The ACMA has three online auction formats available for use when we conduct spectrum allocations by auction:
Simple Clock Auction (SCA)
Simultaneous Multi-Round Ascending Auction (SMRA)
Enhanced Simultaneous Multi-Round Ascending Auction (ESMRA).
The choice of a particular auction format for a specific allocation will depend on a range of factors, including the characteristics of the spectrum for sale and the anticipated demand for the spectrum. The ACMA also has the capability to procure additional auction formats should it be required.
The key characteristics of each auction format are summarised below.
Simple Clock Auction
The SCA format is suitable for when the lots are neither substitutes nor complements (for example, complementary lots have greater value to bidders when bought together, rather than individually).
The SCA uses a simple ascending-bid process to auction a single lot. Before each round, the auction manager names a price (the continue price) that the bidder must meet to be eligible to place a bid in subsequent rounds. The bidder can accept the continue price or place a lower bid; however, if a lower bid is placed, it is the bidder’s last and the bidder will only win if no other bidder places a higher bid. When there is at most one bidder who bid at least the continue price, the auction ends—the high-bidder wins and pays the amount of the second-highest bid. This ensures that the winner never pays more than necessary to win.
The ACMA used the SCA format in the recent auction of the 700 MHz unsold lots and the multiband residual lots auction.
Simultaneous Multi-Round Ascending auction
The SMRA auction format lets bidders bid on multiple individual lots at the same time. It better caters for lots that are substitutes or complements.
In an SMRA auction of spectrum, lots typically correspond to the right to use a specific frequency block (or blocks) in a defined geographic area. A number of single lots are open for bidding at the same time. All lots remain open as long as there are acceptable bids placed on any lot.
Bidding occurs in a sequence of rounds, with the results (in particular, the amounts of the highest bids) of each round announced to the bidders before the start of the next round. The highest bid on each lot becomes the provisional winning price. The auction continues until there is a round in which there is no bid made for any lot. In this final round, bidders win the lots for which they have the standing high bids and pay the amount of their high bids.
The ACMA and its predecessors have used this auction format on multiple occasions in the past, including the recent 1800 MHz regional auction.
Enhanced Simultaneous Multi-Round Ascending auction
The ESMRA is a two-stage auction format that provides
a simultaneous multiple-round clock stage for generic lots to determine the quantity won of each category of lots, followed by
an assignment stage to determine the specific assignment.
The clock stage is a simultaneous multiple-round auction process with generic lots, where all lots are offered at the same time. Before the auction begins, the auctioneer specifies the supply of lots in each category and the category’s starting price (reserve price). An activity rule is used to improve price discovery and maintain auction progress.
In each round, each bidder is asked to specify the bidder’s demand for lots by category for a range of prices from the opening price to the clock price—one bid increment above the opening price for the round. The ability to express demand at any price between the opening price and the clock price (rather than simply at the clock price, as would typically be the case) is referred to as ‘intra-round bidding’. This has several advantages:
bidders can better express demand
ties in which multiple bidders change demand at the same price are less likely
a larger bid increment can be used without causing inefficiencies, reducing the number of rounds.
At the end of the round, the posted price is the clock price if aggregate demand exceeds supply at the clock price. Otherwise, the posted price is the lowest price, between the opening price and the clock price, at which demand equals supply and where demand never exceeds supply at a higher price.
The posted price becomes the opening price in the next round if aggregate demand exceeds supply at the clock price.
The auctioneer sets the bid increment, typically between five and 15 per cent. The increment can change from round to round and vary by category. This discretion lets the auctioneer manage the pace of the auction. Typically, few adjustments of the bid increment are needed throughout the auction.
Bids are processed in such a way that the bidder is never required to buy more than their demand at any price. A bid to increase demand is applied only if the bidder has sufficient bidding eligibility. A bid to decrease demand is applied only if the reduction will not result in aggregate demand falling below supply. This guarantees that once a category has aggregate demand at least as big as supply, there will never be any unsold lots in the category. The method also lets bidders avoid ties with continuous price competition and permits a faster auction with fewer bidding rounds.
At the end of the round, the following information can be made publicly available for each category—the opening price, clock price, indication of aggregate demand, posted price and clock price in the next round. In addition, each bidder is told their own quantity at the posted price.
A feature of the ESMRA is that it allows bidders to express a minimum bid requirement (MBR). This MBR feature allows a bidder to reduce demand from the minimum requirement to zero if the price exceeds the bidder’s specified price point. Where the MBR is in use, there is no risk that the bidder will win an amount of spectrum it deems to be an uneconomic quantity.
The minimum bid requirement feature may introduce the possibility of unsold lots. One way to address this is to auction any unsold lots immediately in a follow-up auction stage to the same set of bidders. The quantity of unsold spectrum is apt to be small and would most likely be auctioned using the SCA methodology.
The assignment stage is conducted as a sequence of sealed-bid auctions. A second-pricing rule (either Vickrey pricing or ‘nearest-Vickrey core pricing’) encourages truthful bidding for the assignment of licences. This process allows for the specific assignment of frequency blocks. In auctions where bands are divided into different geographic lots, bidders have an opportunity to realise additional value from consistent frequency assignments across neighbouring regions. Assignments are guaranteed to be contiguous (within a particular lot category and region) unless there are exceptional circumstances making this impractical. The ESMRA assignment stage is similar to the operation of the assignment stage of the Digital Dividend Combinatorial Clock auction.
The ESMRA format approach has been used in the recent 600 MHz auction in the United States, and is similar to the approach proposed for the forthcoming UK auction of 2.4 GHz and 3.4 GHz spectrum.1’
1 FCC, Procedures for Competitive Bidding in Auction 1000, 11 August 2015. Ofcom, Public Sector Spectrum Release: Award of the 2.3 GHz and 3.4 GHz Bands, 7 November 2014.’