It is auction season in many countries. Where things are at in a few of them…
700 MHz – France vs. Germany
Thus far, the battle for new low band spectrum in Europe has turned out to be no more than a minor scuffle, with the operators carving up the available licenses.
The most recent auction of 700 MHz licenses was in France, where the 60 MHz of frequencies was divided neatly amongst the four operators – Orange, SFR, Bouygues and Free – in 11 rounds of ARCEP’s first multi-round auction process, held in November 2015.
The bidding met ARCEP’s revenue target, resulting in payments of €2.8 billion (US$3 billion). The result is equivalent to €0.72 per MHz-pop (US$0.80), just 12% over the reserve price of €0.64 per MHz-pop (US$0.68).
The reserve price for the auction in France was actually much higher than the final price paid in the German multi band auction, held in June 2015, which included 700 MHz licenses but where bidding focused more on the 1800 MHz band. As a result, the proceeds for 700 MHz in the French auction eclipsed those seen in Germany.
In Germany the reserve price for 700 MHz was a mere €0.09 per MHz-pop (US$0.10). The final price was 2.2 times reserve, €0.21 per MHz-pop (US$0.23), and so the bidders paid €1 billion (US$1.1 billion). This was one third of that paid in France for the same amount of spectrum to cover 25% more population.
What can be seen clearly in France vs. Germany, is that with a specific revenue objective, the French set the reserve price to ensure it would meet it. If auctions were World Cup events, it would be France 1, Germany 0.
Over to the US – 600 MHz
The FCC is in full swing to meeting the start date for the long-anticipated 600 MHz Incentive Auction of March 29, 2016, a date that is the moment when Broadcasters begin offering licenses for sale in the Reverse Auction.
The Forward Auction – the process where operators and investors bid for new mobile licenses – can only start once it is known how much spectrum has been freed up from the Reverse Auction.
The opening bid price for the Forward Auction will be US$0.38 per MHz-pop on average (€0.36), considerably higher than the AWS auction opening price which was only US$0.09 per MHz-pop (€0.08). That auction finished on January 29, 2015 at US$2.20 per MHz-pop (€1.89) on average (net of licenses returned by DISH), a whopping 24x the opening bid price.
The success of the Incentive Auction importantly requires that the Forward Auction meet specific targets, notably US$1.25 per MHz-pop (€1.18) for the largest market areas. And the biggest uncertainty is the requirement for the Forward Auction to pay for the licenses sold in the Reverse Auction. Thus the target result for the Forward Auction will not be known until the end of the Reverse Auction.
Mexico and Mexico
Two auctions are in process in Mexico and both advancing at a breakneck pace.
First, for 700 MHz, the Mexican Government decided to issue one license to a party that would build a new wholesale network. It received 39 various expressions of interest earlier in the year and plans to tender the project in January 2016.
Second, in parallel, the Mexican regulator IFT will be using a Combinatorial Clock Auction (CCA) process to license remaining AWS-1 blocks and AWS-3 blocks. It had earlier licensed a portion of AWS-1 on a regional basis, but given that the existing carriers operate nationally, these are being optionally converted to national licenses as part of the new process. The auction is set to start on February 15, 2016.
The CCA format, a first for Mexico, is very similar to the process used in the last two Canadian auctions (700 MHz and 2500 MHz). It will use generic blocks, with ascending price clock rounds followed by a “sealed bid” supplementary round and an assignment stage. The assignment stage will serve to optimize contiguity of the frequencies won.
And there are many other auctions in the works
A few other notable processes underway:
- Brazil – Anatel recently initiated a multi band auction process to license frequencies in the 1.8 GHz, 1.9 GHz and 2.5 GHz ranges. Applications to participate are due December 10, 2015.
- UK – Following its May 26, 2015 Statement and Consultation, Ofcom decided on October 26, 2015 to move ahead with its modified-SMRA format auction of 2.3 GHz and 3.4 GHz licenses. It decided to include all of the available frequencies in the auction, having hesitated on this point while the industry reorganizes. The auction will be held likely in February, following bidder deposits required in late January. UPDATE: On December 3, 2015 Ofcom decided to defer the auction until the European Commission completes its review of the proposed merger of Telefonica UK (O2) and Hutchison 3G UK., not expected before May 2016. Ofcom’s decision was made following indications from Telefonica and Hutchison that they intended to initiate “judicial review proceedings” regarding Ofcom’s decision to run the auction before the EC’s process was completed.
- Australia – On November 30, 2015 ACMA began auctioning “regional” and “residual” 1800 MHz licenses for mobile service using an SMRA process with 147 lots covering 13 geographic areas. There is 120 MHz total, with a bidder cap of 50 MHz.
- India – TRAI issued a consultation paper on November 26, 2015 addressing reserve prices for an auction of 700 MHz, 800 MHz, 900 MHz, 1800 MHz, 2100 MHz, 2300 MHz and 2400 MHz licenses. Comments are due December 21, 2015.
Why all the activity? Other than the pecuniary imperative for new spectrum proven by the US AWS-3 auction, growth in data usage continues unabated. Carriers really do need the new frequencies both to support new technology ecosystems as well as to be able to address ever increasing needs for raw capacity.
LYA brings extensive auction experience and expertise, with SMRA auctions, combinatorial clock auctions and the Forward Auction format being used for the US Incentive Auction. LYA’s Auction Platforms have been used extensively by bidders for mock auctions and for simulation of outcomes in preparation for spectrum auctions.
LYA’s consulting services focus on providing support for participants in high stakes spectrum auctions and related matters, including expert testimony. LYA provides expertise in planning bid strategies, in license valuation and assessing competitive dynamics and auction tactics, including in the bid room with round tracking and management tools.
Please contact us for more information.