Spectrum Auctions

In recent years, the FCC has assigned licenses for wireless spectrum by putting it up for auction. The idea behind the auction process is that is encourages companies to roll out new services as soon as possible to recover their investments in the licenses. In getting spectrum into the hands of those who initially value it the most, competitive bidding also facilitates efficient spectrum aggregation rather than fragmented secondary markets.

In the past, the FCC often relied on comparative hearings, in which the qualifications of competing applicants were examined to award licenses in cases where two or more applicants filed applications for the same spectrum in the same market. This process was time-consuming and resource-intensive. The FCC also used lotteries to award licenses, but this created an incentive for companies to acquire licenses on a speculative basis and resell them.

Of the three methods of assigning spectrum, competitive bidding has proved to be the most effective way to ensure that licenses are assigned quickly and to the companies that value them the most while recovering the value of the spectrum resource for the public.1 In addition, auctions avoid the perception of the government making decisions that are biased toward or against individual industry players. The rules and procedures of the auctions are clearly established, and the outcomes are definitive.

Auction Process

The FCC’s auctions of electromagnetic spectrum assign licenses using a unique methodology called “electronic simultaneous multiple-round auctions.” This methodology is similar to a traditional auction, except that instead of licenses being sold one at a time, a large set of related licenses is auctioned simultaneously and bidders can bid on any license offered.

The auction closes when all bidding activity has stopped on all licenses. Another characteristic of the auction process is that it is automated. When the FCC began to design auctions for the airwaves, it became apparent that manual auction methods could not adequately allocate large numbers of licenses when thousands of interdependent licenses were being auctioned to hundreds of bidders at the same time.

The FCC’s Automated Auction System (AAS) provides the necessary tools to conduct large auctions very efficiently. The system accommodates the needs of bidders by allowing them to bid from their offices using a PC and a modem through a private and secure wide area network (WAN). The system also can accommodate on-site bidders and telephonic bidding.

Bidders and other interested parties are able to track the progress of the auctions through the Auction Tracking Tool (ATT), a stand-alone application that allows a user to track detailed information on an auction. During an auction, the FCC releases result files after every round, with details on all the activity that occurred in that round. Users can use the ATT to import these round result files into a master database file and then view a number of different tables containing a large amount of data in a spreadsheet view.

Users can sort, filter, and query the tables to track the activity of an auction in virtually any way they desire. There are also canned tables containing simple summary data to allow more casual observers to track the progress of the auction in general. The FCC also provides the capability to plot maps of auction winners, high bidders by round, and more general auction activity.

Through a Geographic Information System (GIS), interested parties can use a Web browser–based application to construct queries against the database for a particular auction and have the results displayed in a map format. The GIS presents its query results primarily in maps, which the user can export to easily transportable graphical formats. The GIS also allows the user to display data in tabular format.

Currently, there are three queries that can be executed against any closed or open auction in the GIS:

  • Market analysis by number of bids Allows users to see which licenses received a bid in a given round and how many bids each market received.
  • Round results summary Provides a high-level summary of activity for the selected round, depicting markers for which a new high bid was received, markets for which a bid was withdrawn, and markets that had no new activity.
  • Bidder activity Allows users to query the database to generate a map showing all the licenses for which a particular area has a high bid in a given round.

Companies interested in participating in spectrum auctions must submit an electronic application to the FCC disclosing their ownership structure and identifying the markets/licenses on which they intend to bid.

Approximately 2 weeks after the filing deadline and 2 weeks before the start of the auction, potential bidders must submit a refundable deposit that is used to purchase the bidding units required to place bids in the auction. This deposit is not refundable after the auction closes. At a minimum, an applicant’s total up-front payment must be enough to establish eligibility to bid on at least one of the licenses applied for, or else the applicant will not be eligible to participate in the auction.

In calculating the upfront payment amount, an applicant should determine the maximum number of bidding units it may wish to bid on in any single round and submit a payment that covers that number of bidding units. Bidders have to check their calculations carefully because there is no provision for increasing a bidder’s maximum eligibility after the up-front payment deadline.

About 10 days before the auction, qualified bidders receive their confidential bidding access codes, Automated Auction System software, telephonic bidding phone number, and other documents necessary to participate in the auction. Five days before the start of the auction, the FCC sponsors a mock auction that allows bidders to work with the software, become comfortable with the rules and the conduct of a simultaneous multipleround auction, and familiarize themselves with the telephonic bidding process.

When the auction starts, it continues until all bidding activity has stopped on all licenses. To ensure the competitiveness and integrity of the auction process, the rules prohibit applicants for the same geographic license area from communicating with each other during the auction about bids, bidding strategies, or settlements. The winning bidders for spectrum in each market are awarded licenses.

Within 10 business days, each winning bidder must submit sufficient funds (in addition to its upfront payment) to bring its total amount of money on deposit to 20 percent of its net winning bids (actual bids less any applicable bidding credits). Up-front payments are applied first to satisfy the penalty for any withdrawn bid before being applied toward down payments.

If a company fails to pay on time, the FCC takes back the licenses and holds them for a future auction. The licenses are granted for a 10-year period, after which the FCC can take them back if the holder fails to provide service over that spectrum.

The FCC’s simultaneous multiple-round auction methodology and the AAS software have generated interest worldwide. The FCC has demonstrated the system to representatives of many countries, including Argentina, Brazil, Canada, Hungary, Peru, Russia, South Africa, and Vietnam. Mexico licensed the FCC’s copyrighted system and has used it successfully in a spectrum auction. In addition, in 1997, the FCC was awarded a bronze medal from the Smithsonian Institution for recognition of the visionary use of information technology.