It took about five hours on Wednesday for Industry Canada officials to explain the complicated bidding format next year’s highly-anticipated 700 MHz auction.
But the session — Webcast from Ottawa — ended with a question that had almost nothing to do with the way participants will bid and everything to do with the federal government’s hopes the auction will ultimately help spread high speed broadband to rural communities.
Unidentified on the Webcast, the questioner complained the presentation showed how regional wireless bidders would get squeezed out of the final round of bidding for licences. How did that square with the government’s public policy of encouraging rural broadband, he asked, which will depend on regional carriers doing the work?
Fiona Gilifillan, director general of Industry Canada’s spectrum management operations branch replied that there are rural deployment obligations on licence winners.
(In March Industry Canada said most licences for the auction, to be held next summer, will cover both urban and rural areas. By comparison, in the 2008 auction there were urban- and rural-only licences.
Under rules set by the department, any carrier winning two or more paired blocks of 700 MHz spectrum in any area has to cover 90 per cent of the population of its existing HSPA network footprint within five years and 97 per cent of the population within seven years.)
Peter Cramton of Power Auctions, which has advised governments around the world on spectrum auctions and helped design the 700 MHz auction, added that bidding rules place a spectrum cap on participants to ensure spectrum isn’t swallowed by a few carriers.
“If those conditions had real teeth I’d tend to agree with you,” the questioner said, “but we have difficulty seeing anything in the rules that forces anyone to do rural deployment.”
Carriers and would-be bidders have until June 25 to submit comments on the bidding format to Industry Canada.
It isn’t known yet whether that deadline will be used by opponents of the department’s strategy to mount an attack.
The proposed bidding format, announced in April, is separate from the government’s decision in March that the blocks of spectrum carriers will bid on will include rural and urban areas. Industry Canada is holding firm on the blocks decision. Only the rules of the bidding format are up for discussion.
A number of provinces and small carriers aren’t happy with the decision, feeling most winning bidders will deploy wireless broadband over 700 MHz frequencies in urban areas long before turning to rural areas.
In March satellite and fixed-wireless provider Xplornet Communications Inc, which focuses on serving rural areas, issued a press release saying it was disappointed with the government’s decision.
“To acquire spectrum for rural use, bidders would be required to buy urban areas. This prices many rural broadband providers out of the spectrum market and slows expansion of broadband to rural Canadians,” said Xplornet CEO John Maduri in the release.
Since the release in April of the proposed bidding rules, no carrier has been willing to be quoted on any facet of the auction process until they have submitted their comments in June.
Because of the spectral efficiency of frequencies in the 700 MHz band, wireless carriers are eagerly looking forward to the auction. Generally, a carrier will need fewer towers to cover a given area than it does now with existing spectrum it uses, Cramton told attendees Wednesday. Signals carried over 700MHz will also penetrate buildings better.
These characteristics make deploying the latest wireless broadband technology, LTE, over 700 MHz ideal.
Wednesday’s session was to give carriers an opportunity to delve into the nitty-gritty of what is called a combinatorial clock auction (CCA), which is different from the rules under which previous spectrum auctions have been held.
In 2008, bidders fought over individual licences across the country for several months, a drawn-out process that carried the usual auction risk: You don’t get all of the licences you want where you want them.
There was also the ability to waste time (and push up prices) by trying to fake out opponents by bidding on licences that weren’t really needed, and some ability to sneak in last-minute bids.
Under the CCA rules, participants will be able to bid on blocks of licences they want in multiple rounds. Bids will be anonymous, so carriers won’t see who is bidding where. And there are rules to forestall what Cramton called “bid-sniping” with last-minute bids.
Generally, he said, the rules are designed to block game-playing and encourage bidders to play it straight and bid only on what they really want.
The session was filled with terms like “products,” (aka categories of licences), “price discovery,” “generic licences,” “revealed preferences,” “Vickrey rules” and other numbing details to ensure the conflicting goals are met: Bidders pay market value for spectrum, and small carriers aren’t always outbid by big carriers.
He agreed the bidding process is complicated, but no more than previous auctions. Successful bidders have to have a good idea of what they want, what they’re willing to pay and how it fits into their business strategy.
“In terms of your bidding strategy I would encourage you to take as your starting point a default position that just truthfully express your preferences” in what is bid on, he advised, and don’t think about tricks like retaliatory bids. “You’re not going to get into trouble with that. It might be the best strategy you have.”
In fact, in other style auctions that isn’t true, he said. But under the CCA “a lot of the gaming has been removed.”
“I love this stuff,” Cramton, an economics professor at Maryland University who has advised governments and carriers, said at the outset. “Hopefully by the end of the day you’ll love it, too, although that’s probably not possible.”
There were few questions put to Cramton during the live sessions of the Webcast, which may suggest carriers have few difficulties with the process.