THE 10 COMPANIES vying for beachfront spectrum in Industry Canada’s 700 MHz auction set to begin Tuesday will have to navigate a complicated format that moves through various stages from interest in spectrum blocks to packages of licences and ultimately to specific frequencies.
During an Industry Canada technical briefing on the auction on Monday, a senior official with the department noted that this format, called a combinatorial clock auction (CCA), is now commonly used around the world. It’s used “because it features package bidding and eliminates what is known as exposure risk, which in layman’s terms is getting some but not all the licences needed for your business case.”
A CCA format uses generic licences at an initial stage, or clock rounds, to determine overall interest in slices of the valuable 700 MHz airwaves. During this round, bidders are only allowed to bid on one package of licences per round. Prices during this stage will increase on an activity-based increment concept where licences that see a lot of activity will have higher bid increases. According to 700 MHz auction documents (Annex B), bid increments could range from 1% to 20% per round depending on the activity on a particular licence.
To ensure that the auction ends with four bidders securing spectrum in each of the 14 licence areas (the federal government has instituted a policy that says there should be four wireless service providers in each region of Canada), Industry Canada has imposed bidding restrictions. The large wireless companies (Bell, Rogers and Telus) are only allowed to bid on one paired block of prime spectrum in each region, while all other participants can bid on two. This all but ensures a fourth wireless operator holding the rights to one block of prime paired spectrum at the auction’s close, unless blocks go unsold in some regions.
The clock rounds continue until there is no longer any excess demand – Industry Canada parlance for no further bidding. This kicks off the supplemental round during which participants can finalize their desired packages of licences by bidding on up to 500 different ones.
It’s during this phase where eligibility points – determined by the bidder’s initial auction deposit – become really important. The number of points correlates directly to the number of licences on which a participant can place bids. If in the clock round, a bidder bids on licences that have a total lower than their initial eligibility points, then it loses those corresponding points. That lower amount of points carries forward into the supplemental stage.
In the technical briefing, the Industry Canada senior official explained how the eligibility points system will work.
“If you’ve determined to reduce your eligibility at a particular point during the auction and you’ve made a conscious choice between certain packages, that conscious choice will restrict how you can bid in the later on,” the official explained.
Once the supplementary bidding is complete, the auction moves to the assignment stage where bidders can vie for the specific frequencies that best fit their business. For example, a wireless operator wins a package of licences and wants to follow the Verizon ecosystem, it will opt to place further bids on the frequencies specific to Blocks C1 and C2. There is one caveat to mention in the assignment phase, if a bidder wins the A block and either the B or C blocks, the bidder will be awarded the B block.
Industry Canada will not be releasing any 700 MHz spectrum auction information while the process is ongoing. The department will publish the winners, their licence packages and the prices paid for each package five days after the auction concludes. But we won’t know anything until then.
There are a total of 56 licences available in the 14 tier 2 service areas. They generally reflect provincial boundaries, but in areas of high population they have been further divided. The blocks available are:
A Block band – paired
B and C Blocks in the lower 700 MHz band (two paired licences commonly referred to as the AT&T ecosystem);
D and E Blocks in the lower 700 MHz band (two unpaired licences); and
C1 and C2 Blocks in the upper 700 MHz band (two paired licences commonly referred to as the Verizon ecosystem).
For more on the 10 companies participating in the auction, please refer to this Industry Canada web page.
