Ofcom kicks off spectrum auction – here’s how it works

Ofcom has officially started the spectrum auction after months of debate and objection regarding the process and rulings on limitations.

This edition of the spectrum auction will feature five companies, Airspan Spectrum, EE, Hutchison 3G UK (Three), Telefonica and Vodafone, after the sixth withdrew. Why Connexin dropped out of the auction still remains a mystery as the team has remained tight-lipped so far.

Ofcom will auction a total of 190 MHz of spectrum in two frequency bands; 40 MHz in the 2.3 GHz band, and 150 MHz in the 3.4 GHz band. How long the auction will last and how much money will be raised by the watchdog remains unknown for the moment as it is purely down to demand from the operators. Spectrum in the 2.3 GHz band is compatible with existing phones today, while the 3.4 GHz spectrum is earmarked for future 5G services.

“Our job is to release these airwaves quickly and efficiently, and we want to see them in use as soon as possible,” said Philip Marnick, Ofcom’s Spectrum Group Director. “We are glad the auction is now underway. This spectrum will help improve people’s experience of using mobile broadband today, and also help companies prepare for future 5G services.”

Now onto the controversies. EE, which currently holds the most spectrum in the UK, will not be able to bid for any spectrum in the 2.3 GHz band and there is a second cap measuring how much spectrum can be held by anyone organization at one point. Vodafone and EE are the two firms who have felt the caps most. This was the root cause of the disruption over the last couple of months, owing to Three’s objections that Ofcom had not been stringent enough when it came to placing caps on EE.

And for those who are that way inclined, here is how the bidding will actually work.

First and foremost came the deposit. To be considered in the auction the bidders have been required to place a deposit of £900,000 into the Ofcom bank account, which is on top the £100,000 table stakes put forward during the application period. We’re not actually too sure when Connexin actually informed Ofcom of its plans to withdraw from the auction, but it could have cost them a cool £1 million in non-refundable deposits.

The first stage, known as the principle stage, features a number of rounds where the spectrum is make available at the reserve price (each 2.3 GHz lot is £10 million, each of 10 MHz, while the reserve for each 3.4 GHz lot is £1 million, each of 5 MHz). If the demand for the lots is higher than what is available, a new round will begin at a higher price. This process will continue until supply meets demand. Once this stage is complete, another deposit is required into the Ofcom bank account. This amount seems to be dependent on how much the winning bid is.

The assignment stage comes next where the airwaves won by each bidder are located within the radio spectrum. Winning bidders from the principal stage now bid to locate the spectrum they have won at particular frequencies within the band. This is slightly different in that bidders in the assignment stage will pay the price set by the highest losing bidder, which is known as the ‘second price’ rule. Its used quite often on auction platforms such as eBay and also by Google AdWords to encourage bidders to place what they would consider true value on their bid.

What is important is the process is underway after a wobbly couple of weeks and a judicial review, but who knows when it will actually finish. Results will be published each day, detailing whether demand exceeds supply, so tomorrow will give a better idea of how long we can expect the auction to last.