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 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.

Integration of the Reverse and Forward Auctions

The reverse and forward auctions will be integrated in a series of stages. Each stage will consist of a reverse auction and a forward auction bidding process, and additional stages will be run if necessary. Prior to the first stage, the initial spectrum clearing target will be determined. Broadcasters will indicate through the pre-auction application process their willingness to relinquish spectrum usage rights at the opening prices. Based on broadcasters’ collective willingness, the initial spectrum clearing target will be set. Then the reverse auction bidding process will be run to determine the total amount of incentive payments to broadcasters required to clear that amount of spectrum. The forward auction bidding process will follow the reverse auction bidding process. If the final stage rule is satisfied, the forward auction bidding will continue until there is no excess demand, and then the incentive auction will close. If the final stage rule is not satisfied, additional stages will be run, with progressively lower spectrum targets in the reverse auction and less spectrum available in the forward auction.

Final Stage Rule

The final stage rule is a reserve price with two components, both of which must be satisfied. The first component requires that the average price per MHz-pop for licenses in the forward auction meets or exceeds a certain price per MHz-pop benchmark. Alternatively, if the spectrum clearing target at a particular stage is greater than a spectrum clearing benchmark, then the first component will be met if the total proceeds of the forward auction exceed the product of the same price benchmark, the spectrum clearing benchmark, and the total number of pops for those licenses. This alternative formulation will allow the auction to close if the incentive auction repurposes a relatively large amount of spectrum for wireless uses, even if the price per-MHz-pop is less than the benchmark price. The price and spectrum clearing benchmarks will be established by the Commission in the Procedures PN, after an opportunity for additional comment. The second component of the final stage rule requires that the proceeds of the forward auction be sufficient to meet mandatory expenses set forth in the Spectrum Act and any Public Safety Trust Fund amounts needed in connection with FirstNet. If the requirements of both components of the reserve price are met, then the final stage rule is satisfied.