4G auction bidding battle commences

By Sooraj Shah
23 Jan 2013 View Comments

Communications regulator Ofcom has revealed that the bidding process for the much-anticipated - and delayed - 4G spectrum auction is under way.

The bidding process involves Everything Everywhere (EE), HKT (a subsidiary of mobile operator PCCW), Three, MLL Telecom, Vodafone, O2 and a new subsidiary of BT: Niche Spectrum Ventures.

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However, the communications regulator will not give any updates on the bidding activity until the conclusion of the auction.

"Due to the nature of the auction, it is important that information about the bids being placed remains confidential until the auction concludes, to reduce any potential risk of strategic bidding, which could distort the outcome of the auction," Ofcom said.

Ofcom has designed the auction to ensure that at least four different operators have sufficient spectrum to be "credible national 4G wholesalers".

The watchdog explained that it was going to use the "combinatorial clock" approach that is common in spectrum auctions around the world.

Each bidder is competing to win combinations of the 28 spectrum lots available from across both the 800MHz and 2.6GHz bands. A combination of high and low frequencies is needed for a comprehensive 4G coverage.

The amount that each bidder is willing to pay for each lot will vary depending on how many of the other lots they could obtain simultaneously. In other words, the auction lets the bidders tell Ofcom what they would pay for specific combinations of lots.

The first round - the "opt-in" round - took place a week ago. Carriers other than Vodafone, O2 and EE offered bids for combinations of lots at reserve prices.

Today marks the start of the next round: the "clock stage". This involves a number of rounds and includes all of the auction participants listed above.

"At the start of each round, Ofcom announces a price for each lot and each bidder then specifies what combination of lots they would most like to win at those prices. In each subsequent round Ofcom increases the prices for lots that have excess demand, until eventually demand matches supply. At this point the clock stage ends," the regulator explained.

This will be followed by a "supplementary bids" round for all lots that may have gone unsold, as might occur if the price rise of a specific lot led to a significant reduction in demand.

Ofcom will then calculate which combination of all of the bids from all of the bidders has the highest total value. This will be the winning combination of bids.

Once the winning combination of bids is clear, the communications regulator will use a "second price rule", similar to that seen on auction website eBay whereby each winning bidder has to pay the smallest amount that they would have needed to bid in order to win.

Then, the winning bidders can bid for the exact frequencies of spectrum that they want and Ofcom will "determine on the basis of the bids" who gets their preferred frequencies. This determines whether a bidder wins spectrum at the top, middle or bottom of a specific band.

The process should be completed within the first quarter of 2013, an Ofcom spokesman confirmed to Computing.

He added that in the second quarter of 2013 new 4G services will be launched and the services are expected to go live in May or June.

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