Structure of the CCA - Rebecca Burdon - ACMA

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Presentation by the ACMA's Rebecca Burdon to the January 2012 digital dividend auction stakeholder workshops

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Structure of the CCA - Rebecca Burdon - ACMA

  1. 1. Structure of the CombinatorialClock Auction (CCA)Rebecca BurdonPrincipal Economist, Regulatory Futures, ACMA
  2. 2. Overview> Purpose - Step through the structure of the CCA as outlined in the early exposure draft of the auction procedures (http//engage.acma.gov.au/digitaldividend/feedback-sought-on-draft-auction-procedures/)> Outline - Reasons for using a CCA for Digital Dividend allocation - Overview of the auction process - Allocation stage structure and rules - Assignment stage structure and rules
  3. 3. Advantages> Aim is an efficient allocation – the auction format should allow bidders to bid effectively for all combinations of spectrum they are interested in acquiring> Multiband auction – complementarities likely, both across bands and within a band> CCA - Bidders can bid for packages of lots - no exposure risk - Multiple open rounds - aids price discovery - Pricing rule - simpler to develop bidding strategy - Generic lots - assigns contiguous lots to winners
  4. 4. Overview: the auction process Allocation stage Yes Auctioneer increases price for all products with excess demand Excess Determines Clock rounds - series demand amount ofApplication of bidding rounds for any product? spectrum won by each bidder Supplementary round No – sealed bid round Determines Assignment stage – sealed bid round(s) location in the band Auction ends
  5. 5. Allocation stage: the product> The spectrum will be grouped into products for sale> Each product includes a number of generic lots - in the same frequency range - of the same bandwidth - for the same geographic area - with the same licence conditions and technical framework> All lots in a given product will have the same opening prices and eligibility points - perfect substitutes in this stage of the auction
  6. 6. Allocation stage: illustrative exampleof possible product offering REGIONS CATEGORIES 700 MHZ upper 700 MHz lower 2.5 GHz band National 8 lots of 2X5 MHz 1 lot of 2X5 MHz Metro Perth 14 lots of 2x5 MHz Metro Darwin 14 lots of 2x5 MHz Metro Adelaide 14 lots of 2x5 MHz Metro Brisbane 14 lots of 2x5 MHz Metro Sydney 14 lots of 2x5 MHz Metro ACT 14 lots of 2x5 MHz Metro Melb 14 lots of 2x5 MHz Metro Hobart 14 lots of 2x5 MHz Regional East Aust 14 lots of 2x5 MHz Regional West Aust 14 lots of 2x5 MHz Remote Aust 14 lots of 2x5 MHz
  7. 7. Overview: the auction process Allocation stage Yes Auctioneer increases price for all products with excess demand Excess Determines Clock rounds - series demand amount ofApplication of bidding rounds for any product? spectrum won by each bidder Supplementary round No – sealed bid round Determines Assignment stage – sealed bid round(s) location in the band Auction ends
  8. 8. Allocation stage: clock rounds - structure> Clock rounds are a series of open bidding rounds> Clock rounds are scheduled at the auction manager’s discretion - Each clock round is likely to run for around 30 minutes - Recesses between clock rounds are likely to run for around 30 minutes> Auction system will give the anticipated schedule of rounds and recesses for a given day, and bidders will be notified of any variation
  9. 9. Allocation stage: clock round - bids> In each clock round bidders should bid for the quantity of lots in each product they most want at current round prices - Each bidder can make one bid in each clock round - Each bid is a package bid for all the lots specified in that bid> A valid bid is a binding commitment to buy the relevant package for any price up to the amount of the bid> A bidder can change its bid within a round – the binding bid is the last valid bid made by the bidder in the round
  10. 10. Allocation stage: clock round - constraints on bids> Bids in clock rounds are subject to constraints - The quantity bid cannot exceed any relevant spectrum cap - In the first clock round - the quantity bid must not exceed the eligibility established in the bidders lot application form - In all subsequent clock rounds the proposed activity rules require that the bid: - must not exceed the bidder’s eligibility based on previous clock round bids; or - must be consistent with preferences revealed in previous clock round bids
  11. 11. Allocation stage: clock rounds - information> Before the start of each clock round, each bidder will be notified of: - the start and end of the round time - the round prices that will apply to lots in each product - the aggregate demand for each product in the previous clock round - the quantity and value of its own bid in the last clock round - its own eligibility to bid in the next clock round> During each round each bidder will be notified if a bid is invalid> Bidders will not be informed of others’ individual bids or others’ eligibility to bid in the next clock round
  12. 12. Allocation stage: clock rounds - end> In each subsequent clock round the auction manager - increases prices for all products with excess demand - does not change prices for all products where demand is no greater than supply> The clock rounds end when there is no excess demand for any product> Bidding remains open on all products until the clock rounds end
  13. 13. Overview: the auction process Allocation stage Yes Auctioneer increases price for all products with excess demand Excess Determines Clock rounds - series demand amount ofApplication of bidding rounds for any product? spectrum won by each bidder Supplementary round No – sealed bid round Determines Assignment stage – sealed bid round(s) location in the band Auction ends
  14. 14. Allocation stage: supplementary round - structure> The supplementary round is a single sealed bid round> Auction manager has discretion over the time and duration of the supplementary bid round - There is likely to be at least one full business day between the end of the clock rounds and the start of the supplementary round - The supplementary round is likely to take place on a single business day and last for between four to eight hours
  15. 15. Allocation stage: supplementary round - bids> In the supplementary round each bidder can submit a number of bids to: - increase its bids for the package(s) bid on in the clock rounds and - bid on other packages> Each bid in the supplementary round must specify: - the quantity of lots sought in each product (the package) and - the amount the bidder is offering for that package> Each valid supplementary round bid is a binding commitment to buy the relevant package for any price up to the amount bid> A bidder can change its supplementary bids during the round – the set of valid supplementary bids on the auction system at the end of the round is the binding set of bids
  16. 16. Allocation stage: supplementary round –constraints on bids> Bids in the supplementary round are subject to constraints - A bidder cannot submit a supplementary bid for a package that: - exceeds any relevant spectrum caps - exceeds its eligibility in the initial clock round - The amount of each bid must: - be at least the sum of the opening (reserve) prices for the lots in the package - be at least as much as any bid that bidder made for the same package in the clock rounds - satisfy the Revealed-Preference Cap for the relevant package
  17. 17. Allocation stage: supplementary round –information> During the supplementary round the auction system will: - identify if any bids in a set of supplementary bids are invalid, and - notify the bidder of which bids are invalid
  18. 18. Allocation stage: determining winnersand allocation prices> The winning allocation stage bids are the set of clock and supplementary round bids that give the highest total value, subject to: - the available supply of lots - only one allocation stage bid being accepted from each bidder> If there is more than one equal highest value set of bids, tie breaking rules will be used> An allocation price is calculated for each winning bid: - that is at least as much as the sum of the reserve (opening) prices for each lot in the package, and no more than the amount offered by the winning bidder for the set of lots won - using a weighted Vickrey Nearest – Minimum Revenue Core pricing rule
  19. 19. Allocation stage: end> When the auction manager has determined the winning allocation stage bids and each winner’s allocation stage prices, bidders will be told: - the number of winning bidders - the total number of lots in each product allocated> Each bidder will also be told: - the number of lots in each product it has won - the allocation price for the package it has acquired
  20. 20. Overview: the auction process Allocation stage Yes Auctioneer increases price for all products with excess demand Excess Determines Clock rounds - series demand amount ofApplication of bidding rounds for any product? spectrum won by each bidder Supplementary round No – sealed bid round Determines Assignment stage – sealed bid round(s) location in the band Auction ends
  21. 21. Assignment stage: structure> Assignment stage is used to award specific frequencies to the winners from the allocation stage - Only winners from the allocation stage can bid in the assignment stage> The assignment stage may consist of one or more assignment rounds> Each assignment round will be a single sealed bid round> The auction manager has discretion over the time and duration of the assignment stage. Any given assignment round: - is likely to take place on a single business day - is likely to commence no sooner than the day after the end of the supplementary round
  22. 22. Assignment stage: structure - numberof rounds> Appropriate number of assignment rounds will depend on the number of winning bidders for each product and the number of lots won by each winner. For example: - it may be appropriate to have separate assignment rounds for each product - if bidders each win the same number of lots in every region in a frequency band it may be appropriate to run an assignment round that includes all the regions in that frequency band> Auction manager has the discretion to select the appropriate number of assignment rounds
  23. 23. Assignment stage: bids> An assignment round bid should state the additional amount a bidder is willing to pay to be allocated a specific set of frequencies, over and above the bidder’s allocation price - Each bidder can submit a set of bids stating the amount it is willing to pay for each of the frequency assignment options listed by the auction manager - Zero bids are permitted - If a winning bidder from the allocation stage does not submit an assignment bid it is deemed to have bid zero> Each allocation stage winner is guaranteed to be assigned the number of lots it acquired in the allocation stage> Each assignment bid is a binding commitment to pay a price up to the amount bid for the specific frequency assignment option
  24. 24. Assignment stage: constraints on bids> Each allocation stage winner can bid on any of the frequency assignment options listed by the auction manager> All assignment bids must be a non-negative amount
  25. 25. Assignment stage: information> At the start of the assignment stage, the auction manager will inform bidders of the start time and end time for each assignment round> Prior to the start of each assignment round, the auction manager will, for each bidder, list the set of frequency options for the products being assigned in that round: - that ensure each allocation stage winner obtains a contiguous frequency range corresponding to the amount of spectrum acquired in the allocation stage - identifying any unallocated lots, and whether the location of unallocated lots in the band is set by the auction manager or to be determined by bidding in the assignment round
  26. 26. Assignment stage: determiningwinners and assignment prices> For each assignment round the winning assignment bids are the highest value set of assignment bids subject to: - only one bid from each bidder being accepted - each bidder being awarded a distinct set of frequencies - any rules regarding the treatment of any unallocated lots being met> The auction system will calculate the assignment prices for each winning assignment bid. Assignment prices: - can be no more than the amount offered by the winning bidder for the specific frequencies it has been assigned - are calculated using a weighted Vickrey Nearest – Minimum Revenue Core pricing rule
  27. 27. Assignment stage: end> When the auction manager has determined the winning assignment bids and the assignment stage (additional) prices all bidders will be told: - the identity of the winning bidders - the frequency ranges awarded to each winning bidder - the allocation stage (base) prices and any assignment (additional) prices to be paid by each winning bidder> The licence fee payable by winning bidders will be the sum of the allocation prices and the assignment prices
  28. 28. Questions?

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