Canada’s spectrum auction rules need updating: AIMS

A new report from the Atlantic Institute for Market Studies (AIMS) says an updated online spectrum auction system would save Industry Canada and bidders' time and money. In addition, a new platform would allow the department to adopt more sophisticated auction formats.Ian Munro, director of research at AIMS and author of the report, Chicken Little Eats Crow: How the Critics Got It Wrong about Spectrum Auctions, says the war room costs for a bidder consisting of five to 15 people, including senior-level executives, is significant. "There's real costs associated with this number of people," he tells Report on Wireless. "As well, there's the opportunity costs of what the VP of X and the VP of Y could have been doing on that day as part of their regular jobs."The length of auctions could also be shortened if the department adopted combinatorial bidding, according to Munro. While he couldn't provide specific figures, Munro is confident that shorter auctions would result from the use of this new bidding mechanism. It took nearly two months and 331 rounds to complete the Advanced Wireless Services spectrum auction, which began on May 27 and came to a close on July 21.Combinatorial bidding is a concept where a bidder would be allowed to place a single bid covering a package of licences rather than having to bid on each of the licences in the package separately. The report states that this type of bidding can a level of certainty for auction participants."For example, a bidder's business plan may hinge on receiving a national footprint. If the bidder is forced to bid separately for, say, an Eastern Canada licence and a Western Canada licence, then it risks winning only one of the two, which would be worse than winning nothing at all. With combinatorial bidding, the bidder can bid on the East-West package, and if prices rise too high for the package, it can walk away cleanly," reads the 32-page report.The use of combinatorial bidding was raised in Canada more than six years ago. A report evaluating the country's first two auctions suggested that W2N Inc. would have had greater success in securing a broader swath of bandwidth in the 2001 PCS spectrum auction if it were allowed to use a combinatorial bidding strategy.Give spectrum property right statusThe report also advocates for a move to a property rights-like regime for spectrum, a concept that was suggested in a report to Industry Canada last year. Property-like rights for spectrum with very long licence terms or licences granted in perpetuity would remove a lot of uncertainty. Munro says the fact that the Minister of Industry has the right to review the licences at the end of their term, despite the licences being granted on the high expectation of renewal, creates a lot of uncertainty for licence holders."The greater they feel that uncertainty the less incentive they have to continue to investing and upgrading in years, seven, eight and nine," he says. "I don't really see how anyone is gaining from this."A prime example of uncertainty for spectrum licence holders currently unfolding is the renewal of the 24/38 GHz licences that were auctioned in 1999. The government has proposed to implement a minimal renewal fee to current licence holders. While Industry Canada noted in its consultation document that the proposal for renewal fees was specific to this case, Munro believes it could set a precedent."It provides an opportunity for a cash strapped government to start tinkering," he says. The financial impact on the 24/38 GHz licence holders is likely going to small because the spectrum is currently underutilized. That may not necessarily be the case for AWS bandwidth though if the government decides to assess a renewal fee on this valuable spectrum. Because mobile services are used heavily by a large percentage of the population and are widely available in nearly all parts of the country, the government would likely assess this spectrum at a higher value with a higher renewal fee.Five RecommendationsIndustry Canada should formally remove the comparative selection and licensing process (the "beauty contest" method) from its spectrum assignment options.The CRTC should adopt auctions for assigning broadcast spectrum.Industry Canada must do more to advance a property rights regime in spectrum.Industry Canada should adopt best practices in auction design and implementation.The rest of the federal government, as well as provincial and municipal governments, should become better acquainted with Industry Canada's spectrum auction experience with a view to improving allocation processes for other assets and resources and also procurement processes ("buy side" auctions).

Canada’s spectrum auction rules need updating: AIMS

News | October 30, 2008

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