Introduction
1.1 Ofcom, in March 2006, consulted on its proposals for the award of available spectrum in the 1452 – 1492 MHz frequency band (“the consultation document”). In the consultation document, Ofcom set out a number of factors relevant to the spectrum award. These included:
- the current use of the available spectrum (Section 2);
- background on potential uses of the available spectrum, based on a market study commissioned by Ofcom (Section 2);
- potential substitute spectrum that could be used to deliver similar services as those identified in the market study (Section 2);
- Ofcom’s powers and duties (Section 3);
- Ofcom’s approach to spectrum management, including its objectives for the award (Section 4);
- a range of international issues and an assessment of how these could impact on potential users of the available spectrum (Section 5);
- options for packaging the spectrum for the award (Section 6);
- issues to consider when determining auction formats for the award of spectrum (Section 7);
- options of auction formats for auctioning the available spectrum (Section 7); and
- proposed technical and regulatory conditions that would be specific to the wireless telegraphy licences that would be awarded to allow use of the available spectrum (Section 8).
1.2 As explained in the consultation document, Ofcom’s main objective in this award is to promote the optimal use of the electro-magnetic spectrum, particularly in the 1452 –1492 MHz frequency band. The proposals in the consultation document (and in this discussion document) are designed to secure that objective.
Developments since the consultation document
1.3 The consultation document concluded that it would be appropriate to award the available spectrum using a simultaneous, multiple round auction (SMRA), rather than using sequential or single round formats. Ofcom also believed that it would be appropriate for the available spectrum to be awarded using specific lots rather than generic lots. However, Ofcom, in the consultation document did not conclude on the precise auction format to be used, in particular, Ofcom made no judgement as to whether or not to use package bidding in the award.
1.4 As a result of Ofcom’s analysis set out in the consultation document, two alternative SMRA auction formats were proposed, a SMRA with augmented switching rules and a SMRA with limited package bidding. Both of these formats had advantages and disadvantages, in particular relating to exposure to substitution and aggregation risks and challenges to implementation.
1.5 As stated in the consultation document , Ofcom has continued to study the formats in order to inform which auction design is preferable. As part of that work, a further auction design has been suggested to Ofcom, with this auction design having the potential to be able to address a number of issues relevant to this award. This further auction design is a simultaneous multiple-round clock auction (“combinatorial clock” auction). The combinatorial clock auction appears to have a number of advantages over both the SMRA with augmented switching rules and the SMRA with limited package bidding. In particular, the combinatorial clock auction could remove the exposure risk for bidders, reduce the threshold problem, allow price discovery and help bidders to effectively express their preferences. To the extent that these advantages were to materialise in any award, then this auction format would be likely to lead to the desired outcome of securing an efficient allocation of the available spectrum.
1.6 Much of the content of this discussion document is based on work that has been commissioned by Ofcom from Professor Peter Cramton and DotEcon and it has also drawn on a number of academic papers.
Purpose of this document
1.7 The purpose of this document is to explain the key features of the combinatorial clock auction format and set out how such an auction format may be expected to work in practice. Ofcom will then summarise the two auction formats set out in the consultation document and compare these with the combinatorial clock auction format. Annex 5 of this document reproduces Annex 9 from the consultation document, which described the main features of the two auction formats included in the consultation document.
1.8 Ofcom is seeking stakeholders’ views on the auction formats and will take into account in formulating its decision for the award of the available spectrum any comments that it receives in response to this document.
1.9 At this point this document does not seek to fully address all of the points made by respondents to the original consultation or to revisit the other areas relevant to the award of the available spectrum which were addressed in the consultation document, e.g. options for packaging the available spectrum or the associated technical and regulatory conditions specific to the wireless telegraphy licences. As such this document should be read in conjunction with the consultation document. In addition Ofcom is simultaneously publishing a sister document that is looking at the technical conditions associated with the award of this spectrum. Ofcom’s decision on all of these issues will be set out in its Statement on this award expected in the summer of 2007.
1.10 Ofcom would welcome comments or views on any aspect of this document by 12 April 2007. In particular
Do stakeholders agree that Ofcom should award the 1452-1492 MHz band using a combinatorial clock auction format or have any other comments on the contents of this document?
Structure of this document
1.11 Section 2 of this document explains the key features of the combinatorial clock auction format and sets out how such an auction format may be expected to work in practice. Section 3 summarises the two auction formats included in the consultation document and compares each of three auction formats being considered. Section 4 summarises the next steps.
1.12 Annex 1 sets out the process for responding to this document, with Annex 2 setting out Ofcom’s consultation principles. Annex 3 contains a consultation coversheet, with Annex 4 setting out the question to which Ofcom is seeking stakeholders’ responses. Annex 5 reproduces Annex 9 of the consultation document, which described the main features of a SMRA with augmented switching rules and a SMRA with limited package bidding.