Auction Design

A Novel Design for a Novel Process

The broadcast television spectrum incentive auction will be the first such auction ever conducted and, accordingly, requires a new and unique design. The incentive auction itself will be comprised of two separate auctions -- a reverse auction and a forward auction. The lynchpin joining the reverse and the forward auctions is the “repacking” process.
The broadcast television spectrum incentive auction will be the first such auction ever conducted and, accordingly, requires a new and unique design. The incentive auction itself will be comprised of two separate auctions -- a reverse auction and a forward auction. The lynchpin joining the reverse and the forward auctions is the “repacking” process.

The broadcast television spectrum incentive auction will be the first such auction ever conducted and, accordingly, requires a new and unique design. The incentive auction itself will actually be comprised of two separate but interdependent auctions -- a reverse auction, which will determine the price at which broadcasters will voluntarily relinquish their spectrum usage rights, and a forward auction, which will determine the price companies are willing to pay for flexible use wireless licenses.

The lynchpin joining the reverse and the forward auctions is the “repacking” process. Repacking involves reorganizing and assigning channels to the remaining broadcast television stations in order to create contiguous blocks of cleared spectrum suitable for flexible use.

In order to be successful, each of the components must work together. Ultimately, the reverse auction requires information about how much bidders are willing to pay for spectrum licenses in the forward auction; and the forward auction requires information regarding what spectrum rights were tendered in the reverse auction, and at what price; and each of these depend on efficiently repacking the remaining broadcasters.

Auction experts retained by the Commission prepared Appendix C to the Notice of Proposed Rulemaking (Notice) to illustrate one option for how all the pieces will work together. The auction experts also prepared a Supplement to Appendix C which provides additional details about several of the Forward Auction proposals discussed in the NPRM.

The Notice seeks comment on how to integrate the two auctions. The auctions could run sequentially, running the Reverse Auction first, followed by the Forward Auction. Because the two auctions are interrelated running them sequentially would require bidders to answer hypothetical questions about how low they would be willing to bid if forced to do that by competition so that we can be prepared for whatever demand emerges in the forward auction and what competition those bidders might face.

A concurrent approach could result in the auction taking less time because the auctions would run at the same time. Instead of requiring bidders to answer hypothetical bottom line questions, they would only need to answer questions based on actual demand and competition.

Finally, though the processes involved in conducting the incentive auction have complex aspects, the FCC has proposed an overall structure that would place the overwhelming share of the computational burden on the Commission itself. The actual implementation, while it will be thoroughly explained and illustrated in technical documents and rules, is designed to place the complex elements “under the hood,” with an aim to make participation as straight-forward and easy as possible from the bidder’s perspective.