You’ll be familiar with the British style of conducting auctions. The price starts somewhere suggested by the auctioneer, and then goes up so the highest bidder holding the most nerve gets the item.
You may know about Dutch auction, where the price starts high and then comes down, with the same effect, that the bidder wanting it will stop the falling price when thinking ahead of the opposition.
If you haven’t yet heard of combinatorial clock auction systems, you are about to learn a while lot more as the national auction of 4G spectrum gets under way.
Complex Auction Systems
Selling spectrum is akin to the government selling fresh air, as far as some purists are concerned. To others, it’s juts a way of topping up the public coffers. The method of selling is likely to be controversial, either way.
Combinatorial is a price clock-based auction designed to sell multiple items in a single process, allowing interested parties to bid on different combinations of spectrum. It is used for selling franchises and licenses on big complex sales like airport landing slots or radio airwaves.
Certainly as a means of selling spectrum, it’s the system of choice in Holland, Austria, Switzerland, Denmark, Australia, Canada and Ireland. Others will follow, despite the incredible depth of tortuous complications possible, and dangers that some bidders could win no spectrum while others pay too much.
For the regulators auctioning off taxpayers’ assets, the auction process could distort the competitive market, create inefficient use of precious frequencies or sell too cheaply.
Ofcom has now settled the ground rules for what will be the biggest ever auction of spectrum to date. Space has been freed by shutting down analogue TV channels, yet the demand for spectrum is insatiable and comes providers and users of smartphones and devices for internet access at ever faster speeds.
Ofcom’s principal duty under the Communications Act 2003 is to further the interests of citizens, and the interests of consumers where appropriate by promoting competition. To that end, they are reserving some spectrum for a fourth national wholesaler other than the three largest mobile operators (Vodafone, O2 and Everything Everywhere).
It is thought that Three will get this portion, however, other outside or start-up providers cannot be ruled out. Three could get some of the lower quality 1800 MHz spectrum that Everything Everywhere is selling separately and so forfeit the fourth preserved slot.
Ofcom claim this auction will offer about 66% of the mobile spectrum in use today, 80% more than for 3G in 2000. They say that mobile should be rolled out to 98% of people ‘in villages, towns and cities’ across Britain. In fact, they say, ‘almost every home.’
They’re to offer at least two spectrum bands – 800 MHz and 2600 MHz. The lower is what they call part of the ‘digital dividend’, ideal for widespread mobile coverage, while the higher frequency is ideal ‘for delivering the capacity for faster speeds.’
With at least four credible national wholesalers of 4G services, Ofcom believe that UK consumers will benefit. With the series of lots on offer will attach public service obligations, to, for example, provide mobile broadband service indoors to at least 98% of the UK population ‘by the end of 2017 at the latest’. This is in reality, an indoor service to at least 95% of England, Wales, Scotland and Northern Ireland.
They are expecting to engage in statutory consultation on the legal instruments in September, potential bidders registering and being assessed with the actual bidding itself getting under way by early 2013. New availability to customers should come on stream by this time next year.
Of course, cynics are pointing out that all this should have happened months ago. The reason it didn’t was that Ofcom were desperate to avoid any possible legal reprisals from operators. They wanted to have everything watertight, which sounds reasonable.
It’s just that digital revolution doesn’t wait for legal niceties to catch up. Digital Trend’s Simon Hill said: ‘the timetable puts the UK well behind the leading markets. The fourth generation of bandwidth for mobile devices is already widely available in the US and it provides consumers with much faster download speeds, up to ten times faster than 3G.’
Once the auction is done and the service is here, the agenda will switch. Hill pointed out that the auction will also ‘generate a lot of cash’. The 3G auction raised a staggering £22.5 billion (around $35 billion) and that was back in 2000.
The 4G auction has a reserve price of £1.4 billion but is widely expected to raise a lot more. Estimates fluctuate between that and £8 billion. Whatever it turns out to be, it will be a life line to the Chancellor of the Exchequer, desperate to balance the books.
Ofcom, 24 July 2012
Digital Trends, 4G spectrum auction, 24 July 2012
Image: Phillip Halling