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Specure Auctions - The European Experience

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Presented on 7th September 2017 at 4th LatAm Spectrum management conference in Bogota

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Specure Auctions - The European Experience

  1. 1. European experience with Electronic Spectrum Auctions Jozef Svrcek 4th Annual LatAm Spectrum Management Conference September 2017 So what really determines how much you pay for Spectrum in an auction? It is not your business plan, it is not the reserve price. What really matters is how many Nobel-price-winning economists you have on your bid team. We believe that in some markets spectrum auctions have become dangerously complex and regulators and operators are best served by simple auction design that is fit for purpose.
  2. 2. Auction design does not have to be complicated No one-size-fits-all approachMy two messages today are that auction design does not have to be overly complicated; and every country and every auction is different, there is no one size fits all approach.
  3. 3. Auction types in Europe SMRA CCA Combined multi round Package bid (other) CMRA The three most common auction formats are: the Simultaneous Multiple Round auction (or SMRA), then the Combinatorial Clock Auction (or CCA) and more recently Combinatorial Multi-round Ascending Auction (CMRA). Lets look at each of those auctions in a little bit more detail.
  4. 4. Various auction formats SMRA FCC in 1994 The SMRA was introduced by the United States Federal Communications Commission (FCC) in 1994. In the SMRA bidders bid on multiple lots of spectrum simultaneously in each round.
  5. 5. Various auction formats SMRA FCC in 1994 CCA UK L band in 2008 The CCA was introduced about 15 years later. The major difference is that bidders can bid on packages of spectrum. They either get the whole package or nothing at all. The challenge with CCA is that even in its simplest form, it is extremely complex.
  6. 6. SMRA FCC in 1994 Various auction formats CCA UK L band in 2008 CMRA Limited experience Auction designers, not content with the challenges of the CCA auction design, have now developed the Combinatorial Multiple-Round Ascending Auction, and have taken the complexity to an entirely new level. The CMRA has the added advantage of bidding for several combinations in each round of bidding. OK, whilst auction format is important what really matters are the following three auction design features.
  7. 7. Factors at play Reserve prices Activity rules Information disclosure Those three auction features are: Information disclosure, Activity rules and Reserve prices. The amount of information provided influence the possibility for strategic bidding activities such as collusion. Generally speaking the less information you provide, the harder it is for bidders to collude. Activity rules play a key role in ensuring an efficient outcomes and how long the auction takes to complete. One of the most critical factor is the reserve price. There are numerous examples of auction failure due to inappropriate reserve prices. If the reserve prices are too high, some blocks may stay unsold and there is no efficient allocation of spectrum.
  8. 8. GERMANY 2015 SMRA POLAND 2015 SMRA SWITZERLAND 2012 CCA MONTENEGRO 2016 CCA Now, I want to share with you some experiences with the recent auctions in Europe. Many of the past auctions did not go as smoothly as planned. On the left, in the stormy weather, we have auctions that presented bidders and regulators with some significant challenges. And on the right we have some examples of the very successful auctions.
  9. 9. Government’s intervention in the middle of the auction Poland Switzerland Unbalanced amount paid for the spectrum In the Swiss auction, due to the complexity of the CCA auction format, one player won approximately one third more spectrum and paid one- third less than its competitors. In Poland, the SMRA auction went for 9 months, the prices rose horrendously, so the regulator decided to alter the closing rule after 115 days of bidding. This resulted in numerous issues. Two blocks in 800 MHz were significantly more expensive than two other blocks. In addition, one of the winners withdrawn its winning bid for 800MHz and did not pay the full license fee.
  10. 10. Almost unprecedented transparency GermanyMontenegro Customized CCA auction design On the other hand, there are also auctions that went well, such as the German SMRA in 2015 and the Montenegro auction in 2016. The Montenegrin auction was a CCA auction with 5 bands and 2 separate time periods. Still , the government managed to control the complexity and the associated risks by early communication with all stakeholders and by adjusting the generic CCA auction format, which was precisely cut to the market situation in Montenegro. In Germany, the regulator took yet different approach. It was a SMRA with full transparency. Bidders learnt the entire bid history of other bidders from the start. The transparency actually helped the bidders to express their preferences over the full spectrum allocation. The bidders could veto unwanted allocations rather than having to submit a large number of acceptable allocations. Thus, the simple, transparent design implicitly ensured a healthy competition.
  11. 11. Summary Auction design does not have to be complicated. There is no one-size-fits-all approach.

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