GRUPO ZON is of the opinion that for an effective promotion of competition the process of allocation of frequencies should contribute towards permitting the entry of a new operator in the voice and broadband mobile market. In this sense, and having ICP-ANACOM opted for an allocation model via an auction, this must be structured so as to be able to achieve that objective.
However, it considers that, by selecting the auction model, ICP-ANACOM did not contemplate in its draft decision any elementary rules necessary for ensuring the entry of new players in the market. Namely, this entity considers that the auction model currently proposed, lot by lot and sequential, does not allow an operator to guarantee the purchase of a minimum aggregate of spectrum to have a competitive and sustainable offer in the market, risking for example being able to purchase a lot of spectrum in category B (800 MHz) and not being able to purchase any other additional lots or even being able to purchase a lot in the 2.6 GHz without being able to complement it with other lots in the same category of frequencies.
It considers that this situation is more serious for a new entrant (that holds no spectrum), since it would not be able to complement some failures in the obtainment of lots of frequencies, with the spectrum already owned, and as such considers that this auction model is "demotivating" for the entry of a new operator in the frequency allocation process.
In order to remedy this risk, GRUPO ZON proposes that ICP-ANACOM opt for an auction model that permits the aggregation of lots (combinatorial or similar) in which each bidder bids for the set of lots that it intends to purchase, thus adding value to the complementarity of the various lots involved in the tender.
In this context, GRUPO ZON considers that the combination of at least 2 x 5 MHz in the 800/900 MHz band, with 2 x 20 MHz, in the 2.6 GHz band, is an appropriate portfolio, giving as example the auction models of Germany where silmultaneous bids for various blocks were permitted and of the United Kingdom, where a combinatorial model is foreseen.
The model chosen by ICP-ANACOM presents, from the viewpoint of the PT GROUP, the following problems:
- It limits the capacity of the bidders in defining the aggregation of spectrum considered as adequate, thus taking a considerable risk, of obtaining a set of frequencies that is not desired, or of obtaining, in a given band, a number of lots that is less than that necessary for a commercially viable and technically balanced operation (paying a price that they would not pay if they knew beforehand that they were not going to obtain the number of lots seen as sufficient);
- It does not deal in the slightest with that which is known as the "risk of exposure" (aggregation risk); [SCI] [ECI]
- It results in the auction presenting risks of destruction of shareholder value, leading to unpredictable and undesirable results, since it includes a high level of uncertainty and does not allow a correct valuation and preparation of the bidding strategy, unless one only intends to guarantee an excessive overvaluation of the proceeds, which will be critical for the participants.
OPTIMUS also defends that ICP-ANACOM should justify the options made, identifying the advantages of the chosen model and the disadvantages of other alternatives, according to the objectives that ICP-ANACOM intends to achieve with the allocation of the rights of use of the included frequencies.
OPTIMUS carries out a comparative analysis between various auction models (CCA - Combinatorial Clock Auction -, SMRA, closed envelope and sequential), using a set of criteria which it considers as fundamental in the design of an auction, namely:
- Efficiency, ensuring that a specific block is always won by the bidder that most values it and guaranteeing a level of adequate competitiveness in the market after the auction;
- Minimisation of the risk of exposure, allowing the bidders to reflect on their preferences regarding complementary blocks, maximising the capacity of aggregation of the quantity of spectrum considered necessary by each of the participants, and reducing the risk of fragmentation of the spectrum in blocks allocated to the same participant, but not contiguous;
- Minimisation of the risk inherent to the common values;
- Robustness to collusion and to strategic or speculative bidding;
- Transparency; and
- Simplicity and speed.
Based on the analysis undertaken, OPTIMUS considers that the model placed on public consultation is inadequate and unprecedented, not corresponding to the best practices adopted in innumerous processes of spectrum allocation. It is a complex model, which leads to high levels of uncertainty likely to reduce the competition, resulting in losses for that competition and for consumers and well-being in general. Comparing various formats of auction, it considers the simultaneous (SMRA) or combinatory (CCA) models to be superior to the sequential model. Within this scope, it considers that the exponential complexity of the last model suggests that the auction model of the SMRA type, with possible adjustments, must be the one chosen by the regulator.
VODAFONE considers that the current design of the auction must be modified so as to avoid unpredictable and possibly inefficient results, and seek to promote rational behaviour from the bidders.
It considers that the model adopted by ICP-ANACOM is inadequate and may most likely lead to inefficient results, which from a long term perspective may result in a significant decrease of the quality of the electronic communications services in Portugal.
It also considers that the fact that the model presented is sequential makes unjustifiably difficult the possibility of the operators acquiring the necessary spectrum and increases disproportionately the insecurity of the operators in the investment to be undertaken. Therefore, considering the adoption of the present model as unjustified, in comparison with the adoption of models already tested and of proven success, VODAFONE requests the review and reformulation of the same, with a view to adopting the various characteristics that are common to the majority of the spectrum auctions that have been developed at an international level.
It also mentions that the sequential models are recommended when the valuation that the bidders attribute to each good is independent from the others, not being the case of the current frequency bands object of bidding. It highlights that various entities, including itself, manifested themselves in favour of the possibility of combining the 2.6 GHz spectrum band with the remaining bands available (1800 MHz and 2.1 GHz). As such, given the existence of complementarity and substitutability between the various bands, it considers that the same must serve as the basis for the flexibility and creativity that ICP-ANACOM should stimulate within the scope of the auction model, in opposition to the model proposed.
VODAFONE therefore emphasises that a sequential allocation of the lots jeopardises the attainment of synergies, contributing to the unpredictability of results, since said model:
- Does not reduce the common uncertainty associated to the auction process;
- Increases the complexity of the process, obliging bidders to predict not only the value of the lot but also the other substitute or complementary lots implicit to the strategies that they defined for the development of the support networks for the new mobile generation;
- Enhances discrimination of the acquisition values of the same quantity and type of spectrum;
- Enhances valuation errors of the different lots and unpredictable results, making it impossible to correct the spectrum values allocated by the bidders during the auction process;
- Makes the allocation of unwanted spectrum by bidders possible.
VODAFONE also emphasises other negative aspects related with the auction model, namely the possibility of lots of the same category being sold at different prices and the impossibility of the bidders to formulate bids for packages of lots, increasing the risk of not being able to ensure the execution of their strategies.
Based on comparisons with models adopted by some European authorities, emphasising that in none of the 12 countries where auctions have occurred or will occur was a sequential model chosen, VODAFONE mentions that, from a general viewpoint, all opted for one of two models: SMRA or CCA. VODAFONE considers that the properties of both models allow the participants in the auction to reduce their level of uncertainty as to the valuation of the spectrum, defending that the alteration of the current model is fundamental, and highlighting the SMRA auction model as that which is most used in spectrum auctions and that is most similar with that proposed by ICP-ANACOM (with regards to the frequency bands in question).
Understanding of ICP-ANACOM
ICP-ANACOM gave thorough consideration to the comments, as well as the concerns raised as to the auction model in the various contributions received in the present consultation, in particular regarding the risks of exposure (aggregation risks) and substitution identified by almost all of the respondents.
In the formulation of the draft regulation, ICP-ANACOM had already evaluated this risk, having contrasted it to the objective of reducing the complexity of the implementation of the auction, namely from the viewpoint of the potential bidders.
Considering the responses recently received and the importance that is given to the risk of exposure – thus increasing the concerns that ICP-ANACOM already had in this area -, the review of the respective terms is considered essential, opting for the adoption of a model with simultaneous and increasing bids, i.e. SMRA type, which, it is this authority's understanding, effectively minimises some of the main problems identified by respondents in general.
In particular, the characteristic of simultaneity of the auction is noteworthy and, relative to the sequential model, is more suited to the fact that the bands in dispute can be substituted and/or complemented. In addition, the simultaneous model allows for a more complete "discovery"of prices, by enabling bidders to monitor the evolution of the relative prices between categories, thus avoiding the problem known in economic literature as the "winner's curse".
Finally, it is noted that the model proposed by ICP-ANACOM in the new draft regulation was also identified as adequate by various respondents.
Given the adoption of a new auction model, articles 17 and 21 of the present draft regulation, relative to the distribution phase, are substituted, since they are related to the operation of the adopted auction. In the new draft regulation, the operation of the bidding stage, which substitutes the distribution stage, is set out in articles 16 to 26.