Latin American Spectrum Conference

1. Latin American Spectrum Conference Martin Sims, PolicyTracker Lessons from the recent Swiss auction

2. Lessons from this year’s Swiss Combinatorial Clock Auction • Large pricing disparity • Sunrise paid €401 M for 160 MHz • Swisscom paid €300 M for 225 MHz • Why did this happen? • Is it a failing of the Combinatorial Clock Auction format?

3. SMRAs or CCAs? • Simultaneous multiple round auctions • Like an art auction, but with many goods • Prices go up by an increment in each round • Auction closes when bidding on all items stops • Pros: • Simple • See others values (called price discovery) • Sell several things at the same time • Cons: • Could end up with things you don’t want (Exposure risk) • Bidding in a non-straightforward manner can ring benefits (strategic behaviour)

4. The second type: CCAs • Combinatorial Clock Auctions • You are always bidding on combinations of lots, so you can’t end up with an unwanted item • Three stages: • A clock auction for generic lots • A supplementary bids round • An assignment round • Clock round: how many you want at that price

5. The second type: CCAs • Supplementary bids round • You can bid on other combinations • The only unlimited bid is for your final package in the clock round • All other bids are proportionate to that final package and the bids you made in the clock round • Worked out by a formula but usually means… • For everything except the final package you can only bid a little more than clock round bid

6. CCAs: calculating winners and prices • Take all the bids from the clock and supplementary round • Work out which combination would give the highest value to the auctioneer • These are the winning bidders

7. How are winners and prices calculated? • A, B and C are the winners raising 550 in total • They pay the second price based on the total raised if their bids are removed • C gets the spectrum cheaply because they are the only bidder for this package

8. Feb 2012: Swiss auction results • Sunrise gets less spectrum than Swisscom but pays more

9. Why did Sunrise lose out? • If nobody else is bidding on your packages then the second price falls dramatically • Strategy: guess your competitors packages & make bids just below to force up their prices • Sunrise said it couldn’t take this risk • A private company, no incumbent backing unlike Swisscom or Orange/France Telecom • Sunrise’s bidding intentions were obvious as it already had a 900 MHz network

10. Should bidding be transparent? • Regulator and operators agreed that bidding data should be secret • We can’t be certain what produced the price disparity • Even if it were open, operators could claim they had a genuine interest in the bands • Would open bidding give away commercially sensitive data for future auctions?

11. What has been the verdict on CCAs?

12. What has been the verdict on CCAs?

13. CCA: balancing the pros and cons Pricing disparity Easily sells multiple categories Transparency issues Flexibility No exposure risk Complexity