Making Waves in Wireless: Outcomes and Implications of Next Spectrum Auction

Transcription

1 Making Waves in Wireless: Outcomes and Implications of Next Spectrum Auction Presentation to the Telecom Forum Stuart Jack, Partner Nordicity Group Ltd. October 2014

2 Agenda Why Auctions Matter & What are They? Auction Formats and Features Canadian Auction Timelines Overview Outcomes of Past Auction Upcoming auctions: Timelines and Anticipated Results Auction Tools About Nordicity and Carleton University CQADS Team Questions 2

3 About Nordicity Over 30 years of experience Strategic, policy and economic advice in telecoms, ICT and media for Service providers (incumbents, new operators: wireline, wireless, satellite) Regulators at home: Industry Canada and CRTC, and Regulators globally: South Africa, Trinidad, Cyprus, Jamaica, Bahamas, Curacao Full suite of spectrum management services Cross-functional teams: Technical Economics Regulatory Business strategy Customers Technical STRATEGY Regulatory Economics 3

4 Why Auctions Matter & What are They? Why Spectrum Auctions Matter Each auction event is intrinsically interesting in that there are winners and losers in a zero-sum gaming environment As shown by Cisco, Gartner, etc. growth in traffic & especially revenues for operators has largely occurred in mobile networks which is driving the demand for spectrum Impacts on you the consumer and your enterprise market business What are Spectrum Auctions? Discrete gaming events held by Industry Canada the owner of this public resource with winners and losers Participants bid on a round by round basis until a winner is declared IC grants a licences essentially a lease for the spectrum are auctioned simultaneously over many rounds of bidding Given there s a reasonable expectation of renewal if conditions of licence are met, leases have become part of the capitalized asset base of wirelesscos 4

5 Auction Formats and Features Simultaneous Multiple Rounds Auction (SMRA) Licences are auctioned simultaneously over many rounds of bidding Results are posted each round Percentage increase on lowest bid in order to remain in the running Winner announced after no new bids Combinatorial Clock Auction (CCA) Participants place bids on packages rather than individual items Eliminating the risk that bidders may win some but not all of the licences that they desire Particularly important given the regional nature of the licences to be auctioned Reverse Auction (announced FCC for 600 MHz in 2016) Rolls of buyers and sellers reversed, with sellers competing to attract buyers as prices decrease round by round 5

6 Canadian Auctions Timeline Overview Auction of Spectrum Licences for Advanced Wireless Services (AWS) and Other Spectrum in the 2 GHz Range 292 spectrum licences in Tier 2 and 3 service areas across the country 700 MHz spectrum auction Spectrum valued by service providers because it carries signals well over long distances and penetrates structures better than higher frequency bands The spectrum was divided into seven licence blocks in 14 service areas, for a total of 98 licences (Tier 2). Consultation on 3.5 GHz licensing Auction of Residual Spectrum Licences in the 2300 MHz and 3500 MHz Bands 2,500 MHz spectrum auction ideal for next-generation technology that will cover faster connections. the auction will come with strict conditions to ensure carriers who obtain licences must put them to use quickly or lose them. Anticipated auction for 600 MHz following U.S. auction in

7 Outcomes of Past Auctions 7

8 Outcomes of Past Auctions Auction Event Year Type and Rules AWS MHz 2008 SMRA with set-asides Tier MHz Waterfront spectrum 2014 CCA 2 Rounds: -Clock -Attribution Tier 2 Projected Actual Outcomes Caveats Surprises $1.6M- $1.8M $2.3M $4.25M 1. Entry of new players including WIND, Mobilicity and Public Mobile 2. Incumbents captured national blocks 3. Gaming 4. Wide variation in $/Mb/pop prices paid e.g. SaskTel 5. $1.6B > estimate i.e. outflow from sector to Treasury $5.27M 1. Dominated by incumbents captured national blocks; too expensive for new entrants 2. Gaming 3. Wide variation in $/Mb/pop prices paid e.g. Rogers 2X Bell 4. $3B > estimate i.e. significant outflow to Treasury Overall, the goal of bringing the 4 th mobile player was a failure due to underfinancing and other elements of the regulatory framework: - Roaming. - Tower sharing. Rogers has already rolled out LTE in its AT&T A-B block with other incumbents to follow - Auction rules were gamed in a number of ways in particular set asides allowed new entrants to bid up prices in incumbents areas. Example Halifax vs. Calgary - Incumbents complained that $B taken by Treasury that otherwise would have taken out of investment plans - No foreign wireless companies were bidders despite GC pleas - Telco s used complex algorithms to determine bidding patterns of rivals and game the system - In particular, Bell and Telus pumped up Rogers desired A-B band (AT&T ecosystem) - Overall high $ / MHz / Pop compared to US 700MHz 8

9 2014: 700 MHz CCA Auction Figure 1 - Overall Spectrum Licence Awards 9

10 700 MHz Auction in Action 10

11 700 MHz Auction in Action (cont.) 11

12 Comparison of CDN 700 MHz with Global Auctions 12

13 Upcoming Auctions: Planning Schedule, Anticipated Outcomes 13

14 Upcoming 2.5GHz Auction Planning Schedule 14

15 Anticipated Outcomes of Upcoming Auctions Auction Year Type and Rules Anticipated Outcomes Caveats Event 2.5 GHz 2015 CCA 3 Rounds: - Clock - Supplementary (new complex OR bidding ) 1. No new entry anticipated 2. TELUS, WIND (if finds investors) 3. Gaming Failure due to underfinancing and other elements of the regulatory framework: roaming, tower sharing, Plus 4. Modest variation in - Allocation phase $/Mb/pop prices paid e.g. SaskTel Limited to existing service providers Incumbent cap designed for WIND, TELUS 5. Estimate approx. actuals; Payment to Treasury should Complexity due to activity rules and rules that allow generation of large number of bids approximate economic rent Tier 3 (62 areas in total) 3.5GHz Not announced yet. Until now, 3500 MHz licences were awarded per Tier 4 areas (172 of those).? Licensing may require geomapping tools. Proposed re-designation of existing licence areas from rural to urban may complicate licencing. 15

16 Anticipated Impacts of Upcoming Auctions Auction Year Type and Rules Anticipated Outcomes Caveats Event AWS 3? Sealed bid, second-price rule Wind (30 MHz set aside for new entrants ) 20 years (as opposed to 10 years for AWS- 1) Fourth player? 5- and 10- year deployment requirements 28 licences 14 for set-aside block GHI and 14 for block J Partnering with cablecos in the West? Tier 2 service areas (14) Upper 600 MHz Last of the Waterfron t spectrum TBD? IN US, it s two auctions bundled in one: reverse auction for existing licence holders and CCA for new licences. Most likely to follow FCC auction (which has been pushed out again) Incumbents likely to dominate in absence of cap or set aside 16 16

17 Auction Tools 17

18 Importance of Bidders Having the Right Auction Software Tools Assists in the planning phase of the spectrum auction Keeps track of other players and the moves they will likely make Tracks demand and bidder history Simulation tool provides a useful way to anticipate competitors moves 18

19 Nordicity s Spectrum Auction Team In partnership with Carleton University's Centre for Quantitative Analysis and Decision Support (CQADS), Nordicity has created a dedicated Spectrum Auction Team, which provides a wide range of spectrum auction consulting services for both bidders and regulatory authorities In the 2014 Canadian CCA combinatorial clock auction, the team developed an auction tool a dedicated software package that enables detailed round-by-round analyses as well as examination of potential outcomes ( what-if scenarios). In preparation for the 2015 CCA auction, the spectrum auction tool has been modified to take into account the more complex Industry Canada auction rules. It has also been enhanced with automated simulation, improved analytical capabilities and AI capabilities. Nordicity s Spectrum Auction Team consists of the following members from Nordicity and CQADS: Stuart Jack - Partner Alex Pavlovic - Director of Technology Ricardo de Avillez Manager, Economics and Finance Dr. Jason Gao Full Professor, Carleton University Dr. Patrick Boily - Managing Consultant Ali Haidar, M.Sc. - Programmer/Analyst Andrew MacFie, M.Sc. - Programmer/Analyst 19

20 Auction Simulation and Tracking Tool Select the bidder/bidders Select the products Select the service area Select the packages per bidder/multiple bidders Choose between: Excess demand Price increment Or, select both Dynamic plotting capability which focuses only on the information selected by the user for decision making / strategy / simulation process 20

21 Auction Simulation and Tracking Tool Tracking the previous packages: In each Clock Round, identify the previous packages that became available (satisfying the eligibility-based activity rules and revealed preference activity rules) Tracking the excess demand and the price for each product: Identify the maximum $ amount to be added to secure the clock round package. Last round products (before the final clock round) are eliminated from the estimation. Product still at the Reserve price (before the final clock round) are eliminated from the estimation Only the products that increased in price and not part of the excess demand pre-closing clock round are considered. Next Best Package identification: Identify the best package to bid on based on: Total Budget available Conditions to switch between products Available previous packages Critical inputs data will be subject to change dynamically : Total budget available Condition to switch between products ($) Number of bidders 21

22 Understanding the Role and Potential Behaviour of Auction Manager under CCA rules Very little information will be available during the real auction for the bidders: Demand Excess demand Increment percentage The auction manager have access to all bidders information and will apply the increment percentage following a formula very similar to this one (to be confirmed by IC algorithm): Price = Last Price + D D= a/b*c a is the over demand b is the maximum over demand that can occur given the number of participants and publicized maximum slots available C is a constant defined by the auction manager The only information available can be a key to formulate a winning strategy for different scenarios and predict the possible outcomes. $2,500,000, $2,000,000, $1,500,000, $1,000,000, $500,000, $- New price Expected closing New price Expected closing 22

23 Questions?

24 Appendix Auction Tiering used by Industry Canada Auction Simulation and tracking tools 24 24

25 Service Tiers in Canada Tier 1 (all Canada) 25

26 Service Tiers in Canada Tier 2 26

27 Service Tiers in Canada Tier 3 27

28 Service Tiers in Canada Tier 4 28

29 Auction Simulation and Tracking Tool Simple inputs: Bidder names Total budget Incumbency within regions Comprehensive output reports: Excess demand tracking Bidder eligibility tracking Bidding history (Clock and Supplementary) Summary of round-by-round activity 29

30 Nordicity Auction Simulation and Tracking Tool 30

31 Auction Simulation and Tracking Tool Dynamic plotting tool that provide only the information selected by the user for decision making / strategy / simulation process: Select the bidder/bidders Select the products Select the service area Select the packages per bidder/multiple bidders Select between: Excess demand Price increment Both 31

32 Auction Simulation and Tracking Tool 32

33 33