Benefits of a Flexible T+L Bidding Rule in the RDOF Auction Frontier... · Report: Benefits of a ... For the auction mechanics, a reverse bidding process is planned, wherein the amount

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BenefitsofaFlexibleT+LBiddingRuleintheRDOFAuctionFiledwithCommentsofFrontierCommunicationsFCCAUDocket20-34–March27,2020

Report:BenefitsofaFlexibleT+LBiddingRuleintheRDOFAuction–FCCAUDocketNo.20-34–Comments

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TableofContents

1. EXECUTIVESUMMARY..................................................................................................................1 SUGGESTEDCHANGETOTHERDOFAUCTIONRULES............................................................................31.1

2. BACKGROUNDANDDISCUSSIONONAFLEXIBLET+LRULE............................................4 AFLEXIBLET+LRULEWOULDNOTPROMOTE“GAMING”..................................................................52.1 AFLEXIBLET+LRULEWOULDBECONSISTENTWITHNETWORKPLANNINGOPTIONS...............62.2

3. AFLEXIBLET+LRULEISCONSISTENTWITHTHEAUCTIONFORMATANDWOULDLEADTOABETTEROUTCOME...........................................................................................................8

BIDDERSNEEDFLEXIBILITYTOCHANGEBIDSBASEDONRELATIVEATTRACTIVENESSOF3.1OPTIONS......................................................................................................................................................................8 PROPOSEDCHANGESTOTHERDOFRULESMILITATEINFAVOROFT+LFLEXIBILITY...............103.23.2.1 WithaFlexibleT+LRule,RDOFBiddersWillBeAbletoMakeChangesConsideringthe“BestT+L”Information............................................................................................................................103.2.2 TheProposedRDOFTie-BreakRuleisDifferentintheClearingRound.....................113.2.3 Example:ChangingfromGigabittoAboveBaselineT+L..................................................11

4. ABOUTLYA....................................................................................................................................14

Figure

Figure1–ScenarioofRelativeEconomicValueperRoundforThreeT+LOptions...........9


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1. ExecutiveSummary1. TheFCC’sPhase1RuralDigitalOpportunityFund(“RDOF”)auctionisplannedto

startonOctober22,2020andwill award$16billionof subsidy forbroadbanddeploymentto5.9million locationscurrentlyunservedby Internetservicewithdownloadspeedsofatleast25Mbps.Phase2oftheRDOFprocesswillawardanadditional $4 billion to cover partially served areas as well as locations notfundedinPhase1.

2. BiddingintheRDOFauctionisproposedtobeonCensusBlockGroups(CBG’s),

eachofwhichwillhaveasetnumberofeligiblelocationsincludedforsubsidy.

3. For the auctionmechanics, a reverse bidding process is planned, wherein theamountofsubsidywillstartatareservepricethat iswellabovebudget.BasedoninformationreleasedonMarch17,2020,thereservepricefortheauctionwillbeapproximately$29billion.1

4. Subsidy per area will decline each round. Bidding will start at $29 billion in

aggregateacrossalltheeligibleCBG’sanddeclineto“clear”whenbiddingisatorbelow$16billion,themaximumamountthatcanbeallocated.

5. Biddersinthereverseauctionbidonpricepoints.Thisputsbiddersplanningto

deploy at different service levels on the same footing for bidding. A companybiddingbasedonGigabitservicewillgetahighersubsidythanonebiddingforalowerspeedBaselineservice,forexample.

6. Inotherwords,biddersallbidatthesamepricepoint,butthe impliedsubsidy

foreachisbasedontheirservicelevelcommitment(asapprovedbytheFCCaspartoftheauctionshort-formapplicationprocess).

7. Theservice levelcommitmentsare inturndefinedbyabidder’sspeedtierand

latencycombination,or“T+L”.

8. Speedtierscanbefordownloadspeedsof25Mbps(3Mbpsupload),50Mbps(5Mbps upload), 100Mbps (20Mbps upload) or Gigabit per second (500Mbpsupload).Latencycanbe“low”(equaltoorlessthan100ms)orhigh.TheseT+Lcombinationsdefineabidder’s impliedsubsidybasedonthepricepointof theround.

1 Based on the list of Census Block Groups (CBGs) and Reserve Prices – see:WIRELINE COMPETITIONBUREAU RELEASES PRELIMINARY LIST AND MAP OF ELIGIBLE AREAS FOR THE RURAL DIGITALOPPORTUNITYFUNDPHASEIAUCTION,FCCDA20-275,March17,2020.


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9. As currently proposed, a bidder’s T+L combination is predetermined for the

auctionbasedontheshort-formapplications.Onceabidderbeginstheauctionbidding on a particular T+L in a CBG, it is required to rebid the same T+Lcombinationthroughouttheauction.BiddersalsorequiredtobidthesameT+LforallCBG’sincludedinapackagebid.2

10. However, LYA believes the RDOF auction would achieve a better outcome ifbiddershadtheflexibilitytochangeT+Lthroughtheauction–specificallybeingable to change froma lowerT+L (faster speed) toahigherT+Lweight (slowerspeed). This is because, as rounds progress, the relative economic value (or“economic profitability”) of the implied subsidy basedon the T+L combinationbeingbidmaybecomelessattractivecomparedtoanalternativeT+Lbid.

11. The rule change proposed would be that, up to the clearing round, bidders

wouldbeallowedtochangetheT+Lofabid inagivenCBG,or for itspackagebid,goingfromalowerT+L(fasterspeed)toahigherT+L(slowerspeed)subjecttootherrulesoftheauction,whichwouldremainunchanged.Thisincludestheactivityrule,switchingrule,packagebidsandscalepercentage(whereallCBG’sinapackagehavetobeatthesameT+L).

12. Allowing bidders to change T+L in this way – from a lower to a higher T+L –constrainedbyotherrules,givesbiddersmoreflexibility,whilemaintainingtheoverallstructureoftheauction.

13. Allowingmoreflexibilitywillincreasethelikelihoodofallareasbeingawardedasubsidyatthefastestspeedpossibleinthatarea,sinceitgivesbiddersanotheroption relative to simply dropping unattractive CBG’s when their original T+Lchoicebecomesuneconomical.Biddersshouldhavetheflexibilitytoadjustbids,reflectingdifferentdeploymentoptions, as theauctionprogresses. This shouldprovide a better outcome for the auction compared to the outcomewith thecurrentrestrictiononT+LchangesasproposedforRDOF.

14. Essentially,allowingbidderstochangetheirbidbyincreasingtheT+Lweightona per CBG basis as the auction progresses and up to the clearing round willenableauctionparticipantstobidsincerely.

15. Sincerebiddingbydefinitionmeansmakingthemosteconomicallyprofitablebidatcurrentprices(subsidy).Thusthemostobviousreasonwhyitisimpossibleto

2PublicNotice:“COMMENTSOUGHTONCOMPETITIVEBIDDINGPROCEDURESANDCERTAINPROGRAMREQUIREMENTS FOR THE RURAL DIGITAL OPPORTUNITY FUND AUCTION (AUCTION 904), FCC 20-21,ReleasedMarch2,2020,Paragraphs85and87


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make a sincere bid is because that bid is prohibited. With complex valuationfunctions(economiesofscale,etc.),eveniforiginallythesincerebid isGigabit-low in Round 1, that may not be case in later rounds. But then, an AboveBaselinebid is prohibited in later roundsunder the currentproposed rule andthus,werespectfullysuggestthatthisruleshouldbechanged.

SuggestedChangetotheRDOFAuctionRules1.1

16. TheabilityforbidderstoswitchtoahigherT+L(lowerspeed)ineachCBGbefore

theRDOFclearingroundisreachedwouldenablebidderstoconsiderabroaderrangeofoptionswhilethe lowestweightrulestillensuresthatthesubsidywillbeprovidedtowhoeverprovidesforthefastestserviceatandaftertheclearinground.

17. Furthermore,allowingincreasesintheT+Lweights–e.g.changingfromGigabit

toAboveBaseline–bringsthesebenefitswithnootherchangesneededtotheauctionrules.

18. UnlikeincreasesinT+Lweights,allowingfordecreasesintheT+Lweights–e.g.

tochangefromAboveBaselinetoGigabit–wouldrequirechangestoanumberof other rules of the auction, notably the activity rule (since decreases in T+Lcouldimplybiddingovereligibility),andcouldcomplicateotherelementsoftheprocess such as switching (which is based on % of previous round impliedsupport).Allowingforincreasesanddecreasescouldalsoimpactclearingroundcalculations. These added rule changes and effects have not been analyzed indetail and providing for decreases in T+L in bidding has not been proposedherein.

19. ThechangetoallowbidderstoincreasetheT+Lweightoftheirbidswouldofferbidders a greater opportunity tobid sincerelywith respect to their valuations,andoffersthepossibilitythatfewerareasremainunawardedattheendoftheauction.


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2. BackgroundandDiscussiononaFlexibleT+LRule20. TheoriginalFCCproposalforbiddingwithperformancecombinationsintheCAF-

IIauctionwas:• FCC17-101,par.89:Beforethebudgethascleared,abiddermaychangethe

performancetierandlatencycombinationinanyofitsbidsfromthepreviousround, provided the bidder qualified forthe performancetier and latencycombinationforthestateattheapplicationstage.

21. InthefinalCAF-IIauctionrules,howevertheFCCchangedthis:

• FCC18-6,par.227:Wemodifyourproposedproceduresandwillnotallowa

biddertochangetheperformancetierandlatencycombinationinabidforaparticularareafromroundtoround.Instead,weadoptprocedurestorequirethat once a bidder has submitted a bid for a CBG at a particularperformancetierandlatencycombination,anybidsinsubsequentroundsbythat bidder for the sameCBGmustspecify the sameperformance tier andlatency combination.We find that this change to our proposalwillsimplifybiddingstrategieswithoutanappreciablelossinusefulflexibilityforbiddersthat are eligible tobid for more than one performance tier and latencycombinationinagivenarea.

22. Therewas no detailed rationale for the change or explanation of howbidding

wouldbesimplifiedifbidderscannotchangetheirT&Ltierduringtheauction.23. Onthecontrary,wecontendthatrestrictingchangestoabid’sT+Lcomplicates

biddingsincethisimpliesbiddershaveto“lockin”technologychoicesinadvanceof the auction over thousands of CBG’s, with no ability to adjust as roundsprogress.

24. A number of parties had suggested that the complexity of the CAF-II auction

process, including the ability to change T+L as the auction progressed, woulddiscouragesmallerand“lesssophisticated”biddersfromparticipatingandmakeunderstandingthecompetitiveenvironmentmoredifficult.3

3COMMENTSOFTHERURALCOALITION,FCCAUDocket17-182,September18,2017,page7


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25. TheseviewsechoedcommentsfromACAthateliminatingtheabilityofabidderto shift its performance/latency tier would be a simplification that avoids“complexgamingstrategiesthatwouldotherwiseunderminepricediscovery.”4

26. TheACAperspectivewasbasedonapaperbyDr.PeterCramton,submittedwith

theACA’sReplyComments,whereinDr.Cramtonstated:5

PerformanceTierandLatencyThe FCC allows a bidder to change the performance tier and latencycombination from round to round before the clearing round. Thisflexibility,however,givesbiddersaneffectiveinstrumentforgaming.Forexample, bidders may park using a low-weight performance tier andlatencycombinationormisrepresentthecombinationtogainadvantageover competing bidders. This in turn harms both outcome and pricediscoveries. Since in nearly all cases, a bidderwill have a business planwith a specific performance tier and latency combination, there is littlegained but complexity and gaming from allowing flexibility throughouttheauction.TheFCCshouldeliminatethisflexibility,requiringbidderstospecify a performance tier and latency combination in the initial roundandthenstickwithit.

AFlexibleT+LRuleWouldNotPromote“Gaming”2.1

27. Dr. Cramton was analyzing the proposed CAF II Auction procedures, not the

proposed RDOF procedures, but it is worth walking through these potentialcritiquestoshowwhyaflexibileT+Lruledoesnotpromotegaming.

28. ChangingT+Lcombinationsroundtoround–particularlymovingfromalowT+L(faster service) to a higher T+L (slower service) –would not promote gaming,contrary to the assertion of Dr. Cramton. Dr. Cramton suggests that bidderscould“park”eligibilityinordertogaincompetitiveadvantage.

29. Dr.Cramton’sanalysisdoesnotdiscussthefactthatthereareanumberofotherrulesoftheauctionprocessthatonthecontrarymake“parking” ineffective. Inparticular:

4 COMMENTS OF THE AMERICAN CABLE ASSOCIATION IN RESPONSE TO THE PUBLIC NOTICE, FCC AUDocket17-182,September18,2017,page75“OntheDesignoftheConnectAmericanFundPhaseIIAuction”,PeterCramton,UniversityofMarylandand University of Cologne, filed with REPLY COMMENTS OF THE AMERICAN CABLE ASSOCIATION INRESPONSETOTHEPUBLICNOTICE,FCCAUDocket17-182,page13


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• The auction activity rule is 100%.Bidders canplacebidswith total impliedsupportcappedattheamountof impliedsupportfromthepreviousround.Theauctionswitchingrulethenlimitstheabilityofbiddersto“move”activityfrom one CBG to another. In all rounds after Round 2, switching is onlyallowedon10%oftheimpliedsubsidyfromthepreviousround.Putanotherway,90%of“parked”eligibilitywouldbestuckwhereitis,sincethebidder’sonlychoicesaretomove10%tootherCBG’sordropoutoftheCBG’sthatithasparkedon.Thismakesparkinganon-viablestrategyintheRDOFauction.

• Inaddition,unlikeintheCAF-IIauction,RDOFauctionbidderswillnotbeableto place bids with implied support greater than the total budget, furtherreducingthepossibilityofbidders“parking”eligibility.Severalparticipantsinthe CAF-II auction bid over the budget amount, creating artificial demandwithbidsthathadnochanceofwinning.Thisisaformofeligibility“parking”thatcandistortbiddingandwillnotbepossibleintheRDOFauction.6

• Further,bidderscannotengagein“misrepresentation”ofT+Lcombinations.

BiddersdonotbidT+L combinations, theybidpricepoints.Biddersdonot“see” each other’s T+L. For the RDOF auction, the FCC has proposed thatbidder’swould knowwhat the best T+L bid is per round (for CBG’swheretherearetwoormorebids).Thisprovidesno informationtobiddersabouthow many bids are at the same T+L or how many are at different T+Lcombinations. This further limits any possible benefit of using eligibilityparkingtogametheauction.

30. Giventheserulesoftheauction,abiddercangainnothingbyusingaflexibleT+L

ruletoattemptto“park”impliedsubsidy.

A Flexible T+L RuleWould Be ConsistentWith Network Planning2.2Options

31. Inaddition,Dr.Cramtonerrswhenhesuggeststhat“innearlyallcases,abidder

will have a business plan with a specific performance tier and latencycombination.”7

32. Onthecontrary, telecomoperatorsdonotgenerallyhaveonlyonetechnology

solutionavailabletoserveaparticulararea.

6NOTE:ThismodificationwasproposedbyLYAinitsReport“HowCanPastAuctionExperienceInformtheRDOFProcess”,atpages4and6,filedasAttachmenttotheReplyCommentsofFrontierCommunicationsCorporation,WCDocketNo.19-126,October21,2019.SeeFCC20-21,paragraph83.7ibid


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33. Giventhatareascanhavedifferenttechnologysolutions,notablybasedonfiber,

fixedwireless,DSL,andotherdeployments,a flexibleT+Lrulewouldnotmaketheauctionmorerestrictive.Onthecontrary, it ismorecomplexforbidderstohave to“lock in”a technologystrategy ineachCBGacross thousandsofCBG’sbeforetheauctionstarts,especiallyforCBG’swheretherecanbemorethanonetechnologysolutionpossible.Asexamples,thismeansthat(a)youmaydecidenottobidyourmostattractiveoptioninRound1inparticularCBGsor(b)thatyouhavetostopbiddingasthepricepointdecreasesandyourRound1T+Lbidisnolongereconomicallyviablewhile another option could still be viable, but your are prohibited fromexpressingthisoption.

34. Put another way, bidders should have the flexibility to adjust bids, reflectingdifferentdeploymentoptions,astheauctionprogresses.Thiswillenablebidderstofullyexpresstheiroptionsandpreferencesandthustobidsincerely.


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3. A Flexible T+L Rule is Consistent with the AuctionFormatandWouldLeadtoaBetterOutcome

35. Allowingforflexibility inT+Lisconsistentwiththeauctionformatandwiththe

goalsofawardingsubsidiestothefastestservicepossibleaswellasmaximizingthe number of areas receiving subsidy. In particular, bidders should continuebiddingonaCBGaslongasthereisincrementalvalue(“economicprofitability”)intheimpliedsubsidyavailableinaroundrelativetoanticipatedcostsovertimeassociatedwithservingtherelatedRDOFlocations.

Bidders Need Flexibility to Change Bids Based on Relative3.1AttractivenessofOptions

36. The way bidding progresses for three of the T+L options (all low latency) –

Gigabit,AboveBaselineandBaselineservice–inaCBGissummarizedbelowforthreehypotheticalroundsoftheRDOFauction.

37. Inthisexample,Baselinehasthelowestsubsidyandthelowesteconomicvalue.While Gigabit has a greater subsidy, the cost to deploy means the economicvalueisalwayslessthanAboveBaseline,whichhasalowersubsidy,butanevenlowercosttodeploy.

38. Asthefigureillustrates,astheimpliedsubsidyavailabledeclinesperround,the

relativeeconomicvalueofeachT+Loptionalsodeclines.Thepinkregiononthefigureiswherethevalueisnegative.

39. Since the implied subsidy for the Baseline option is lower than for the other

options,biddingforBaselinecouldbeexpectedtohavenegativevalueearlierinthe auction than other options; on the figure shown as at Round 11. Thisassumescontinuedbiddingandtheclearingroundhasnotyetbeenreached.


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Figure1–ScenarioofRelativeEconomicValueperRoundforThreeT+LOptions

40. In the case shownon the figure,biddingAboveBaselinealwaysbrings greatereconomicvaluethanbiddingforGigabitservice.

41. However, a biddermay see added strategic or operational benefits to a fiber-baseddeploymentandthereforebegintheauctionbybiddingtoprovideGigabitservice.

42. Ofcourse,withtheauctionpreferenceforthelowestT+L,thebidderseekingtomaximizeitschancesofwinningwouldbidthelowerT+L.

43. Inpractice,abiddermaynotbeseekingtomaximizeshorttermprofitsforanynumberofreasons:itmayseektomaximizerevenue(subsidy),itmaynotknowits exact valuation function, or short-term profit maximizationmay contradictlong-termprofitmaximization,etc.Inthesecases,whateverthebidderistryingto do (as long as it is notmalicious), it is typically beneficial tomaximize thenumberofbiddingoptionsithas.

44. Assuming the auction has not yet cleared, the bidder could then follow itsstrategy of biddingGigabit service up to Round 12, based on the hypotheticalauctionprogressionshownabove.

45. If bidding activity has resulted in the Gigabit bid becoming unattractive, thebidder would like to change its bids to Above Baseline service where theeconomicvalueremainspositiverelativetotheotheroptions.


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46. Inthisway,foranygivenCBG,thebidderwouldhaveanadditionaloptionotherthantosimplydroppingout.ThiswouldmeanthatitcanbetteralignitsbiddingwiththespecificsofeachCBGastheimpliedsubsidydeclines.

47. ThisdoesnotchangethefactthatifanotherbidderisstillbiddingatalowerT+L(higherspeed)atthesameorlowerpricepointattheclearinground,thisbidderwould be declared the winner, and a key objective of the auction to awardsubsidyatthefastestspeedpossibleismaintained.

Proposed Changes to the RDOF Rules Militate in Favor of T+L3.2

Flexibility

48. Themore detailed rules of the RDOF auction support a flexible T+L rule. TheRDOF auction has two new rules that are different from the CAF-II auction asdiscussed below. We describe each one below as well as provide a biddingexampledemonstratingthebenefitofprovidingT+Lflexibilitywhilemaintainingtheproposedauctionstructureandobjectives.

3.2.1 WithaFlexibleT+LRule,RDOFBiddersWillBeAbletoMakeChangesConsideringthe“BestT+L”Information

49. First, in theRDOFauction,biddersareproposedtohavemore informationper

roundthantheydidintheCAF-IIauction,notablyofwhatthebestT+Lbeingbidis(forCBG’swithtwoormorebids).8

50. Without allowing for a bidder to change the T+L of its bids, this additional

informationmay only serve to point out specific areas where a bidder is lesslikelytowin(i.e.ifthebidderisbiddingahigherT+LthantheroundinformationindicatesisthebestT+Lbeingbid).Butabidder’sonlyoptionstochangeitsbidsare the same options he/she had absent the additional information: either tostopbiddingon theCBG inquestionand loseeligibility,or tomovebidding toanotherCBGthatitisnotcurrentlybiddingon,subjecttotheswitchingrule.

51. ThemostlikelyresponseofabidderwouldbetosimplystopbiddingontheCBG

andloseeligibility.Giventhe100%activityrule,biddersareincentedtobidonallCBG’sof interest from the startof theauctionandcannot “park”asdiscussedabove. Thus it is possible that a bidder would not have a “switch to…”opportunityinanycase.

8FCC20-21,paragraph131:“weseekcommentonmakingavailabletobiddersthelowestT+Lweightofanybidforeachareainwhichtherewere2ormorebidsattheround’sclockpercentage.”


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52. AflexibleT+Lrulewouldallowthebiddertousethe“bestT+L” informationtorefinebidding,changefromalowT+LtoahigherT+L,andcontinuebiddingforinthatCBGinsteadofdroppingoutprematurely.

3.2.2 TheProposedRDOFTie-BreakRuleisDifferentintheClearingRound

53. Second,theRDOFauctionproposalistochangetheclearingroundtiebreakrulefromtheCAF-IIauction.9

54. IntheCAF-IIauction,atieintheclearinground–e.g.twobidsplacedonaCBGat the same intra-round price point –was broken using a pseudo-random tie-break.AndtwobidsattheclearingroundclockpricepointinCAF-IIwouldcarryforwardtothenextroundforfurtherbidding.

55. OntheotherhandintheRDOFauction,theFCC’sproposalisthat,intheclearing

round,tiesatthelowestpricepointwillbebrokeninascendingorderofT+L.Inother words, if there are two bids at the same price point, one for Gigabitservice,one forAboveBaseline service, then the supportwill beautomaticallyawardedtotheGigabitbidder.

56. This additional feature of the RDOF auction may impact how bidders act

throughouttheauction.AflexibleT+Lrulewouldbetterincentbidderstoactinawaythatbenefitstheauctionoutcome,asshownintheexamplebelow.

3.2.3 Example:ChangingfromGigabittoAboveBaselineT+L

57. Assume Bidder 1 is bidding Gigabit (T+L = 0) in a CBG. He/shewill see in anyroundwith2+bidswhatthebestT+Lbeingbid is, inthiscaseGigabitT+L.Thebidderwillnotknow,however,ifhe/sheistheonlybidderattheGigabitT+L,butmay see continued competition round to round (2+bids)with implied subsidydeclining.

9RDOFTechnicalGuideatpage10:“Thebiddingsystemprocessesthebidsfromtheroundinascendingorderof pricepoint. Bids at the samepricepoint areprocessed in ascendingorderof T+Lweight, andpseudo-randomnumberswillbeusedtobreakties.AnareainabidisavailabletobeassignedatagivenT+Lweight if theareahasnotpreviouslybeenassignedand ifnootherbidderbid for itat the round’sclockpercentageatthesameorata lowerT+Lweight.”Bycontrast,theCAF-IITechnicalGuideatpage10: “First, the bidding system considers all bids at the round’s base clock percentage and determineswhichareasinthosebidscanbeassigned.Abidisassignedtoabidderiftheareaorareasinthebidareuncontested (not bid on by another bidder at the round’s base clock percentage)…Then, the biddingsystem processes all other bids from the round in ascending order of price point, breaking any tiesrandomly.Anarea insuchabid isavailabletobeassigned if theareahasnotpreviouslybeenassignedandifitdidnotreceiveanybidsattheround’sbaseclockpercentage.”


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58. IfinfactthereisasecondGigabitbidderintheCBGandbiddingcontinues,itispossibletheywillbothdropoutbeforetheclearinground.Giventhat,theCBGisquestionmaygounawarded.

59. However, ifallowedtochangetoahigherT+L (slowerspeedservice),Bidder1

could consider moving to Above Baseline service before dropping out. In thisscenariotherearetwocasesofoutcome:

Case 1: If the auction progresses and bidding Gigabit becomesunattractive for bothbidders, thenBidder 1’s switch toAboveBaselinewill have been successful. The CBG will have been awarded when itotherwisewouldhavebeenleftunawarded.

Case 2: If bidding on the CBG progresses to the clearing round, and atiebreak is needed, the Gigabit bidder wins. The CBG is awarded to aGigabitwinnerattheclearingroundpriceratherthanwithlowersubsidyawardedinalaterround.

60. Inbothcases,theauctionwillhaveachievedabetterresult.

61. The advantage of a flexible T+L rule is evenmore apparentwhen considering

packagebids.

62. Consider, for example, Bidder 1 and Bidder 2 both bidding Gigabit. AssumeBidder1bidsapackageofthreeCBGs(CBG’s1,2,3)thatoverlapwithBidder2’spackageoftenCBGs(CBG’s1,2,3,4…10).

63. Ifbothbiddersbidthroughtotheclearingroundclockpricepoint(andarethe

onlyones thatdoso for the threeoverlappingCBGs),andassumingBidder2’spackagedoesnotmeetitsscale%,thebidscarryforward.10

64. Ifwhenbidding stopsBidder1’spackageofCGB’s1,2,3wins, then theother

sevenCBG’sinBidder2’spackage–i.e.CBG’s4…10–mayremainunawarded.ThisisdespitethefactthatBidder2’spackagecoversagreaterareaandwouldthusbeabetteroutcomefortheauctionthanthebidofBidder1.

65. Under thepresently proposed rules, Bidder 2 couldof coursehave recognized

during the clock rounds, as noted above, that bidding Gigabit for the threeoverlappingregionsmaynotbesuccessful.

10 RDOF Technical Guide, Section 5: If apackage bid at the clock percentage did not meet the scalecondition,thenabidfortheentirepackagecarriesforwardtothenextround,evenifsomeofthoseareashavealreadybeenassigned(toanotherbidderthatbidatalowerT+Lweight).


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66. Bidder 2’s reaction to this could be to create a newpackage of only the non-

overlapping areas, i.e. a package of CBG’s 4 … 10 only. In doing so, however,Bidder 2 may be losing complementarity effects, such as economy-of-scaleacrossCBG’s1,2,3,4…10.

67. AbetteralternativeforBidder2,iftheT+Lofabidcouldbechanged,wouldbe

tomodifyitsbid.

68. WithaflexibleT+Lrule,Bidder2couldmaintainthebenefitsofpackagebidding,while potentially leading to a better result for the auction (i.e. by awardingsubsidyinall10ofitsCBGstoBidder2insteadofonly3toBidder1).

69. Inanycase, theauctionresultcanonlybebetteroff.Withorwithout therule

change,Bidder1canwinwithGigabitserviceforCBG’s1,2,3.AflexibleT+Lrulethough provides an additional opportunity for Bidder 2 to win and provideservicetoalltenCBG’s1,2,3,4…10.


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4. AboutLYALYAisanindependentexpertconsultingfirmfoundedin1993toprovidemanagementconsultingservicestosupportthetelecommunicationsindustry.LYAbringsExperience,ExpertiseandInnovationinBroadband,SpectrumandAuctions.11Consultingengagementscover:

• Spectrumauctionbiddersupportandplanning,includinginbidroom;• Marketdesignfora2-SidedAuctionFormatProposal;• 5GSpectrumstrategyandassessmentofspectrumneeds;• Privateauctionsofspectrumlicensesandotherassets;• Regulatoryandpolicysupport,experttestimonyandreports;• Investmentandfinancialanalysis,duediligence,businessplans;• Marketresearch–quantitativeincludingpublishedresearchreports.

LYA has in-house Auction Platforms supporting all auction formats used in the US,Canada and Europe for spectrum auctions, as well as for sequential auctions(AssignmentPhase)inadditiontohavingdevelopedaninnovativeformatfora2-SidedAuction,toeffectivelyconductanegotiationbetweensellersandbuyers.LYAhasbeenactiveinwireless/mobile,spectrumissuesandinspectrumauctionssince1995andhasprovidedsupporttobidderssince1999.www.LYA.comwww.LYA.auction+1-514-288-6475

11LYAisaregisteredtrademarkofLemay-YatesAssociatesInc.

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Benefits of a Flexible T+L Bidding Rule in the RDOF Auction Frontier... · Report: Benefits of a ... For the auction mechanics, a reverse bidding process is planned, wherein the amount