The next great battle for low band spectrum in Europe is focused on the second digital dividend award in the 700 MHz band.

The battle for this coveted spectrum in Germany, however, was not much of a battle and did not play out until after Round 154 of the 181 round SMRA multi-band auction that ended on June 19, 2015.

With participation by only the three existing German mobile network operators (MNO’s), Deutsche Telekom, Vodafone and Telefonica (O2), the first round of the auction saw the 700 MHz band get neatly divided into three at the reserve price of only €0.09 per MHz-pop (US$0.10).

After some jockeying for position, prices rose to €0.20 (US$0.23) but the neat split of two blocks for each of the three bidders remained intact at the end.

The combination of low reserve prices and a low level of competition kept prices down. In total the €5 billion (US$5.6B) proceeds were 16% higher than in the 2010 auction, for 25% less spectrum capacity.

It was the 1800 MHz band that made the difference, where bidding activity increased prices to 10x what they were in the 2010 auction: €0.30 per MHz-pop (US$0.33) compared to a paltry €0.025 per MHz-pop (US$0.032) in 2010. If the 1800 MHz licenses had sold for the 2010 price in 2015, the 2015 auction would have yielded 33% less revenue.

But the 700 MHz blocks sold for 70% less than the 800 MHz blocks did in 2010. 700 MHz accounted for only 20% of the total auction, compared to the same amount of of 800 MHz spectrum that accounted for >80% of the 2010 auction.

The difference? In 2010 there were four bidders.

Against that backdrop and coincidentally announced on the same day as the German auction ended, the French regulator ARCEP initiated its own process to award 700 MHz licenses before the end of 2015.

For the first time, ARCEP is proposing to use a multi-round ascending auction format. Earlier processes were variations on one-round sealed-bid mechanisms.

There is a proposed auction cap of 15 MHz duplex (i.e. 30 MHz total – 15 “up” and 15 “down”) for any one bidder and an overall cap of 30 MHz duplex for bidders that also have existing 800 or 900 MHz low-band licenses.

All four MNO’s are impacted by the cap rule – three of them already have 20 MHz duplex of 800/900 spectrum (Orange, SFR and Bouygues) and so could bid for up to 10 MHz duplex each in the auction. One has 5 MHz duplex in the 900 MHz range (Free Mobile) and would thus have an auction limit of 15 MHz duplex.

If all four were to bid, therefore, this could represent demand for up to 45 MHz duplex (or more if there are other bidders), with only 30 MHz available, hence a competitive auction.

But, in another apparent coincidence, right after ARCEP’s announcement, Altice (Numericable) – the relatively new owner of SFR – announced that they had made an offer to acquire Bouygues. Although apparently a hostile bid and rejected by Bouygues, if it is realized, it could effectively toss a spanner in the works of ARCEP’s auction. SFR and Bouygues if combined would have 40 MHz duplex of 800/900 MHz spectrum and thus would exceed the overall proposed cap of 30 MHz duplex of low band licenses. Presumably under the proposed rules, they would not be allowed to bid at all.

Perhaps Altice finds Bouygues’ 20 MHz duplex along with its customers and network to be a better prize than fighting it out for 10 MHz duplex of new licenses in an auction.

Barring any potential new entrants, this could leave the auction with only two bidders, and with 5 MHz duplex of leftovers due to the cap. Not a battle, and not much of an auction.

This could also jeopardize ARCEP’s apparent desire to lock in at least €2.5 billion (US$2.77B), which is the reserve price for the 30 MHz duplex on sale. This reserve price is similar to the €2.6 billion (US$2.88B) collected for 800 MHz licenses in the award process held by ARCEP in 2011.

The 700 MHz starting price of €0.64 per MHz-pop (US$0.71) is 7x the reserve price in Germany, but of course the licenses have to be sold for ARCEP to realize the value.

In terms of the auction format proposed, the French process appears to have been inspired by elements of the proposals for next year’s 600 MHz Forward Auction planned as part of the US Incentive Auction. As with the US auction, the French process includes bidding on generic blocks, no standing high bidders, rules for demand reduction, and intra-round pricing to better match supply and demand. And this will be followed by an assignment phase to assign specific frequencies to the winning bidders.

The proposed French 700 MHz auction, the US Incentive Auction as well as the planned 2.3/3.5 GHz auction in the UK all have new features and variations on themes from past auctions. While these are often presented in the guise of simplicity, the reality for bidders is often the opposite, with new rules making planning, preparation and practice even more important.

LYA provides expertise in planning for high stakes auctions, in license valuation and assessing competitive dynamics and auction tactics, including in the bid room with round tracking and management tools.

LYA deals with the complexities and supports its clients by conducting mock auctions and in simulating auction outcomes using robotic bidders on the LYA Auction Platform.