[Blogmeister’s Note: This is another in a series of posts describing the FCC’s Incentive Auction Notice of Proposed Rulemaking. You can find all installments in this series by clicking here.Contributors to this series include Dan Kirkpatrick, Rob Schill, Don Evans and Harry Cole.]
The “forward” auction to be used to dole out reconfigured spectrum to wireless operators may seem traditional, but watch out.
If the “reverse” auction designed to clear TV broadcasters out of large chunks of their current spectrum isn’t complicated enough, consider the “forward” auction. That’s the component of the Incentive Auctions in which hopeful wireless licensees will bid on the to-be-vacated spectrum sight unseen at the same time that the spectrum is being cleared. Because the availability of wireless licenses is dependent upon the results of the reverse auction in different geographic areas, wireless bidders won’t know exactly which spectrum band they’re bidding on or even whether any band will actually be available when the reverse auction is over.
This double helix of descending bids on spectrum simultaneously coupled in sequential stages with parallel ascending bids on that same spectrum is audacious. But it is theoretically an efficient and quick way of re-assigning a precious resource.
Complexity in the computer age is not necessarily a deal breaker, but human (and computer) fallibility gives us some pause about this plan. Through the Incentive Auction Notice of Proposed Rulemaking (NPRM), the Commission is still looking for input on its plan, so we can expect experts from the world of Academia to chime in knowledgeably on the concept.
In the meantime, we lay out here the Commission’s preliminary thoughts. The three basic auction design elements are: bid collection procedures, assignment procedures, and pricing.
Bid Collection Procedures. The Commission proposes a “dynamic auction design format” with two alternative approaches: the typical “simultaneous multiple round ascending (SMR) auction” and, in this instance, the more favored “ascending clock auction.”
The SMR design may be the more traditional auction approach. It involves a sequential series of rounds in which bidders specify what they would be willing to pay for each license to be acquired; the last provisional winning bid for any license becomes final when the next round does not produce any additional bids for that license.
In the ascending clock format, by contrast, at the beginning of each round the Commission would announce prices for generic licenses in each category in each geographic area; bidders would then submit quantity bids for the number of licenses they would be willing to acquire at the FCC-established price for that round. Prices may differ depending on the category of license and the geographic areas to be served, but prices would remain the same within each category of a specific geographic area. Prices would be raised for each round until there is no longer demand. The hope is that bidding for generic blocks would actually speed up the process. (The NPRM includes a proposal for “intra-round bidding” in order to avoid a situation in which the FCC-set price for a given round does not attract enough bids.)
In addition to the above, the Commission seeks comment on the possibility of “package bidding”, which would afford bidders the opportunity to make an “all-or-nothing” bid for a group of licenses. The upside of “package bidding”: the bidder could avoid going home with a handful of licenses insufficient to meet its business needs, since its “package bid”, if successful, would give it the totality of necessary licenses. The downside, of course, is the same downside as any “all-or-nothing” proposition: the bidder could end up with nothing.
Assignment Procedures. Details of exactly how successful bidders will be matched with particular licenses are a bit fuzzy. As discussed in our separate post describing the reconfiguring of the UHF band for mobile operation, the Commission is tentatively figuring that it may sell spectrum in the “forward” auction in 5 MHz blocks, paired where possible. The Commission would assign contiguous blocks to bidders that bid for multiple blocks in the same geographic area; the assignment process could take into account the need to coordinate frequencies across adjacent areas
Bidders would thus be bidding on spectrum blocks without knowing precisely what frequencies they might ultimately acquire – since the frequencies to be available won’t be known for sure until the “reverse” auction process and consequent TV repacking have been completed.
The NPRM contemplates that, at the conclusion of the initial “forward” auction, an additional “auction phase” might be used to assign specific frequencies. (Such an additional “phase” would likely involve additional bidding.) If “package bidding” is allowed, the Commission will need to take these bids into consideration in the final matching up of licenses to successful bidders. If the Commission goes forward with the generic blocks approach, “the assignment procedures would assign contiguous blocks to bidders that bid for multiple blocks in the same geographic area and could take into account the need to coordinate frequencies across adjacent areas.”
Procedures to Determine License Prices. Naturally enough, the final prices will be the highest amounts bid in the initial “phase” of the “forward” auction (regardless of which particular format the FCC ultimately settles on). But as noted, those final prices may be increased through a second “auction phase” to assign specific frequencies to specific successful bidders. The structure of any such additional phase is at this point up in the air; the NPRM solicits comments on any additional procedures that might be necessary.
Again, comments are currently due to be filed by December 21, 2012 and reply comments by February 19, 2013.
[UPDATE: As we have separately reported, on November 29 the Commission extended the comment and reply comment deadlines to January 25, 2013 and March 12, 2013, respectively.]