On Framework and Hybrid Auction Approach to the Spectrum Licensing Procedure Devansh Dikshit Y. Narahari Electronic Commerce Laboratory, Dept. of Computer Science and Automation, Indian Institute Science, Bangalore, India. Email: {devansh},{hari}@csa.iisc.ernet.in November 13, 2018 Abstract few years, many private parties have entered in the field of telecommunications. And as expected they require a slice Inspired by the recent developments in the field of Spec- of spectrum for that purpose. This also provides a wonder- trum Auctions, we have tried to provide a comprehensive ful opportunityfor the governmentas there is useable spec- framework for the complete procedure of Spectrum trum which is left unused with the government, with only Licensing. We have identified the various issues the a fraction of it being used for military and civil purposes Governments need to decide upon while designing the by the governments. The amount of this spectrum is usu- licensing procedure and what are the various options ally scarce hence the greater demand-supply gap. Along available in each issue. We also provide an in depth study with generating revenues, privatization of spectrum will of how each of this options impact the overall procedure also lead to a faster pace of developmentby the private par- along with theoretical and practical results from the past. ties which may not be always possible to do by the govern- Lastly we argue as to how we can combine the positives ment. This has lead to the sale/licensing of the spectrums two most widely used Spectrum Auctions mechanisms by various countries across the globe, using methods like into the Hybrid Multiple Round Auction mechanism being lotteries, auctions, tenders etc. proposed by us. General Terms 1.1 Motivation Economics, Theory, Spectrum auctions Over the past few years, the amount of revenue generated Keywords from the spectrum licensing procedure in various countries Query Incentive Networks, answer quality has far exceeded the government and industrial expecta- tions. With the advent of new technologies, and thus new arXiv:0902.3104v1 [cs.GT] 18 Feb 2009 uses of spectrum, one can expect further rise in the revenue 1 Introduction for the future spectrum licences. However when there is big money involved, there is every possibility of attempt by The world is shrinking. Everyday there is advancement interested parties to rig the procedure, causing a loss in rev- in the field of telecommunications. Telecommunication, enue for the state. Apart from the revenue, the government which was earlier solely dependent on long cables and then must also ensure the implementation of the social issues on optical fibres, is now shifting rapidly towards the new involved in the procedure. All these issues, combined with wireless technologies, thanks to GSM and its subsequent the several market factors, results in a very complex prob- versions. These technologies are dependent on transmis- lem of designing the licensing procedure. The market fac- sion of airwaves through the atmosphere, the transmission tors we are talking about are the various social, economic, taking place at a certain frequency. The word spectrum de- political and geographical features and issues of a coun- fines a range of frequency. The range of frequency can be try. These factors vary from one country to another and arbitrarily large, but only a small fraction of it can be used hence it is very difficult to come up with a unified design for the telecommunication purposes. The spectrum over a theory which will work best for all scenarios. Nonetheless, country’s area is a property of the people of that country we can always provide a basic framework of the complete and hence the government of that country. But over past auctioning procedure which should be followed by every government going for licensing the spectrum. area. General multi-item auctions have also been investi- In our attempt, we have tried to come up with a compre- gated by researchers. [2, 4, 12, 14, 18] hensive framework which should act as a guideline for the As already mentioned, the auction used in majority of the governmentsin the spectrum licensing procedure. This has spectrum licensing till date has been simultaneous ascend- been done on the basis of all the research done in this area ing auction. There are many shortcomings of these auc- in the past couple of decades. Since in economics, often tions which were highlighted time and again. [7, 20, 14] the practical results differ from the theory, we have also We introduce in this paper a combination of sequential and taken into the account the results of spectrum auctions in simultaneous designs of auctions called as Hybrid auctions various countries in the same period. Essentially, we have which we believe should be more practically robust against separately studied the designing and assigning part of the collusion than simultaneous auctions. licensing procedure. As evident from recent results, both are important to the success of a spectrum licensing proce- 1.3 Our Contributions dure. On the other hand, the auction of choice of late by the gov- Our major contributions in this paper are as follows: ernments across the globe for spectrum licensing has been simultaneous ascending auctions. While this procedure has • We have come up with a comprehensive framework many advantages over other auction types, a severe draw- of spectrum licensing procedure, based on the recent back is that of possibility of collusive bidding by the bid- research and practical results in this field. ders. We have designed a new hybrid auction, which takes We have introduced a new Hybrid auction mechanism in the plus points of simultaneous and sequential ascend- • for spectrum licences which is shown to be more ro- ing auctions and at the same time removes drawback of bust with respect to collusive bidding. both. We believe that the Hybrid algorithm proposed by us is more robust than any of the existing action mechanism, We will begin by first identifying the ideal targets that a without compromising on the complexity of the procedure. government must keep in mind while initiating the licens- As will be explainedlater, this is very importantto promote ing process, in section 2. In this section we will also argue competition. as to why licensing is a better option than selling the spec- trum altogether. In section 3, we will investigate what are the various challenges in front of a government while de- 1.2 Relevant Work signing the licenses. Then we will move to the basic issue of assigning the licences in section 4. We will also show There has been a lot of research done in the field of multi- as to why auctions are preferred over other methods. We unit auctioning which is applicable to spectrum auctions. will address various issues involved in designing the auc- Some early pioneering work in this field was done by Mil- tion along with a description of their theoretical and prac- grom and Weber. [12] Milgrom has another two impact pa- tical outcomes. Finally in section 5, we will introduce and pers in 1989 [15] and 2000 [11] respectively. Both of these analyze the new Hybrid algorithm being proposed by us. deal with the various intricacies of simultaneous ascending auctions. However the spectrum auctions were first used on large scale in FCC auctions at US. The results of these 2 Targets of Spectrum Licensing auction provided valuable insights into spectrum auctions and the various strategies employed by the bidders. This The first step towards the process of licensing should be to is captured by various economists like Milgrom, Cramton, identify is the aim of the governmentin licensing the spec- Ausubel, McAfee, McMillan to name a few. All the corre- trum. It should identify all the short term as well as long sponding research can be found in many publications over term requirements which must be fulfilled by the licensing the past two decades. [3, 5, 6, 7, 11, 13, 19, 20] is only process. Some of these targets should be: a representative list of these publications. All these pub- lications are centered over the various issues involved in • Simple and well guarded: The whole process of li- FCC auctions which was primarily based on simultane- censing should be kept very simple with no ambi- ous ascending multiple round auctions. It also provided guity involved in the guidelines/rules. The process an insight of the effect of different market factors on the should be simple both from government’s perspective results of the spectrum auction and this forms the basis of (should be easy to conduct), and from the interested the framework of spectrum auctions modeled in this pa- player’s perspective (should be simple to understand per. Clock-Proxy auctions introduced by Ausubel, Cram- and participate). It should also be well guarded as far ton and Milgrom [1] is another recent development in this as legal issues are concerned. • Promote efficient use of the spectrum: The final allo- same time increases the trust of the interested par- cation of the spectrum should be in way that the play- ties in the government and thus possibly resulting in ers who have won a share of the spectrum are able higher valuation of the spectrum by them. to maximize the utilization of the allocated spectrum. This will ensure proper development of technology as well as the community. 3 Designing the Licence • Revenue: Although not the only important issue, it is Designing efficient licences is a key to success in spectrum still one of the most important issues involved, more licensing. The proof of design having a pronounced effect so in a developing nation like India. The spectrum on the success of a particular auction design: having five should not be undervalued in any case.