20 Newland St Flynn, ACT, 2615 Australia
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Auction results

Auction Systems & Spectrum Packaging

In this section:

Auction services

Futurepace RF Solutions provides advice and services to help manage most aspects of radiofrequency spectrum sale, purchase and use:

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Equipment standards

Equipment standards are not used for the management of interference in the regulation of Australian spectrum licences. However, the objectives of equipment standards have been transferred to the boundary conditions of a spectrum licence to create a generic equipment standard. The spectrum lots, may or may not align with either the channel plans or out-of-band emission limits of a particular standard.

Licensees register devices in a centralised national database, through persons who are accredited by the Regulator to certify that a device operates in accordance with the licence conditions. The device registration process creates a simplified equipment type approval process. Equipment certification is performed with respect to the spectrum space each device uses in relation to the size of the licence. The inherent flexibility of a spectrum licence is left for the bidder/licensee to extract, and sensibly that flexibility should be based on a careful technical and commercial assessment before the auction. The spectrum lots and subsequently issued licenses may accommodate the operation of a particular standard (or even non-standard equipment) at a particular location, radiated power and frequency, depending on the size and shape of the licence that a bidder has acquired.

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Auction background

Auctions have been traditionally used to find the current price of goods when little is known about their true value. A special auction methodology, called a "simultaneous multiple round auction", is available to auction radiofrequency spectrum where all lots are simultaneously on offer over multiple rounds of bidding. This type of auction is especially useful when there are lots that are of essentially equal value and substitutable, except that different bidders may prefer different combinations of lots.

A spectrum lot is one of a number of parcels of spectrum space defined in terms of a geographic area and a frequency bandwidth. Where possible, the lots may be aggregated after the auction to form much larger spaces having much greater utility than the individual lots. These aggregated lots are issued as spectrum licences with carefully designed access conditions for their use so that, depending on the size and shape of the space, licensees may operate any type of device within their spectrum without interfering with neighbouring licences.

By using multiple rounds, a bidder has the opportunity to gather information concerning the value of individual lots and can change strategy by shifting the bidding to another preferred combination if one combination becomes too expensive. Bidders can usually match each other, switching between lots, until their business cases start to diverge. Ideally, a bidder will have a number of fall-back business cases and when the price of spectrum gets too high, the less profitable services of a business plan will be shaved off resulting in geographic area and/or bandwidth changes or reductions.

Information is released in three main ways during an auction:

  1. Bidder status;
  2. High bids; and
  3. Bandwidth value
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Bidder status

The status of a bidder is indicated by:

  1. their current high bid total;
  2. any penalties or fines to be paid because of withdrawing from a high bid on a lot when that lot is not yet overbid by another bidder Ü the penalty is equal to the difference between the bid and second highest bid;
  3. initial eligibility to bid up to a self-determined maximum size for a combination of lots, but within any set competition limits, based on a credited payment by a bidder before the auction begins;
  4. current eligibility - eligibility is normally permanently reduced when a bidder is not sufficiently active in a previous auction round;
  5. a measure of the activity as a percentage of current eligibility, relating to valid bids (not highest bids alone) Ü it must be a minimum level (the activity target), usually increased during the auction to prevent the auction stalling; and
  6. the number of waivers remaining that allow zero bidding activity in a round without loss of eligibility.

The objective of applying penalties for withdrawing bids is to ensure that if a bid is made on a lot, the ACA obtains that full amount through penalties based on the difference between that high bid and any subsequent bidding on the lot. If there are no further bids on that lot, the original high bidder must pay the full amount. There have been a number of changes to the method of calculating penalties since the first spectrum auction.

If a bidder has not placed sufficient bids to meet the activity target, eligibility is permanently lost with the new eligibility being (sum of lot ratings for current bids) divided by the currently set percentage of eligibility expressed as a fraction. Lot ratings are set before the auction begins.

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High bids

The maximum value placed on a lot by a bidder depends on:

  1. the type of service being proposed by a bidder;
  2. the expected return for providing that service; and
  3. the expected return for providing that service; and

The type of service relates to both the wireless communication technique and its information content. Different services may utilise the same amount of spectrum with different efficiencies. In technical terms, the efficiency of spectrum use simply relates to data capacity (number of bits of data they can pack into one Hertz of bandwidth) and the degree of cellular reuse. Cellular reuse is about reusing bandwidth by bringing base stations closer together until system self-interference causes too much of a problem. In achieving a certain data capacity a cost balance can occur between buying more bandwidth and building more base stations.

The operating frequency is also important because at higher frequencies, the communication distance from a base station reduces considerably and there must be a sufficient number of customers within that distance to pay for the provision of the service. Therefore, the population density (and types of business activity) can also be an important criterion. In addition, some bidders may already own spectrum from past auctions and not require as much as new market entrants.

The type of content will require a minimum data capacity (or bandwidth) for a maximum number of simultaneous users. The number of customers coupled with the price of equipment (especially customer equipment) and effect of competition will determine how much the spectrum is ultimately worth to a bidder.

The utility of the spectrum rather than the spectrum itself defines the actual product that is being auctioned and bidders assess the value of the spectrum on that utility. Futurepace Solutions can maximise spectrum utility and establish the minimum spectrum requirement by fitting a network within the access conditions designed for each auction. Although it is possible for access conditions to accommodate all types of services in an unbiased manner, with one service not requiring substantially more spectrum space to operate than the other, the 2GHz spectrum for example, is not technologically neutral and biased towards the operating and deployment characteristics of IMT-2000. Other types of services may be accommodated at 2 GHz, however, the utility of the spectrum for those services depends on access to additional amounts of spectrum space sufficient for the purpose.

If a bid is less than a set minimum bid increment, the bid is not valid. Note that Bidder activity in a round is based on the value of valid bids. Valid bids must be either a set starting bid or a minimum increment of the current bid being the higher of:

  1. a set amount per lot rating; or
  2. a set percentage of the current bid.

The set amounts and percentages may be changed during the auction. After a bid withdrawal, the lot is held by the ACA (Bidder Identification Number 9999) and the minimum bid for the lot is equal to the next highest bid (can be the same amount) or the starting bid.

Also bidders do not have to raise their own high bids in the previous round to maintain bidding activity on that spectrum lot. In cases where high bids are equal, the first-in-time bid wins. This may be counteracted by a facility available to automatically re-bid up to a bidder nominated limit when another bidder also bids on that particular lot. The bid recorded is the lower of either one minimum bid increment above the next highest automatic re-bid limit or that set limit.

The 2 GHz auction offered National lots, grouped Capital City lots and individual city and regional lots. This was most likely an attempt to provide a half-way house to the, as yet elusive, combinatorial auction. Classic auction design warns against national lots because it can reduce competition by restricting those lots to only those bidders requiring a national lot. The same can be said for grouped city lots. The simultaneous auction is designed to allocate large number of substitutable lots. With such a range of groupings there is a possibility of instability in an auction as bidders change back and forth between the national and component lots depending on the price. Or if the national lots have lower competition, there may be a resulting lower price paid for that spectrum.

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Bandwidth value

The value of the bandwidth depends on whether it is paired or unpaired because different amounts of spectrum and types of services are involved. Paired spectrum does not necessarily have to be used (or traded after the auction) in the same manner as it is auctioned. Spectrum is another product where the utility of the sum of the parts is more valuable than the sum of the utilities of the individual parts. For a number of reasons, bandwidth is more valuable when it is contiguous than when it is fragmented. Fragmented bandwidth normally indicates strong competition for the component spectrum lots. Competition policies often limit the amount of spectrum a bidder may purchase. For example, in the 2 GHz auction a bidder could purchase a maximum bandwidth of 15 MHz paired spectrum plus 5 MHz of unpaired spectrum in capital cities and 10 MHz of paired spectrum in regional areas.

The most common indicator of bidder valuation is the $ per MHz per population criterion ($ / MHz Pop). This is the amount being offered for a spectrum lot divided by both the size of its bandwidth and the number of people living in its geographic area. The relationship between value and population size is not usually linear, depending on the population density. Note that for the 2 GHz auction, the National lots were not exactly ideal for the $ / MHz Pop criterion because they consisted of 10 MHz bandwidth in capital cities and 5 MHz in regional area

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