In 2008, Ofcom broke new ground by instigating the use of combinatorial clock auctions as a mechanism for the efficient allocation of radio spectrum. The first frequency bands in the UK to be awarded using this auction design were a collection of bands between 10 and 40GHz in February that year.
Ten bidders participated in the auction process and most will have been pleased at the outcome, since prices were generally lower than anticipated. In fact the auction turned out to be not very competitive, leading to prices that were only small multiples of reserve prices. Bearing in mind that similar auction designs were to be used by Ofcom in future awards, it was important for Arqiva to understand the operation of the auction design.
Because Ofcom had published the complete bidding history, the 10-40GHz award provided an excellent ‘laboratory’, in which to analyse what actually happened, and under what circumstances the outcome might have been different.
Following the auction, the Smith Institute assisted Arqiva in the process of gaining a detailed understanding of the outcome of the 10-40GHz auction. We began by looking at the general auction design and the overall outcome in the 10-40GHz award. We then looked in more detail at how Arqiva’s outcome would have been different if it had used modified bidding strategies, and also at the impact on Arqiva of changes in the behaviour of other bidders.
As mentioned, the 10-40GHz auction was not very competitive: total revenue from the winning combination was less than 10% of the total bid amount. In particular, all ten bidders were winning bidders. Arqiva won a package of two lots in the 28GHz national band and the highest bid Arqiva submitted for this package was nearly £1.6M, but the price paid was only £260,500.
Arqiva was one of the stronger bidders among the ten that participated, and our analysis showed that as a result its own actions were the main determinant of its outcome.
The Smith Institute was instrumental in throwing light on Arqiva’s main questions, namely:
- the features of the auction and the bidder behaviour that contributed to the outcome;
- the key features in the calculation of the winning bids and the prices paid for each package;
- the sensitivity of the outcome to changes in bidder behaviour.
Arqiva designs, builds and operates wireless networks, so the operation of Ofcom’s spectrum awards programme is of considerable importance. Following Arqiva’s participation in Ofcom’s first combinatorial clock auction, Smith Institute was commissioned to analyse the result, so that we could better understand its unexpected outcome.
I am pleased to say that Smith Institute provided some key learnings for Arqiva. They are smart cookies indeed and were a pleasure to do business with!Julian McGouganHead of Public Policy at Arqiva