www.KBEauctions.com Bandplan Issues Incumbents occupy 65 MHz so 125 MHz remains Guard bands will be necessary for TDD & FDD to coexist Band Plan will require reshuffling to accommodate FDD Allocation impacts assignment mechanism
www.KBEauctions.com Overview of Assignment Options First In Time Lottery Beauty Contest Auction Hybrid process
www.KBEauctions.com Assignment Options Per the General Notice, ICASA is considering: A purely comparative evaluation process; or A purely competitive evaluation process; or A combination of the two. For ease of reference, the Authority shall refer to combination of the competitive and comparative evaluation processes as truncated granting methodology.
www.KBEauctions.com ICASA Assignment Methodology Concerns Concerns for Comparative Process Opaque and Non-transparent Requires Ranking Applications Concerns for Competitive Process Risk of Collusion Spectrum acquisition costs being passed through to consumers ICASA documents appear to favor the truncated granting methodology -- a hybrid approach
www.KBEauctions.com Arguing Against A Beauty Contest A beauty contest component, even if paired with an auction is problematic: Difficult to be objective, non-discriminatory and transparent Litigation risk Difficult to set selection criteria and evaluate. Often favors incumbents Often a lengthy process Because it is a subjective process there is no guarantee that it will not disqualify an applicant that could build out a network effectively
www.KBEauctions.com Incorporating Social Objectives into an Auction Strict eligibility requirements Bidding credits for small businesses, disadvantaged individuals and women New entrant set-asides Spectrum caps for incumbents to promote new entrants Lease fees in lieu of full payment for spectrum licenses Strict build out requirements Establishing objective use or lose spectrum policy
www.KBEauctions.com Auction Components Definition of product being sold (property rights and responsibilities) Bidding Auction Deposits (Must be enough to level the playing field and attract serious bidders) Who is allowed to bid? (Eligibility requirements) How are bids presented? (One time or Multiple rounds) How much must bids be beaten by? (Bid increments) Information Are current bids revealed? (Hiding bid identities during the auction helps to reduce strategic gaming) Are winners identified? (Transparency of process) Clearing Who gets what and at what price? (First or Second price)
www.KBEauctions.com Auction Rules Matter Regulators want bidders to tell the truth, but.. Bidders might do better by lying (e.g., by forming a ring or by colluding) All auctions types are subject to some sort of manipulation by collusion among buyers, sellers, and/or auctioneer. Bidders need to be wary of winners curse (bidder who wins believes they overpaid) Encourage bidder participation – more competition, reduces ability to collude. Minimize/eliminate exposure and aggregation risks - bidders that win some but not all of their desired licenses Allow bidders flexibility to pursue back up strategies without increases exposure risks 11
www.KBEauctions.com Choosing an Auction Type Sequential vs. simultaneous auctions Simultaneous auction takes into account complementarities and substitutability of spectrum licenses. Single round vs. multiple round auctions Multiple round allow bidders to help avoid the winners curse and allow for price discovery during the auction. Simplicity vs. more complex auctions Depends on the number of licenses, bidder sophistication, and degrees of complementarities and substitutability of the licenses in the auction. Clock auctions vs. Simultaneous Multiple Round Auctions Clock auctions are generally simple for bidders to participate in but may require additional measures to deal with overshooting.
www.KBEauctions.com International Auction Practices in 2.5 and 3.5 GHz bands Most countries have used an auction to allocate spectrum in these bands Some countries have allocated spectrum nationally, while others have opted for regional allocations Most countries have auctioned 2.5 and 3.5 GHz bands separately Spectrum generally will be allocated on a technology neutral basis
www.KBEauctions.com International Experiences: In June 2002, Nigeria held a single round combinatorial auction for 3.5 GHz spectrum UK and the Netherlands plan to auction spectrum using a combinatorial clock auction with final round stages to choose high bidders and assign specific frequencies. Paired and unpaired spectrum assigned through the auction mechanism. Denmark recently issued a consultation document proposing a combinatorial clock auction using the CEPT bandplan. New Zealand in December 2007 chose a SMRA auction method with defined paired and unpaired spectrum blocks in the 2.3 and 2.5 GHz bands
www.KBEauctions.com International Experiences: Sweden and Norway opted for SMR auctions with switching rules where paired and unpaired spectrum was pre-defined Italy auctioned 3.5 GHz licenses using a first price sealed bid auction method in early 2008 Germany auctioned 3.5 GHz licenses using a Simultaneous Multiple Round Ascending Auction format Taiwan used a hybrid beauty contest/Auction process Hong Kong used an SMR format where paired and unpaired spectrum was pre-defined. Jamaica conducted a hybrid beauty contest/sealed bid auction in early 2009. The auction failed to meet the established reserve price.
www.KBEauctions.com Recommendations Develop auction application without subjective evaluation criteria (no hybrid approach) Minimizes litigation risk Minimizes entry costs Include self certification language on pre-auction application to include: Eligibility requirements Technical capabilities Financial capabilities Collusion rules
www.KBEauctions.com Recommendations Facilitate robust competition Consider incentives for new entrants Facilitate Low entry costs to increase competition Keep it simple Consider assigning 2.5 and 3.5 GHz licenses in separate processes Implement a simple SMRA auction design that is well tested Use robust commercially available software Make it easy for participants to understand and participate Use a straightforward bidder interface
www.KBEauctions.com Recommendations Eliminate collusion Establish strict, enforceable anti-collusion rules Eliminate strategic gaming Do not reveal bidder identities before or during the auction Minimize demand reduction Keep it secure Encrypt bids Provide transparency in the process Publish bidder identities after the auction
Thank You KB Enterprises, LLC www.KBEauctions.com iWeek 2009