Commentary: Industry Canada should refrain from using a sealed bid, second price auction

The results of the auction of previously unassigned broadband wireless spectrum in the 2.3 GHz and 3.5 GHz bands came to a close last month and while the bandwidth finds itself in the hands of some deserving players, Industry Canada shouldn’t be patting itself on the back for this one. Sure it got some previously unwanted spectrum off the books and was able to inject some money into the federal government coffers. But the auction should be considered a failure because of the bid gaming that was so apparent. First of all, BroadPoint International Telecom Inc., the winner of six out of 10 licences, bid as much as 45 times higher than some parties for pieces of the bandwidth, yet only has to pay a small fraction of its bid. For example, BroadPoint bid $137,784 for the 50 MHz F-band Mont-Laurier/Maniwaki licence, but is only required to pay $3,000, the second highest bid from 768812 Ontario Inc. Another example is the Thompson licence where Broadpoint bid $45,000 but only has to pay the price tag of $6,571 because that’s what Lynx Mobility bid. Surely BroadPoint couldn’t have valued both of those licences so much higher than its rivals. It’s hard to imagine that in these two cases, and there are others involving other companies in this auction, that there was such a large discrepancy in spectrum licence valuation. It is safe to assume (and I know what they say about that word, but no one should be taken for fool on this) that BroadPoint wasn’t willing to pay $137,784 for the Mont-Laurier/Maniwaki licence. It bid that amount because it knew its bid was going to be so much higher than any other participant’s bid that it would win and pay a much lower price. If you doubt my logic, simply take a look at the 2004/2005 auction of these same frequencies. Bell Canada and Telus Corp. won the rights to the D- and E-band in the same licence and only paid $2,500. Even if we factor in an increase in the licences’ value because of readily available equipment and pent-up broadband demand, I don’t think it would increase by 50 times in five years. In my opinion, the results for those licences where the discrepancies were so large should be scrapped. Industry Canada can’t, and shouldn’t, see them as legitimate. But the results of this auction raise other questions that won’t be addressed now, but 10 years from now when these licences are up for renewal. If the department decides to again conduct a market value assessment of the spectrum prior to setting spectrum licence renewal fees as it’s doing for cellular and PCS spectrum, it has to determine what figure to base its assessment on. As previously noted the D- and E-band Mont-Laurier/Maniwaki licences went for $2,500 in 2004/2005, but this time around the department received a bid of $137,784. What figure does Industry Canada start with? What is the true value of the spectrum licence? There’s a huge difference between those two numbers. Industry Canada should have stuck to its tried and true simultaneous multiple round ascending (SMRA) auction format, a process that has proved successful in spectrum auctions held in 1999, 2001, 2004 and 2008. Even if the total auction haul remained the same under a SMRA format, at least no one would be complaining that bidders acted improperly.

Commentary: Industry Canada should refrain from using a sealed bid, second price auction

News | July 8, 2009

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