Simple Clock Auction (SCA)
The SCA format is suitable for lots that 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.
Simultaneous Multi-Round Ascending auction (SMRA)
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 (ESMRA)
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 format is that it allows bidders to express a minimum spectrum requirement (MSR). This MSR 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 MSR 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 spectrum 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 was 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.
We used this format to sell the 3.6 GHz spectrum in 2018.
Combinatorial clock auction (CCA)
The combinatorial clock auction (CCA) is a price clock-based auction method used to sell multiple items in a single process. It provides 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.
Our 700 MHz (digital dividend) and 2.5 GHz band auction used this auction format.