 |
Broadband Fixed Wireless Access
|
|
Broadband Fixed Wireless Access
|
The following paper has been compiled by Professor Ken Binmore and his team at UCL, to help inform the process of designing an auction to award licences for Broadband Fixed Wireless Access.
The paper will be a topic for discussion at the next meeting of the BFWA Industry Consultative Group and anyone wishing to submit preliminary comments to feed into the discussion is invited to do so by Friday 26 May 2000.
Comments should be sent to:
Cliff Mason
Broadband Fixed Wireless Access Section
Radiocommunications Agency
11B/21D Wyndham House
189 Marsh Wall
London E14 9SX
e-mail: cliff.mason@ra.gsi.gov.uk
Details about BFWA are regularly updated on the Agency’s website at www.radio.gov.uk
This Document can also be downloaded: 
Adobe Acrobat PDF Version (105 KB)
1. Background
The Radiocommunication Agency plans to auction the rights to use certain frequency bands
in the 28 GHz band. The primary purpose to which these frequencies are likely to be put
lies in supplying high-data access to the internet for small firms that do not have
adequate fixed-line access. Coverage by a radio mast will be very local.
The Radiocomunications Agency currently plans to offer three licences in each of about
fifteen regions. Each bidder will be allowed to hold at most one licence in each region.
Some of the regions will be much more valuable than others. For example, it is expected
that London will be regarded as being of substantially higher value than Northern Ireland.
The three licences, A, B and C, within each region also differ in value to some extent. We
must expect that some bidders will wish to acquire licence X in a large number of
geographically linked regions. Other bidders may be satisfied wih just one licence in one
region.
The plan is to auction the licences in September of the current year. Expressions of
interest from potential bidders will be welcome from early July. Such a timetable means
that the arrangements for the auction will need to be put together very expeditiously. One
consequence is that there will be no opportunity for experimenting with a new design. We
therefore recommend not moving too far from the successful design pioneered by the
American Federal Communications Commission (FCC). Fortunately, this design fits our
problem fairly closely.
The current paper outlines the recommended design with a view to inviting comment and
criticism, which should be received by 26 May.
2. Competition and Entry
Auctions only work when there are enough bidders. The recent 3G auction worked so well
chiefly because 13 serious contestants entered the auction to bid for only 5 licences. A
problem that can arise with entry is that potential bidders who are not already
established in a closely related industry may feel that the situation is all sown up by
the current incumbents. A government can allay such fears by making provision which
ensures that competition will not be suppressed, and thereby encourage entry into the
auction. In the case of the 3G auction, the largest licence was reserved for a new
entrant.
Similar provision in the 28 GHz auction is thought unnecessary. The belief is that
providing three licences in each region will be a sufficient guarantee that the industry
that emerges will be competitive. However, as more information becomes available in the
run-up to the auction, this situation should be kept under review. It will be no great
disaster if some licences in some regions remain unsold at their reserve price, but if
this happens on a widespread scale, then we will have made a mistake in running an auction
at all. A famous example arose in Germany
when only three bidders appeared to contest three licences. Insofar as possible, we
should therefore not commit ourselves unconditionally to running an auction, but should
reserve the right to sell the licences otherwise if the conditions prove to be adverse.
3. Prequalification
It is usual to insist on a prequalification stage at which potential bidders register so
that their eligibility can be assessed. The extent to which more than financial checks are
carried through varies with the circumstances. This prequalification stage would be
distinct from the expression of interest from potential bidders invited in early July.
4. Associated Bidders
A decision needs to be made on how much common ownership between bidders will be
tolerated. Checking on this issue is one function of the prequalification stage. In the 3G
auction, provision was made for a pre-auction which decided which of competing associated
bidders (whose level of common ownership exceeded the specified limit) would be allowed to
go forward to the main auction. In the event, this pre-auction was not used.
In the 28 GHz case, a pre-auction would seem a piece of overkill. In any case, auctions
are not the optimal instrument for resolving such problems. We recommend that firms be
told that we expect them to sort out their own problems of common ownership themselves
before the prequalification stage of the auction.
5. Deposits and Payment
We recommend that payment be made in cash (rather then in royalties). Royalties can
distort the development of the industry, while simultaneously expanding the risk of
default and possibly creating dissension over the size of the variable on which the
royalty is due. A system of payment by installments whose size is fixed in advance is also
acceptable.
Default has proved a problem elsewhere, but can be held in check by insisting on sizeable
deposits. These should be refundable with interest.
6. Reserve Prices
Each licence should carry a reserve price, below which it will not be sold. If a licence
fails to sell at its reserve price, it should be held by the Agency until enough time has
passed that no bidder could profit by failing to bid for it in the auction in the hope of
picking the licence up later at a cheaper price.
We recommend that licences in different regions have different reserve prices (with the
London reserve prices substantially larger than those in Northern Ireland). The difference
between licences A, B and C in the same region seem to small to justify different reserve
prices between them.
The reserve prices must be high enough to save the government from embarrassment if a
licence actually sells at its reserve price. They should also reflect their value to the
government created by the possibility of their being sold a year or so later. Otherwise,
the only argument against low reserve prices is that they may slow down the auction.
7. Commitment
Just as the government must commit itself irrevocably to its reserve price for a licence,
so the bids made by the bidders in the auction must be irrevocable commitments to buy a
licence at the price bid if the bid is not topped by another bidder. The bidders must not
have the opportunity to change their minds without some heavy penalty being imposed.
8. Computerization and Speed
One of the advantages of auctions is that they can be conducted quickly. Speed is also a
defence against disrupting influences that may cause the auction to go wrong (for example,
a stock-market crash during the auction). We therefore recommend that as many rounds be
squeezed into a day as practical--which includes taking account of the stamina of the
bidders and their need for thinking time. Perhaps 8 or 10 rounds may be possible, but this
is one of a number of topics on which input from the potential bidders should be
solicited.
We also recommend that the licences be issued and payment be made as quickly as possible
after the auction.
The complexity of the auction is sufficient to justify the expense of computerization. We
recommend that the feedback to bidders be suppplied in a user-friendly form with
appropriate graphics, and also in a form that allows easy input to the bidders' own
software. Again, input from potential bidders is important here.
9. Information and Collusion
It is often the case that the information that the bidders receive is restricted as a
guard against possible collusion among the bidders. Sometimes the bidders are restricted
to secure hotel rooms during the bidding. This is a judgement call, but we think that the
risk of frustrating the coordination role of the auction is greater than the risk of
serious collusion, and we therefore recommend that all relevant information be made
available to the bidders after each round. However, it would be wise to monitor the effect
of this transparency provision with an eye on the implications for future auctions if
collusion is thought to have been a distorting factor after the auction is over.
In any case, the auction rules should forbid collusion, and require the bidders not to
comment on their bidding strategies or the progress of the auction while it is taking
place.
10. Modified FCC Rules
This section proposes a modified version of the design successfully employed by the
Federal Communications Commission to sell spectrum in the USA. A star is attached to
sentences in the following rules that describe arrangements on whose precise details we
would particularly welcome input from potential bidders.
1. The bidding takes place in a sequence of rounds. In each round, every bidder that has not withdrawn from the auction will be entitled to be active in a number of regions that may decline as the auction proceeds. We shall call the number of regions in which he is entitled to be active his quota.
2. A bidder chooses his initial quota at the time the initial deposits are lodged. We recommend that the size of the initial deposit be some multiple of the bidder's chosen quota.*
3. In each round, a bidder may not be active in more regions than his current quota, but he may choose to be active in fewer regions than his quota. At the beginning of each round, the auctioneer announces a percentage. If a bidder is active in fewer regions than this percentage of his current quota (rounded up), then his quota is reduced to the maximum amount that accords with the requirement that he be active in the announced percentage of his quota. If his new activity level would then be zero, the bidder is deemed to have withdrawn from the auction and may not bid again.
4. The auctioneer may choose to inform a bidder whose quota would be reduced as a result of too low a level of activity in a round, and offer the bidder the chance to revise his bid. A penalty for delaying the auction should be extracted if the opportunity to revise is taken up.
5. There are three ways in which a bidder may be active in a region.
(a) The bidder may already hold the current highest bid on a licence in that region. If so, he is not allowed to bid again in that region until another bidder tops his bid on that licence. Nor is he allowed to withdraw his bid, which stands until topped or the auction ends.
(b) If the bidder does not hold the highest bid in a region, he may make an acceptable bid for any one of the three licences for that region. He may never bid for more than one licence at a time in a region. If the licence has not previously been the object of an acceptable bid, an acceptable bid is for the reserve price or more. Otherwise, an acceptable bid increases the current high bid the licence by a minimum amount specified for each region by the auctioneer at the beginning of each round.
(c) The bidder may exercise one of a number of waivers assigned to him at the beginning of the auction. When all of his waivers are exhausted, this option is no longer available. Comment on the number of waivers is wecomed.*6. A bidder who has bid in a region in the past but does not currently hold the highest current bid on a licence in that region is under no obligation to continue bidding in that region. In revising a bidder's quota, it is only the number of regions in which he is active that counts.
7. The time that elapses between successive rounds is at the discretion of the auctioneer, who may choose to consult with the bidders before changing the timetable.*
8. Different reserve prices on each licence determine a lower bound on all bids for that licence at any time. If no bid at the reserve price or higher is received, that licence is retained by the government.
9. A bid in a region consists of the name of the region, the letter of a licence within that region for which the bid is made, and the amount that the bidder undertakes to pay for that licence. (Bidders may not bid for more than one licence per region.)
10. Bids are made in whole multiples of £10K.*
11. At the beginning of all rounds after the first, the auctioneer informs each remaining bidder of the bid for each licence that is currently highest, and the identity of the bidder who made that bid.
12. At the beginning of all rounds, the auctioneer sets minimum and maximum raises for the current round, possibly in consultation with the bidders. We suggest that the minimum raise should always exceed the minimum of some fixed amount and a percentage that may vary with the region and the round.* The maximum raise might be 50% of the current highest bid.*
13. At a bidder's very last bid in a region, the minimum raise requirements are suspended (including the requirement to bid in multiples of £10K). 1
14. Ties are broken by giving priority to the first bid received for a licence in a round.*
15. Unless interrupted by the auctioneer, the auction continues until no licence anywhere is raised. Each licence is then sold to the bidder who made the highest bid for it at the price he bid. As a precautionary measure, the auctioneer should retain the option to halt the auction after some large number of rounds, in which case each licence is awarded to the bidder who holds the current highest bid for that licence. 2
16. The total number of rounds in a day will be subject to the auctioneer's discretion. Perhaps ten rounds could be run per day, but advice on this question should be sought from the potential bidders.*
11. Activity Rules
We suggest that the percentage of a bidder's quota that determines the number of regions
in which he must be active be the same for all bidders in any given round. It might vary
from round to round, starting relatively low and climbing towards 100%, or it might be set
at 100% from the outset. It is important that there be an activity rule to prevent the
bidders all playing wait-and-see.
12. Increments and Ratcheting Deposits
The size of the minimum raise (or increment) in any given round should be the same for
each licence in any given region, but should vary from round to round, and from region to
region, reflecting the degree of activity in the region. Because of the relatively large
number of regions, we recommend that a default increment be computed automatically, but
that the auctioneer retain his discretion to alter the default value. Ideally, the
increment will start quite high to speed the auction along, and be gradually reduced to a
smallish amount by the time bidding in the relevant region ceases. 3
We propose a maximum raise of 50% in order that bidders can compute well in advance the
maximum amount that they might need to keep on deposit.*
13. Transparency
We see no reason for not being entirely open about all these procedures. The only thing
that needs to be kept secret from a bidder are the bids being made by other bidders during
the current round.*
14. Penalties
Infringements of the rules that result in the auction being delayed should be punished
with fines large enough to deter the infringements.* Collusion and other major
infringements may result in a bidder being excluded from the auction altogether. After
such an expulsion, the plan is to restart the auction from scratch.*
Footnotes:
1. A bidder who invokes this privilege but later seeks to bid again in the same region is deemed to have been inactive in the region where this occurs. When the privilege is invoked, the bidder should be reminded of this provision and given the opportunity to revise his bid.
2. There must be no question of fixing the total number of rounds in advance of the auction, but the auctioneer may choose to interrupt the auction after a large number of rounds to announce that the auction will end after a specified number of future rounds.
3. For now, we think that the auction software should allow for two alternative rules: the fixed percentage increment rule, and the exponentially smoothed percentage increment rule proposed by the FCC.
| BFWACG(00)25 |
|
