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

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. Summary
Auction design does not have to be complicated.
There is no one-size-fits-all approach.