Appendix C to the Notice of Proposed Rulemaking
Supplement to Appendix C: Auctionomics/Power Auctions Option for Forward Auction (February 1, 2013)

Except where explicitly stated otherwise, all references to “the auction” below are references to the Forward Auction.

Opening/Reserve Prices. The prices in “Round 0” of the auction are reserve prices set by the FCC. For each License Category r, the opening price is denoted by pr,0.

Initial Bids. A bid in “Round 0” of the auction specifies a quantity for each License Category that the bidder is willing to purchase at the opening prices. A bidder may submit only one such bid in Round 0.

Price Intervals. For each round, t (t ≥ 1), and for each License Category, r, the FCC announces to bidders an interval of prices, [pr,t-1,Pr,t]. The low price of this interval is called the “start-of-round price” and the high price of this interval is called the “end-of-round price.” The start-of-round price in Round 1, pr,0, is the reserve price; the start-of-round price in Round t (t ≥ 2) is the “posted price” of Round t - 1 (which never exceeds the end-of-round price of Round t - 1, so pr,t ≤ Pr,t).

Price Points. The “price point” is a parameter that indicates a price for every License Category. The price point indicates the percentage of the distance from the start-of-round price to the end-of-round price that is taken for each License Category. For example, the 0% price point refers to the start-of-round price, the 100% price point refers to the end-of-round price, and the 50% price point refers to the average of the start-of-round and end-of-round prices. The FCC could choose to allow intra-round bids to be submitted with any price points (e.g. from 0.01% to 100.00%), but no bid may be submitted at the price point 0.00%.

Intra-Round Bids. A bid in Round t (t ≥ 1) of the auction comprises changes in quantity for one or more License Categories at a price point. For example, a bid could specify License Category A and a quantity of -1 at a price point X%; such a bid would specify a reduction of one unit at the indicated price point. Alternatively, a bid could specify License Category A and a quantity of -1, together with License Category B and a quantity of +1, at price point Y%; such a bid would specify a switch from License Category A to License Category B at the indicated price point. These bids, called “intra-round bids”, are permitted to specify an arbitrary number of License Categories and quantities. A bidder may submit multiple intra-round bids in a given Round t (t ≥ 1), which are applied cumulatively, but at most one bid at any price point. In each round, intra-round bids, when deemed feasible, are applied successively as changes to the bidder’s processed demands (defined below) from the previous round.

Activity Rule This rule requires bidders to meet an Activity Requirement during each round of the Forward Auction to maintain their bidding eligibility. Initial eligibility can be determined by bidder deposits before the start of the auction. In any round of the auction, a bidder’s Eligibility is the smaller of (1) its Eligibility in the previous round or (2) the total number of points associated with its demand from the previous round divided by the Activity Requirement for that round.

Target Supply. For each round, t (t ≥ 1), and for each License Category, r, the FCC announces to bidders a Target Supply, Sr,t.

Aggregate Demand. The Aggregate Demand for each License Category at any particular time during or after a round is the then-current sum of the demands of all bidders.

Feasibility of an Initial Bid. A bid in Round 0 is feasible if the total number of points associated with the bid does not exceed the bidder’s Eligibility in Round 0.

Feasibility of an Intra-Round Bid. An intra-round bid in Round t is said to be feasible if application of all the changes specified in the bid results in demands that satisfy all of the following conditions:

  1. the total number of points associated with the bidder’s demand (after the change) does not exceed the bidder’s Eligibility in Round t; and

  2. for each License Category for which the change in demand specified by the intra-round bid is negative, the Aggregate Demand (including the bidder’s demand after the change) is not less than the Target Supply.

Processing of Bids After a Round. After each round, intra-round bids are prioritized in the order of their price points: a bid at a lower price point receives a higher priority and ties among bids at the same price point are broken randomly. The highest-priority intra-round bid that has not yet been considered is the next bid to be processed. The processing of an intra-round bid includes checking its feasibility, where condition (ii) above is checked using the most-recently-determined demands of all bidders. If the intra-round bid is found to be feasible, then it is applied; otherwise, it is placed in a “queue” of all bids from Round t that have not been applied due to infeasibility. Whenever an intra-round bid is applied, the queue is then re-tested to determine whether any bids in the queue have become feasible; if so, the highest-priority feasible bid is applied and removed from the queue. The re-testing of the queue is iterated until no bids remaining in the queue are feasible. Then the next intra-round bid from Round t is processed, until all bids from the round have been processed and no bids in the queue are feasible. At the end of this processing, all bids remaining in the queue are discarded. The demands of the bidders following the processing of the intra-round bids for the round are referred to as the “processed demands.”

Posting of Prices After Round t. For any License Category such that Aggregate Demand after processing exceeds the Target Supply, under this approach, the FCC would set the “posted price” equal to the end-of-round price for the round (pr,t = Pr,t). For any License Category such that Aggregate Demand after processing does not exceed the Target Supply in that round and provided that some intra-round bid was applied that includes a decrease for that License Category, the FCC will set the “posted price” (pr,t) equal to the price for that License Category at the highest price point of any intra-round bid that was applied in Round t and included a decrease for the License Category. For any License Category such that Aggregate Demand after processing does not exceed the Target Supply in that round and provided that no intra-round bid was applied that includes a decrease for that License Category, the FCC will set the “posted price” (pr,t) equal to the previous posted price (pr,t-1) for that License Category.

Incrementing of Prices. For each License Category, the start-of-round price for Round t will be set equal to the Posted Price from the previous round (Pr,t = pr,t-1) and the end-of-round price will be set at some amount (for example, between 1% and 20%) above the start-of-round price, depending on the extent of Excess Demand and on the round in the auction.

Supply Changes and Extended Rounds. At the end of a Round in which there is no Excess Demand – when the Aggregate Demand for every License Category is less than or equal to Target Supply for that License Category – the FCC tests to see whether the auction Closing Conditions have been met. If the Closing Conditions are met, the incentive auction ends.

If the Closing Conditions are not satisfied, then the FCC identifies those licenses in the Forward Auction for which Supplies would be reduced if the Clearing Target for channels in the reverse were reduced by some number. The Target Supplies of those licenses in the Forward Auction are reduced, but the Clearing Target remains unchanged.

The Forward Auction is continued in a series of Extended Rounds, in which prices are incremented based on the (now-reduced) Target Supplies. If after the processing of an intra-round bid in an Extended Round of the Forward Auction, the Closing Conditions are satisfied, then the overall auction ends and the current demands in the Forward Auction are filled at the then-current prices. At that time, demand for some licenses may exceed the reduced Target Supply in the Forward Auction but not the actual supply available from Reverse Auction.

If an Extended Round ends with no Excess Demand – meaning that the Aggregate Demand for every License Category is less than or equal to Target Supply for that License Category – the Extended Rounds end. The Clearing Target is then reduced (and action shifts to the reverse auction).

Bid Withdrawals. No bid in this auction may be withdrawn.

Information Policy. Before each round, the start-of-round price, the end–of–round price, the Target Supply for each License Category and the Activity Requirement will be announced to each bidder. After each round, the Posted Price, the Aggregate Demand (evaluated using the processed demands for that round) and the bidder’s own processed demand for each License Category will be announced to each bidder.

Residue. It may happen, after the auction, that some licenses are unsold. This could happen, for example, if certain License Categories never received sufficient demand. Options for dealing with any residue are not described in this document.

Assignment Stage. After completion of the Forward Auction, which determines the number of units of each License Category allocated to each bidder, the Assignment Stage determines the actual frequencies to be assigned to each bidder in each EA based on the generic licenses won in the auction.