Allens

Technology, Media & Telecommunications

Focus: Draft auction rules for spectrum reallocation sale released

9 May 2012

In brief: The Australian Communications and Media Authority has released draft rules and instruments for the simultaneous auction of the 700 MHz and 2.5 GHz bands that is to take place during 2012-13. Partner Ian McGill (view CV), Senior Associate Valeska Bloch and Lawyer Matthew Tracey report on the draft rules and their potential effects for bidders and other interested parties.

How does it affect you?

  • Spectrum in the 700 MHz (digital dividend spectrum) and 2.5 GHz bands (electronic news gathering spectrum) is to be spectrum licensed and re-allocated by the Australian Communications and Media Authority (the ACMA) through a single auction process towards the end of 2012.
  • The ACMA has released draft legislative instruments that provide insight into the expected operation of the auction. The draft rules are embodied in two types of instruments: (1) allocation instruments that provide the legal basis for the auction; and (2) technical instruments that describe the products being offered for sale.
  • The auction will be run online using a combinatorial clock auction format, which will enable bidding on spectrum in both bands simultaneously.
  • Successful bidders for each lot of spectrum in the 700 MHz band will be allocated two 5 MHz lots, one at the lower end of the band and one at the higher end. Each block will be offered on a national basis.
  • Successful bidders for each block of spectrum in the 2.5 GHz band will also be allocated a lot comprising an upper and lower block. These lots will not be offered on a national basis but will instead be offered in relation to separate geographic regions.
  • Competition limits on the acquisition of such spectrum will apply.
  • The ACMA is seeking submissions on the draft legislative instruments by 14 May 2012. It is expected that further information, including reserve prices and auction dates, will be released as part of the applicant information pack in the third quarter of 2012, ahead of the auction in early 2013.

Background

The digital dividend

Australia has been transitioning from analogue television broadcasting to a system requiring broadcasting in digital mode. Since 2010, the process of the progressive switch from analogue television has commenced in certain regional areas and will conclude with metropolitan areas. Final switch-off is scheduled for December 2013. (See our earlier Focus on this topic.)

As a result of the analogue switch-off, 126 MHz of radiofrequency spectrum in the UHF band (known as the 700 MHz band) will become available. This contiguous block of spectrum is known as the 'digital dividend'. The digital dividend spectrum block will be reallocated in a manner consistent with the Radiocommunications Act 1992 (Cth) (the Act) and the ACMA's policy objective of maximising the overall public benefit derived from the use of that spectrum. In addition, spectrum in the 2.5 GHz band, which is currently used for electronic news gathering by free-to-air broadcasters, has been earmarked by the ACMA for reallocation. The ACMA plans to auction off both bands simultaneously, after which both bands will be allocated as 15-year spectrum licences.

Both the 700 MHz and 2.5 GHz bands are considered highly valuable. The 700 MHz band's wide range and deep building penetration make it ideal for the provision of wireless access services such as mobile broadband – especially in lower density populations, where a smaller number of cell sites can supply a larger geographical area. The 2.5 GHz band offers comparatively more bandwidth than the 700 MHz band and is desirable for mobile data access in highly-populated areas where data demand is generally higher. The submissions to the ACMA to date have highlighted the complementary nature of both bands in the deployment of high-speed mobile data networks.

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Allocation instruments

Draft marketing plans

Section 39A of the Act requires a marketing plan to be prepared whenever the ACMA issues spectrum licences. A marketing plan sets out the details of the spectrum licences to be offered, including timeframes for allocation, spectrum apportionment, any reservations for public use and any applicable licence conditions. The ACMA has prepared two marketing plans due to the distinct properties of each frequency band.

700 MHz

The 700 MHz band has been divided into nine identical lots, A through I. Each lot consists of 10 MHz of spectrum that is made up of two 5 MHz blocks. The successful bidder for each block will be allocated two 5 MHz blocks: one at the lower end of the band and one at the higher end. For example, lot A comprises a lower block of 703 MHz – 708 MHz and an upper block of 758 MHz – 763 MHz. Each lot in the 700 MHz band is offered on a national basis. Submissions to the ACMA have highlighted the attractiveness of the 700 MHz band as wide-ranging and with effective building penetration. With this in mind, the national allocation of licences in this band may suit national telecommunications carriers looking to deploy high-speed data networks across Australia – in both urban and regional areas.

2.5GHz

The 2.5 GHz band has also been divided into lots consisting of an upper and lower block separated by a mid-band gap. Although, unlike the 700 MHz band, the ACMA has proposed that the 2.5 GHz band be divided into geographic lots for each of the metropolitan cities, regional state-based areas and remote Australia. The higher frequency and bandwidth characteristics of the 2.5 GHz band offer potential bidders spectrum that is suited to densely populated areas. Accordingly, the ACMA has proposed that lots be divided into geographic categories so that potential bidders can better structure their bidding approach in accordance with their commercial strategy in different markets. The geographic division will not restrict larger carriers from building a national licence framework through the acquisition of spectrum licences in each geographical area.

Draft allocation determination

Section 60 of the Act requires the ACMA to prepare an allocation determination. The determination sets out the auction process including the type of auction, entry fees, reserve prices (if any) and methods of payment. The ACMA has issued a single draft allocation determination for the digital dividend auction because, although the bands are different products, they are being auctioned in a simultaneous process.

Registration process

The draft determination proposes a two-stage registration process for auction participants.

At the application stage (which will commence when the auction is advertised and lasts approximately 4-8 weeks), interested parties will need to submit a completed application form, accompanying information (such as confidentiality deeds) and a non-refundable application fee.

This will be followed by the registration stage (which will commence when reserve prices and lot ratings are announced and lasts approximately 3-4 weeks), during which those wishing to register as a bidder will need to submit a completed eligibility nomination form and an eligibility payment or deed of financial security (the participation amount), by the eligibility deadline.

The draft determination also outlines the process for the return of the participation amount where bidders have been unsuccessful.

ACMA has indicated that it will run bidder tutorials and mock auctions for prospective bidders in the coming months.

Auction format

The ACMA has chosen a combinatorial clock auction (CCA) for allocating spectrum licences to bidders. The CCA has two rounds: an allocation round and an assignment round. The allocation round determines the quantity of lots acquired by each successful bidder. The assignment stage determines the location of those successfully acquired lots on each band.

Competition limits

The Minister, Senator Stephen Conroy, has directed the ACMA to impose competition limits on the amount of spectrum that can be acquired by any one bidder. Each bidder will be restricted to a maximum of 40 MHz and 80 MHz in the 700 MHz and 2.5 GHz bands, respectively.

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Technical instruments

The ACMA may, under section 145 of the Act, refuse to register a device operating under a spectrum licence if it would cause unacceptable levels of interference to other devices operating under any licence. That section also allows the ACMA to determine, by written instrument, what constitutes unacceptable levels of interference. The ACMA has published two draft determinations on unacceptable interference – one for each band.

In summary, the determinations provide that unacceptable interference will occur if a device operates in excess of the maximum permitted level of radio emission outside the allocated part of the band in terms of frequency and geographic location.

In support of the determinations made under s145, the ACMA may also issue advisory guidelines that support licensees in managing interference issues and settling disputes, should they arise. The ACMA has released four determinations, two for each band: one setting out how to manage interference to receivers and one setting out how to manage interference from transmitters.

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Next steps

Submissions

The ACMA has called for submissions on the draft legislative instruments – both in general form and in response to certain questions raised in the Information Paper. The specific questions relate largely to the structure of the spectrum lots, as well as issues such as interference with digital terrestrial television, reserve prices and whether or not bidders should be identified.

Applicant information pack

Before the commencement of the spectrum auctions, the ACMA will make an applicant information package available to the public. The package contains a plain English covering paper, the required regulatory instruments, a sample licence, details on unacceptable interference, advisory guidelines and application forms. In developing the applicant information pack, the ACMA considered approaches taken in the past, as well as overseas regulator 'best practice'. In addition, there is scope for public comment on drafts released by the ACMA.

The ACMA has indicated that a draft package will be released for comment in the first quarter of 2012 and the complete information pack will be published in July 2012.

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Conclusion

The only certainty in mobile telecommunications is that demand for mobile data is growing at an unprecedented rate. The auction of the digital dividend represents an opportunity for mobile carriers to obtain a technical framework upon which to offer faster and more profitable data services to their customers. The complex nature of the CCA auction process means that the ultimate winners, and their respective allocations, is difficult to predict. The application process will not restrict potential bidders to mobile telecommunications market participants. Any entity that wishes to bid for lots of spectrum in each band may participate. However, it is likely that the majority, if not all, of the lots available for auction will go to those with the capacity to pay for it – consistent with the ACMA's policy of allocating spectrum to the highest value use. Stakeholder submissions to date have identified the desirability of using both bands for mobile data and, consistent with similar auctions around the word, it is likely that telecommunications service providers will be preparing to secure future customers by obtaining the means to deliver them bandwidth-hungry services and applications that are most in demand.

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