Earlier this month, I attended the Spectrum Management Forum 2012 in Munich and was interested to hear several presenters criticise the Combinatorial Clock Auction (CCA) format. The CCA format which has clock and supplementary rounds where bidders bid on indivisible packages of spectrum and where prices paid are determined by a second price rule has in the last few years found increasing favour by many governments for spectrum auctions.  Under the second price rule, the price a winner of a particular package pays for its spectrum is determined entirely by competitors’ bids.

Supporters of the CCA format, claim that it results in more economically efficient outcomes and reduces aggregation risk where there may be complementarities between lots e.g. between high and low band spectrum.

Most of the criticisms of the CCA format relate to the fact that it is incredibly complex to prepare for, that the outcome is not very transparent and it can lead to perverse results. But there are other issues that for instance competitors can “game” the system and drive up prices paid by other bidders by bidding on larger packages that they do not sincerely want to win. In addition it represents a difficult issue for companies to deal with from a corporate governance point of view in terms of establishing bid limits and deciding whether to bid sincerely.

We can confirm that complexity is a serious issue as one CCA auction that we have been involved in required our client to value more than one hundred thousand different spectrum packages to prepare for the supplementary round. In terms of strange results there have been several auctions where there have been very large disparities in prices paid e.g. the 2012 Swiss multi-band auction and the 2010 Danish 2.6GHz auction.

We have worked with most major auction formats and while CCA was introduced with good intentions we are starting to doubt that the benefits outweigh the disadvantages.

Scott McKenzie is director at Coleago