MONTREAL – With the US 700 MHz auction raising about $19.1 billion in 2008, nearly double the reserve price of $10 billion, other governments preparing for their own auctions are now going about the tricky task of setting their own reserve prices. In Australia, Communications Minister Stephen Conroy surprised many when he recently set a reserve price of $1.36 per megahertz per population (about AU $3 billion) for lots of 700 MHz spectrum to be auctioned next year. The price is virtually identical to the US 700 MHz auction reserve from 2008. Such high pricing may discourage bidders cautions Johanne Lemay, Co-President, Lemay-Yates Associates (LYA).
“No other digital dividend spectrum auction to date has matched the US 700 MHz result, which has set the high water mark for 4G licenses of any kind. All subsequent auctions for digital dividend spectrum have so far resulted in lower values. And the reserve prices set in the UK and Canada for upcoming auctions are similar; both about 60% below the US 700 MHz auction result,” writes Lemay.
The reserve price sets the minimum proceeds for governments and sets the floor for the auction in terms of compensation. Lemay says the reserve price is doubly important in the world of combinatorial clock auctions (CCAs).
CCA processes award licenses on the basis of the “second” price and the best second price could very well be at or close to the reserve price. “So one way to try to ensure higher revenues from an auction is to increase reserve prices” adds Lemay.
“Overall, setting reserve prices is a tricky balancing act; finding the right answer requires a solid understanding of license values, including operator business models, the potential for entry, as well as considering comparable situations from other auctions and the influence of auction rules and mechanisms.”
Lemay says a core expertise of LYA is spectrum license valuation, including expert evidence on reserve prices and auction formats.
“We use an innovative and integrative approach to assessing values for different bandwidths and bands, driven by subscriber ecosystems and usage forecasts. LYA also has an extensive dataset of values from over 140 licensing processes for mobile spectrum held in over 50 countries.”
LYA’s c-Ahead Report “Evolution of Prices in Mobile Spectrum Auctions in the 4G Era,” published earlier in 2012 and now being updated, can be purchased here. The 2008 Advanced Wireless Services (AWS) spectrum auction in Canada raised more than $4.26-billion for the federal government.
