Industry Canada receives passing grades on spectrum auctions, documents reveal

Canada’s spectrum regulator has scored well on its first two spectrum auctions, according to documents obtained by Report on Wireless through Access to Information. Three independent evaluations, commissioned by the department, report that Industry Canada did an above average job. Still, the reports urge the department to seriously consider implementing new bidding rules that would make it easier for small players to break into the market – something department officials say will have to wait until they have a chance to evaluate American auctions using combinatorial bidding. Would combinatorial bidding have helped W2N?One controversy that emerged from the PCS auction was whether or not the ability to bid on strings of licences, as opposed to single licences at a time, would have helped smaller companies break into the market. Wallman Strategic Consulting has noted that W2N, a much smaller player than the four incumbents, might have had greater success if it were able to bid on blocks of spectrum spanning several regions. In a combinatorial bidding auction format, players are allowed to bid on a package of licences as opposed to bidding on single licences. According to Wallman’s report: "As seen in the case of W2N, bidders seemed to be actively trying to put together a chain of licences across multiple areas. It is possible that they were concerned about the fact they could have an incomplete chain devaluing the rest of what they did win." In its report, Wallman saw a pattern of bidding in southern Ontario, indicating that Bell’s and Rogers’ attempts to win more than one licence in those markets "impaired W2N’s chance to acquire spectrum in these markets." There are no final provisions for how combinatorial bidding would work in Canada if the department were to implement it. In its framework document, Industry Canada indicates that in a combinatorial bidding process, players would not be restricted to placing bids on individual licences, but could also place bids on packages. There are risks, however, including an all-or-nothing problem whereby companies could emerge empty-handed from an auction if they staked everything on a given package. The logistics of a combinatorial approach are also in question. The consultants don’t make specific recommendations about how to hold such an auction, but do warn against adopting the system to be used later this year in the American 700 MHz process (for specific issues, see comments made by Plott and Salmon, Plott and Harstad at www.fcc.gov/wtb/auctions). Industry Canada has stated that it will not implement a combinatorial auction until it has had the chance to evaluate any U.S. approaches. Two of the reports were commissioned following the 24/38 GHz auction in the fall of 1999 (RoW, Nov. 29/99). Charles River Associates and Charles Vincent made several similar recommendations pointing out that the auction format could be improved through the use of multiple bid increments; licence-specific bid increments; spectrum cap enforcement on a round-by-round basis; combinatorial bidding; a different tie breaker rule; and better software to ease the download of round results. The third evaluation was conducted following the PCS auction last winter (RoW, Feb. 5/01). While the department had already taken steps to implement some of the prior recommendations, the Wallman Strategic Consulting LLC assessment indicated that still more could be done to improve spectrum auctions in Canada. Last October, Industry Canada released its latest spectrum auction framework, which again implemented some of the previously made recommendations. The department recognized the potential benefit of multiple bid increments and as such allowed for its use if it deems necessary. But more importantly, it also recognized the growing sense that combinatorial bidding could be a useful tool for receiving market value for the public resource. In the PCS auction, it was apparent that W2N Inc. was bidding on a combination of licences on which it placed a high value (online subscribers can visit the spectrum auction section on Decima Publishing’s web site at www.decima.ca/publishing/members/pcs/index.htm). While the strategy didn’t work out in the end for W2N, Wallman indicates that the Toronto-based company could have been successful in winning those licences if a combinatorial bidding process was in place. Mike Connolly, senior director of spectrum management operations at Industry Canada, recognizes the potential upside to combinatorial bidding, but still has reservations about the practical use of it. He admits that there are differing views on how to implement combinatorial bidding and that has to be sorted out first. "Combinatorial bidding theory is targeted to address that very type of situation," he tells Report on Wireless, referring to W2N’s efforts to gain a near national footprint. "I deliberately use the word theory because until the FCC (Federal Communications Commission) does their first one (we won’t do one). So I think there’s a lot to say for empirical success as opposed to theoretical potential." Industry Canada will wait and see what happens in the U.S. before it makes any decisions on this front, explains Connolly. It’s best to see how the academic community interprets the whole process and what recommendations they make, he adds. "The FCC is pioneering," says Connolly. "And somebody has observed at some point in time, sometimes pioneers get the best land, and sometimes they get arrows in their back." While combinatorial bidding isn’t in the works, the department is looking at other ways to improve future auctions. One way is to make the round data into a single file as opposed to the four as was previously used in both auctions. Connolly couldn’t talk specifically about future improvements on that front, but says, "we recognize that that’s one of the areas in which we can make some improvements, to improve for those people who want to be analytical in how they view the auction results. To give them a better capability, better tools to view the auction results, we can certainly make some improvements there." Documents obtained by Decima PublishingPost-Auction Assessment of Industry Canada’s Auction of 24 & 38 GHz Spectrum Licences, Charles River Associates, March 2000.Canada’s First Spectrum Auction: An Early Evaluation, Harvard Universitry MA thesis of Charles Vincent, April 2000.Industry Canada’s First Spectrum Auction Post-Auction Evaluation Session, EAE International, April 2000.Final Report: Auction of Additional PCS Spectrum in the 2GHz Frequency Range, Wallman Strategic Consulting LLC, March 2001.Wireless Networks Auction Post-Mortem Session, EAE International, April 2001.

Industry Canada receives passing grades on spectrum auctions, documents reveal

News | February 5, 2002

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