The Australian Communications and Media Authority (ACMA) may, by as early as November 2017, undertake its first auction of spectrum licences that may be suitable for, amongst other uses, future Australian 5G mobile services.

ACMA is currently undertaking consultation on the proposed auction. ACMA issued a discussion paper on 2 August 2017, seeking views by 25 August 2017 on the way ACMA proposes to configure the spectrum for auction and the auction rules and methodology.

What spectrum is proposed to be auctioned?

ACMA is proposing to auction a number of lots in the 1800MHz, 2GHz, 2.3GHz and 3.4GHz spectrum bands, which it refers to as “multiband residual lots”. These lots are not significant, but are lots that had not been disposed of in earlier auctions of the relevant bands, had not ever been auctioned (some 2GHz spectrum in the Canberra area) or, in the case of the spectrum in the 2.3GHz band and some of the spectrum in the 3.4GHz band, are available for reissue as a result of a number of licences expiring where the licensees did not renew those licences.

There is no restriction on the purposes for which the spectrum may be used, but it is likely that it would be used for 4G or potentially 5G mobile services. Given these potential uses, ACMA has determined that there is likely to be demand for the multiband residual lots, therefore justifying carrying out the auction process.

How will the auction process be run?

ACMA proposes to use an online auction process known as a “simple clock auction” or “SCA”. This process uses multiple rounds of bidding. Before a round, a base price for the relevant licence or licences is set. If a bidder bids lower than the base price, it cannot make any further bids in future rounds. If a bidder bids at or above that base price, it can continue to participate in the subsequent rounds of that auction – in those rounds, either its initial bid price will apply (unless it falls below the base price for a subsequent round) or the bidder may increase its bid.

The winner is the bidder who is the only bidder that bids at least the base price for a round. Or, if no bidder bids at least the base price in a round, the winner is the bidder with the highest bid below that base price. But, the winning bidder does not pay the price that it bid, it pays the price of the second-highest bid. Where two or more bidders have an equal highest bid, the winner is selected by a random process.

There are 39 lots on offer and ACMA proposes to auction multiple lots independently and simultaneously using the SCA method. There will be three stages:

  • Stage 1: the lots in the 1800MHz band and three 2X10MHz lots in the 2GHz band.
  • Stage 2: six 2X5MHz lots in the 2GHz band.
  • Stage 3: the remaining lots, that is, the lots in the 2.3GHz and 3.4GHz bands.

This proposed auction process is very similar to that used for the 700MHz auction that occurred earlier in the year (though, for the 700MHz auction, only one lot was offered at each stage). In this new auction process, as only a limited number of lots are available, the licences will be for terms of less than 15 years (15 years being the standard spectrum licence term) and some of the spectrum lots are quite dispersed, it is unlikely the bids will be as spectacular as TPG Telecom’s winning bid for a licence of 2X10MHz of the 700MHz spectrum.

Will competition limits be imposed?

Under section 60(10) of the Radiocommunications Act 1992 (Cth) the Minister for Communications may direct ACMA to impose limits on the spectrum licences that may be acquired by an entity (together with its related entities) through an ACMA allocation process. These limits are intended to protect competition outcomes. The Minister may consult with the Australian Competition and Consumer Commission (ACCC) before making such a determination.

On 4 August 2017 the Minister, Senator the Hon Mitch Fifield, wrote to the Chair of the ACCC, Mr Rod Sims, seeking his advice on the limits to be imposed. The Minister noted that although only small amounts of spectrum are to be allocated, because the spectrum may be used for mobile services, allocation may have implications for competition in the retail mobile services market. A response from the ACCC was requested by 11 August 2017 – a very short time frame, particularly given that the ACCC may need to consult with third parties before providing its advice.

The Minister suggested in his letter that competition limits are likely to be most appropriate for the spectrum in the 1800MHz and 2GHz bands. He noted that existing limits of 2X25MHz for the 1800MHz licences (which remain in place as a result of an earlier auction process) may continue to be appropriate. Competition limits are in place for the 2GHz spectrum as well, though these were set in 2000 and, on that basis, the letter states the Minister believes it is unlikely those limits will be appropriate for the new auction.