Structure of the Combinatorial

Clock Auction (CCA)

Rebecca Burdon

Principal Economist, Regulatory Futures, ACMA

Overview

> Purpose

- Step through the structure of the CCA as outlined in the early

exposure draft of the auction procedures (http//engage.acma.gov.au/digitaldividend/feedback-sought-on-draft-auction-procedures/)

> Outline

- Reasons for using a CCA for Digital Dividend allocation

- Overview of the auction process

- Allocation stage structure and rules

- Assignment stage structure and rules

Advantages

> Aim is an efficient allocation – the auction format

should allow bidders to bid effectively for all

combinations of spectrum they are interested in

acquiring

> Multiband auction – complementarities likely, both

across bands and within a band

> CCA

- Bidders can bid for packages of lots - no exposure risk

- Multiple open rounds - aids price discovery

- Pricing rule - simpler to develop bidding strategy

- Generic lots - assigns contiguous lots to winners

Yes

Auctioneer increases price for all products with excess demand

ApplicationClock rounds - series of bidding rounds

Assignment stage – sealed bid round(s)

Determines

amount of

spectrum won

by each bidder

Determines

location in

the band

Excess demand for any

product?

Supplementary round – sealed bid round

Auction ends

Allocation stage

No

Overview: the auction process

Allocation stage: the product

> The spectrum will be grouped into products for sale

> Each product includes a number of generic lots

- in the same frequency range

- of the same bandwidth

- for the same geographic area

- with the same licence conditions and technical framework

> All lots in a given product will have the same opening

prices and eligibility points - perfect substitutes in this

stage of the auction

Allocation stage: illustrative example

of possible product offering

REGIONS CATEGORIES

700 MHZ upper 700 MHz lower 2.5 GHz band

National 8 lots of 2X5 MHz 1 lot of 2X5 MHz

Metro Perth

14 lots of 2x5 MHz

Metro Darwin

14 lots of 2x5 MHz

Metro Adelaide

14 lots of 2x5 MHz

Metro Brisbane

14 lots of 2x5 MHz

Metro Sydney

14 lots of 2x5 MHz

Metro ACT

14 lots of 2x5 MHz

Metro Melb

14 lots of 2x5 MHz

Metro Hobart

14 lots of 2x5 MHz

Regional East Aust

14 lots of 2x5 MHz

Regional West Aust

14 lots of 2x5 MHz

Remote Aust

14 lots of 2x5 MHz

Yes

Auctioneer increases price for all products with excess demand

ApplicationClock rounds - series of bidding rounds

Assignment stage – sealed bid round(s)

Determines

amount of

spectrum won

by each bidder

Determines

location in

the band

Excess demand for any

product?

Supplementary round – sealed bid round

Auction ends

Allocation stage

No

Overview: the auction process

Allocation stage: clock rounds - structure

> Clock rounds are a series of open bidding rounds

> Clock rounds are scheduled at the auction manager’s

discretion

- Each clock round is likely to run for around 30 minutes

- Recesses between clock rounds are likely to run for around 30

minutes

> Auction system will give the anticipated schedule of

rounds and recesses for a given day, and bidders will

be notified of any variation

Allocation stage: clock round - bids

> In each clock round bidders should bid for the quantity

of lots in each product they most want at current

round prices

- Each bidder can make one bid in each clock round

- Each bid is a package bid for all the lots specified in that bid

> A valid bid is a binding commitment to buy the

relevant package for any price up to the amount of the

bid

> A bidder can change its bid within a round – the

binding bid is the last valid bid made by the bidder in

the round

Allocation stage: clock round - constraints on bids

> Bids in clock rounds are subject to constraints

- The quantity bid cannot exceed any relevant spectrum cap

- In the first clock round - the quantity bid must not exceed the

eligibility established in the bidders lot application form

- In all subsequent clock rounds the proposed activity rules

require that the bid:

- must not exceed the bidder’s eligibility based on previous

clock round bids; or

- must be consistent with preferences revealed in previous

clock round bids

Allocation stage: clock rounds - information

> Before the start of each clock round, each bidder will be notified

of:

- the start and end of the round time

- the round prices that will apply to lots in each product

- the aggregate demand for each product in the previous clock round

- the quantity and value of its own bid in the last clock round

- its own eligibility to bid in the next clock round

> During each round each bidder will be notified if a bid is invalid

> Bidders will not be informed of others’ individual bids or others’

eligibility to bid in the next clock round

Allocation stage: clock rounds - end

> In each subsequent clock round the auction manager

- increases prices for all products with excess demand

- does not change prices for all products where demand is no

greater than supply

> The clock rounds end when there is no excess

demand for any product

> Bidding remains open on all products until the clock

rounds end

Yes

Auctioneer increases price for all products with excess demand

ApplicationClock rounds - series of bidding rounds

Assignment stage – sealed bid round(s)

Determines

amount of

spectrum won

by each bidder

Determines

location in

the band

Excess demand for any

product?

Supplementary round – sealed bid round

Auction ends

Allocation stage

No

Overview: the auction process

Allocation stage: supplementary round - structure

> The supplementary round is a single sealed bid round

> Auction manager has discretion over the time and

duration of the supplementary bid round

- There is likely to be at least one full business day between the

end of the clock rounds and the start of the supplementary round

- The supplementary round is likely to take place on a single

business day and last for between four to eight hours

Allocation stage: supplementary round - bids

> In the supplementary round each bidder can submit a number of

bids to:

- increase its bids for the package(s) bid on in the clock rounds and

- bid on other packages

> Each bid in the supplementary round must specify:

- the quantity of lots sought in each product (the package) and

- the amount the bidder is offering for that package

> Each valid supplementary round bid is a binding commitment to

buy the relevant package for any price up to the amount bid

> A bidder can change its supplementary bids during the round –

the set of valid supplementary bids on the auction system at the

end of the round is the binding set of bids

Allocation stage: supplementary round –

constraints on bids

> Bids in the supplementary round are subject to constraints

- A bidder cannot submit a supplementary bid for a package that:

- exceeds any relevant spectrum caps

- exceeds its eligibility in the initial clock round

- The amount of each bid must:

- be at least the sum of the opening (reserve) prices for the lots in

the package

- be at least as much as any bid that bidder made for the same

package in the clock rounds

- satisfy the Revealed-Preference Cap for the relevant package

Allocation stage: supplementary round –

information

> During the supplementary round the auction system

will:

- identify if any bids in a set of supplementary bids are

invalid, and

- notify the bidder of which bids are invalid

Allocation stage: determining winners

and allocation prices

> The winning allocation stage bids are the set of clock and

supplementary round bids that give the highest total

value, subject to:

- the available supply of lots

- only one allocation stage bid being accepted from each bidder

> If there is more than one equal highest value set of bids, tie

breaking rules will be used

> An allocation price is calculated for each winning bid:

- that is at least as much as the sum of the reserve (opening) prices for

each lot in the package, and no more than the amount offered by the

winning bidder for the set of lots won

- using a weighted Vickrey Nearest – Minimum Revenue Core pricing

rule

Allocation stage: end

> When the auction manager has determined the

winning allocation stage bids and each winner’s

allocation stage prices, bidders will be told:

- the number of winning bidders

- the total number of lots in each product allocated

> Each bidder will also be told:

- the number of lots in each product it has won

- the allocation price for the package it has acquired

Yes

Auctioneer increases price for all products with excess demand

ApplicationClock rounds - series of bidding rounds

Assignment stage – sealed bid round(s)

Determines

amount of

spectrum won

by each bidder

Determines

location in

the band

Excess demand for any

product?

Supplementary round – sealed bid round

Auction ends

Allocation stage

No

Overview: the auction process

Assignment stage: structure

> Assignment stage is used to award specific frequencies to the

winners from the allocation stage

- Only winners from the allocation stage can bid in the assignment stage

> The assignment stage may consist of one or more assignment

rounds

> Each assignment round will be a single sealed bid round

> The auction manager has discretion over the time and duration of

the assignment stage. Any given assignment round:

- is likely to take place on a single business day

- is likely to commence no sooner than the day after the end of the

supplementary round

Assignment stage: structure - number

of rounds

> Appropriate number of assignment rounds will depend on the

number of winning bidders for each product and the number of

lots won by each winner. For example:

- it may be appropriate to have separate assignment rounds for each

product

- if bidders each win the same number of lots in every region in a

frequency band it may be appropriate to run an assignment round that

includes all the regions in that frequency band

> Auction manager has the discretion to select the appropriate

number of assignment rounds

Assignment stage: bids

> An assignment round bid should state the additional amount a

bidder is willing to pay to be allocated a specific set of

frequencies, over and above the bidder’s allocation price

- Each bidder can submit a set of bids stating the amount it is willing to

pay for each of the frequency assignment options listed by the auction

manager

- Zero bids are permitted

- If a winning bidder from the allocation stage does not submit an

assignment bid it is deemed to have bid zero

> Each allocation stage winner is guaranteed to be assigned the

number of lots it acquired in the allocation stage

> Each assignment bid is a binding commitment to pay a price up

to the amount bid for the specific frequency assignment option

Assignment stage: constraints on bids

> Each allocation stage winner can bid on any of the

frequency assignment options listed by the auction

manager

> All assignment bids must be a non-negative amount

Assignment stage: information

> At the start of the assignment stage, the auction manager will

inform bidders of the start time and end time for each assignment

round

> Prior to the start of each assignment round, the auction manager

will, for each bidder, list the set of frequency options for the

products being assigned in that round:

- that ensure each allocation stage winner obtains a contiguous

frequency range corresponding to the amount of spectrum acquired in

the allocation stage

- identifying any unallocated lots, and whether the location of unallocated

lots in the band is set by the auction manager or to be determined by

bidding in the assignment round

Assignment stage: determining

winners and assignment prices

> For each assignment round the winning assignment bids are the

highest value set of assignment bids subject to:

- only one bid from each bidder being accepted

- each bidder being awarded a distinct set of frequencies

- any rules regarding the treatment of any unallocated lots being met

> The auction system will calculate the assignment prices for each

winning assignment bid. Assignment prices:

- can be no more than the amount offered by the winning bidder for the

specific frequencies it has been assigned

- are calculated using a weighted Vickrey Nearest – Minimum Revenue

Core pricing rule

Assignment stage: end

> When the auction manager has determined the

winning assignment bids and the assignment stage

(additional) prices all bidders will be told:

- the identity of the winning bidders

- the frequency ranges awarded to each winning bidder

- the allocation stage (base) prices and any assignment

(additional) prices to be paid by each winning bidder

> The licence fee payable by winning bidders will be the

sum of the allocation prices and the assignment

prices

Questions?