidding rounds in which qualified bidders may place bids on individual licenses. Unless otherwise announced, bids will be accepted on all licenses in each round of the auction until bidding stops on every license. Each round of sequential bidding rounds is followed by the release of that round's results. Multiple bidding rounds may be conducted each day. 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. Regulators and carriers have also been considering blocks of the 300 MHz spectrum which is normally used for television broadcasters. 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.