Simultaneous Multiple-Round Auctions
In a simultaneous multiple-round (SMR) auction, bidding is conducted on a license-by-license basis, with all licenses available for bidding throughout the entire auction. SMR auctions have discrete, successive bidding rounds, with the length of each round announced in advance by the Commission.
After each round, round results are processed and made available. In an SMR auction, there is no preset number of rounds. Bidding continues, round after round, until a round occurs in which all bidding activity ceases. That round is the final round of the auction.
An SMR auction format — with license-by-license bidding — generally is used when the items offered are unique, such as broadcast construction permits.
Ascending Clock Auctions
The ascending clock auction format used by the FCC typically consists of two bidding phases — a clock phase and an assignment phase. A clock auction can be a more efficient format than an SMR auction when the auction inventory consists of multiple similar items; for example, when there are several substantially-alike frequency blocks available in each geographic area. The clock phase is used to assign non-specific-frequency blocks to winners, and the assignment phase provides these winners an opportunity to bid for their preferred frequency blocks.
The clock phase, like an SMR auction, consists of discrete multiple rounds of bidding for all items, which continue until there is a round in which bidding stops for all items. The assignment phase then follows, with a single round of bidding for each geographic grouping to assign specific licenses.
In some cases, an ascending clock auction without an assignment phase may be used. For example, an assignment phase is not needed when frequency assignments are made by a spectrum access coordinator. A clock auction without an assignment phase also may sometimes be used to assign frequency-specific licenses directly during the clock phase bidding (a “clock-1” auction format) if the licenses in each geographic area are unique and cannot be considered substantially similar.
Descending Clock Reverse Auctions
A reverse auction format selects winners based on the lowest bids. The FCC uses a reverse auction format in its auctions to distribute Universal Service Fund support to those entities willing to accept the lowest support amounts to provide required service to areas eligible for support.
In a descending clock auction, as its name suggests, the clock price starts high and descends in a series of timed bidding rounds. In each round, bidders indicate if they are willing to provide service to certain areas at the current support price level. When prices decline to the point that the current bids for support can be accommodated within the budget, the auction begins to assign support to the winning bidders in exchange for providing the required service to the areas specified in their bids. If more than one bidder requests support for the same area, additional rounds will be held, and support will be assigned to the bidder willing to accept the lowest price.
In this way, competition in the auction allows the FCC to target its limited Universal Service Funds to those areas — and within those areas, to those bidders — where service can be provided most cost-effectively.
An “incentive auction” may be used when the FCC wants to transition spectrum frequencies, currently licensed for certain uses, to alternative purposes that are incompatible with the original uses. The transition may involve reconfiguring the licenses, for example, by modifying the bandwidth of the spectrum license blocks, the geographic scope of the licenses, the permissible interference levels, or the other rules that govern how the spectrum may be used.
An incentive auction is two-sided in that it (i) gives existing licensees the opportunity to give up their licenses in exchange for reconfigured licenses or for a payment determined in the auction and (ii) offers for sale new reconfigured licenses for any freed-up spectrum.
An incentive auction may use different auction formats. For example, in the broadcast television incentive auction, the FCC used a reverse auction to determine the amount of spectrum that could be cleared and the total cost required to clear that spectrum. It then used an ascending clock auction to sell reconfigured licenses for the cleared spectrum, and required that revenue from the sold licenses would at least cover the cost of the payments to the broadcasters. Another incentive auction used only an ascending clock auction, but allowed incumbent licensees to bid to maintain equivalent usage rights at zero net cost, or to relinquish their licenses in exchange for a payment, the value of which was determined by bidding for new licenses in the auction.
Auctions to repurpose spectrum from one use to another can also take forms other than a statutorily-defined “incentive auction.” The FCC’s legal authority to conduct an incentive auction requires that incumbent licensees must participate voluntarily and, in turn, allows incumbents to be compensated for their usage rights from auction proceeds. These conditions cannot always be met — as one example, when incumbents such as satellite providers hold non-exclusive rights to the spectrum. In these cases, the FCC has combined an auction of new licenses with alternative approaches to clearing incumbents from the band.