The Australian Communications and Media Authority (the ACMA) will be reallocating radiofrequency spectrum in the 2.5 GHz and 700 MHz bands with a single auction process in April 2013. The ACMA has chosen a combinatorial clock auction format for the auction.
The combinatorial clock auction is a price clock-based auction method used to sell multiple items in a single process. It will provide bidders with flexibility to bid on different combinations of spectrum across the two bands. The CCA format also creates incentives for bidders to bid their full value for the spectrum.
A combinatorial clock auction is split into two main stages, as described below:
Part 1 – the allocation stage
The allocation stage determines how much spectrum each bidder wins. It has two phases:
A) Primary rounds (clock phase)
The primary rounds are intended to provide information to all bidders about the market value of the spectrum.
The lots of spectrum for sale are divided into a number of categories of identical generic items. Each category has an individual price ‘clock’ and the price increases on each individual clock at different speeds according to the level of interest within each category.
Each bidder is allowed to make a bid for a package of lots across multiple categories. In each clock round, bidders will bid for the package of lots they are most interested in acquiring at the current round prices.
The primary rounds conclude when there is no excess demand for any of the lots in any category.
B) Supplementary round (sealed-bidding round)
The supplementary round allows bidders to make their best and final offers for all the different combinations of spectrum they want. It is a sealed bid round held after the primary rounds.
To ensure bids in the primary round are truthful, a bidder cannot place bids in the supplementary round that are inconsistent with their preferences revealed through their bids in the primary rounds.
The winning bidders are those that make the highest value combination of bids. All bids are considered from either phase of the auction, but each bidder can only win one of its bids.
Determining the price to be paid by the winner(s)
The pricing rule currently proposed for the combinatorial clock auction is ‘Vickrey-Nearest Minimum Revenue Core’ pricing. The price paid by each winning bidder will be based on others’ bids, with safeguards to ensure winners pay a competitive price. Reserve prices will be used as a further measure to ensure appropriate prices are paid. The reserve price will set a minimum amount below which the spectrum will not be sold.
Part 2 – the assignment phase (sealed bidding round)
Once the auction has identified the winners and how many generic lots they have purchased in each category, the assignment phase determines which lots each winning bidder will obtain. This stage consists of a single, sealed bidding round, where the winners can offer to pay extra to secure specific lots. This addresses the issue that bidders may have reason to prefer some lots over others.
The various stages of a combinatorial clock auction are illustrated below:
Why the ACMA has chosen a combinatorial clock auction
A combinatorial clock auction is the auction format most likely to put the spectrum in the hands of the bidders who value it most highly, and ensure winners pay a competitive price. It is the auction format that best promotes the object of the Radiocommunications Act 1992; namely, to maximise the public benefits derived from the use of the spectrum by ensuring spectrum is efficiently allocated.
In the last four years there has been a growing trend amongst European regulators to use the combinatorial clock auction format to auction spectrum. The UK, Switzerland and Ireland plan to use this approach over the next 18 months to auction similar high value spectrum.