ECO 436

Telecommunications Auctions

Why are Auctions Superior?

Auctions maximize benefits to consumers by assigning licenses to the parties that value them most highly and fostering efficient spectrum use

Auctions minimize wasteful private expenditures in obtaining licenses

Why are Auctions Superior?

Auctions increase competition with existing services

Auctions are fair, objective, open and transparent processes.

Auctions of spectrum licenses can raise substantial revenue for the public.

Misconceptions

Auctions will raise the price of telecommunications services

Auctions will reduce the investment in telecommunications services

Auctions will lead to the monopolization of the spectrum.

Small businesses will be unable to compete in an auction

Auctions undermine the public trustee concept of spectrum management

700 MHz Band Auction

698-806 MHz band 1,099 total licenses Scheduled to commence on January

16, 2008

Auction Details

Anonymous Bidding intended to reduce the potential for

anticompetitive bidding behavior Package Bidding for C Block Licenses

But Not for A, B, D, and E Block Licenses.

Activity-Based Formula to Determine Minimum Acceptable Bids

Ai = (C * Bi) + ((1-C) * Ai-1)Ii+1 = smaller of ((1 + Ai) * N) and MXi+1 = Ii+1 * Yi where

Ai = activity index for the current round (round i)C = activity weight factorBi = number of bidders submitting bids on the licenses in the current round (round i)Ai-1 = activity index from previous round (round i-1), A0 is 0Ii+1 = additional percentage for the next round (round i+1)N = minimum additional percentage or floorM = maximum additional percentage or ceilingXi+1= additional dollar amountYi = current price estimate (CPE) for the license from the current round(The CPE for a license is the provisionally winning bid, unless there is aprovisionally winning package bid covering the license. See Attachment C for more information on CPEs.)

Example

C = 0.5, N = 0.1, M = 0.2 Round 1 (1 bidder submitting bids, CPE = $1,000,000) 1. Calculation of additional percentage for round 2:

A1 = (0.5 * 1) + (0.5 * 0) = 0.5 I2 = The smaller of [((1 + 0.5) * 0.1) = 0.15] and 0.2 (the

maximum additional percentage) = 0.15

2. Calculation of dollar amount associated with the additional percentage for round 2 (using I2

from above): X2 = 0.15 * $1,000,000 = $150,000

3. Minimum acceptable bid amount for round 2 = $1,150,000