There are a number of major types of spectrum auctions used by international spectrum regulators. These include:
- Open ascending-bid auctions;
- Simultaneous multi-round ascending auctions;
- Combinatorial clock auctions.
Of the many types of auctions that exist, open ascending-bid auctions and the simultaneous multi-round ascending auctions have generally been used by the ACMA and its predecessors, the Australian Communications Authority (ACA) and the Spectrum Management Agency (SMA). For future auctions, the ACMA will also consider use of the combinatorial clock auction.
These formats reflect the process for conducting bidding during the auction. The ACMA will choose the auction format that most suits a particular spectrum allocation. Often, following a main auction, the ACMA will sell any remaining lots at quarterly residual auctions until no further spectrum from the original allocation remains.
The open ascending-bid or English open-outcry auction is a method used by auction houses such as Sotheby's or Christie's or in many suburban real estate auctions. This form of auction is normally considered the most efficient for allocating spectrum at market price where there is one or a small number of lots within a band, none of which are substitutable or complementary for their intended business use.
Under this model lots are auctioned sequentially: that is, lot 2 is offered for bidding after lot 1 is sold or passed in, and so on for as many lots as exist. Participants bid openly against one another for each lot, with each successive bid higher than the previous one, sometimes by a specified increment. When no participant is willing to bid further the bidder with the highest offer wins if it equals or exceeds the starting price set by the ACMA. Otherwise the lot is passed in.
Auctions are usually, but not necessarily, conducted face to face at an ACMA venue, where the auctioneer accepts oral bids from registered bidders. The starting price is disclosed to registered bidders before the auction and, if pre-arranged, the auctioneer may accept telephone or online bids from those bidders who cannot attend the ACMA venue on the day. Where the auction involves residual lots of little individual value, the auction may be conducted entirely by telephone.
The simultaneous multi-round ascending (SMRA) auction format is used when there are many spectrum lots to be allocated together across a range of different geographic areas and different band segments.
In this type of auction, all lots are simultaneously on offer over multiple rounds of bidding. Bidders may bid on any lot or combination of lots in each bidding round. At the end of each round high bids are disclosed and all bidders can bid again in the next round to become the high bidder. In general, after a round with no more bids, the bidders holding the high bids in the previous round win the lots.
SMRA auctions were developed for use when there are spectrum lots that are complementary or substitutable for the buyers’ business purpose, as they allow flexibility in bidding. For example, by using multiple rounds, a bidder can gather information about the value of individual lots and can change strategy by shifting the bidding to another combination if one becomes too expensive. Ideally, a bidder will have a number of fall-back business cases to facilitate changes or reductions in the geographic area or bandwidth sought. Because of the complexity of bidding in this type of auction, it is usually conducted online using special auction software.
The Combinatorial clock auction (CCA) is a price clock-based auction format used to sell multiple lots for different categories in a single process. It provides bidders with the flexibility to bid on different combinations of lots. The CCA format also creates incentives for bidders to bid their full value for the lots. This format has been used successfully overseas.
The CCA format often comprises two stages, an allocation stage (with two phases known as the primary and supplementary rounds) and an assignment stage. The allocation stage determines how many lots each bidder wins in each category. It is designed to promote price discovery and to provide an opportunity for bidders to express their demand for all packages of interest.
The primary rounds follow a clock format, where the "clock" is a price clock that sets the price for lots in each category in each round. In each primary round, bidders bid on a single package of lots by nominating the number of lots in each category that they wish to buy at current round prices.
After the primary rounds, there is a second phase of bidding in the allocation stage, referred to as the supplementary round. In this phase bidders have the opportunity to make their best and final offer for all the different combinations of lots they want, subject to certain constraints created by their bids in the primary rounds.
Once the auction has identified the winners and how many lots they have purchased in each category, the assignment stage determines which lots each winning bidder will obtain. Due to the complexity of the process this auction format is conducted online using specialised software.
More information on the CCA format can be found here.