26 September 2025
Spectrum auctions are among the most important events in the telecommunications sector. For bidders, they are multi-million or even multi-billion-dollar commitments that can shape business strategies for a decade or more. For governments, auctions are a way to allocate scarce resources efficiently while raising revenue.
While economists and regulators often seek to design the most theoretically efficient auction formats, bidders themselves operate under different, real-world constraints. They prefer auction formats that are simple, transparent, and tested.
Simplicity over complexity
For bidders, simplicity matters. In theory, complex formats may allow regulators to fine-tune competition or maximise efficiency, but in practice they create risks. Preparing for a complex auction demands more time, more resources, and more expertise – costs that weigh heavily on smaller operators. Larger operators can absorb these costs, but the playing field is tilted against challengers.
Complexity also increases the scope for strategic bidding and consequently the chance of unintended outcomes. Mistakes by bidders, or the exploitation of unforeseen loopholes in the design, can undermine the fairness and credibility of the process. This does not mean every auction must be stripped to its bare bones, but any additional complexity should only be introduced when it provides a clear benefit. Importantly, the size or strategic importance of an auction is not itself an argument for complexity.
Tried, tested, and transparent
Bidders prefer auction formats with a track record. Untested mechanisms may behave in unpredictable ways, leading to outcomes no one anticipated.
For example, Combinatorial Clock Auctions (which allocate quantity of spectrum to bidders) and second-price Assignment Stages (which allocate specific position in a band) have a similar second-price mechanism.
In theory, both formats should produce an efficient auction outcome. In practice, few foresaw the price driving strategies that later emerged in CCAs, which quickly resulted in the format become unpopular among bidders and regulators. In contrast, the second-price Assignment Stage format is currently the most-widely used format when determining specific positions in a band.
Predictability and a proven track record are therefore vital. This does not mean bidders need to know the outcome in advance. Rather, they want an auction that evolves in a transparent way, such that shifts in position are visible as the auction unfolds. Surprising final outcomes, revealed only at the end, create real risk as they prevent bidders from adjusting their strategies in real time. For management teams accountable to boards, shareholders, and investors, this uncertainty is unacceptable.
Budgets, strategy, and governance
Behind every bid lies a careful internal process. Once valuations are calculated, bidders translate them into a strategy for the auction and budget. These budgets are rarely set at the maximum theoretical value of all packages. Instead, they reflect reasonable expectations for winning targeted spectrum, plus some safety margin.
Three constraints explain this conservatism:
- Governance: Effective corporate governance requires limits. Senior management must ensure that bidding teams cannot spend more than necessary. Many firms impose interim budget thresholds, releasing additional funds only as the auction progresses and as competitor behaviour validates assumptions. This allows for “price discovery” without risking reckless spending.
- Finance: Even if management were willing to approve higher spending, raising the capital is not always feasible. Financing has real costs and limits, particularly for smaller operators. As a result, budgets often fall well below theoretical valuations.
- Certainty in valuations: Valuations often require complex modelling that relies on forecasting key inputs (such as traffic) for the next ten to twenty years. Given the uncertainty in these inputs, decision makers often expect a decent return on the investment to offset these risks. In a spectrum auction, this can only be achieved through acquiring spectrum below full value.
Governance extends to the bidding process itself. Companies typically set up an “Auction Executive Committee” to oversee decisions, while a separate “War Room Team” determines round-by-round bidding. A rigorous sign-off process ensures bids are consistent with instructions, and it creates an audit trail for accountability. For publicly listed firms, where mistakes could affect both financial health and share price, this discipline is essential.
Why relative prices matter
Winning spectrum is not just about securing frequencies – it is also about how much is paid relative to rivals. Investors, analysts, and the wider market evaluate auction outcomes comparatively. An operator that pays significantly more than a competitor for a similar package may be branded a “loser”, even if the purchase is justified on strategic grounds. For publicly listed companies, such perceptions can move share prices overnight.
These dynamics influence bidder behaviour. Beyond aiming to win their target spectrum at the lowest cost, bidders may also attempt to push competitors’ prices higher. This type of strategic behaviour is most commonly used in auction formats that allow non-uniform pricing, where bidders can end up paying different amounts for the same spectrum. While such formats may seem attractive in theory, they are more vulnerable to tactics that distort outcomes and future market competition.
What bidders really want
When all these considerations are taken together, bidders’ preferences for auction formats become clear:
- Simplicity: Keep formats as straightforward as possible, adding complexity only where there is a proven benefit.
- Proven auction designs: Avoid experimental designs in favour of formats with an established track record.
- Transparency: Ensure that outcomes develop in a way that allows bidders to adapt as the auction unfolds, rather than producing unwelcome surprises.
- Governance-friendly processes: Recognise the internal approval structures and sign-off mechanisms bidders must follow.
- Fairness in pricing: Minimise the risk of outcomes where one operator’s price is relative higher to another for identical / similar packages
Spectrum auctions will always be complicated processes, reflecting the value and scarcity of the resource at stake. But the lesson is clear: ignoring bidders’ practical constraints risks creating processes that look efficient on paper but fail in practice. By aligning to bidders’ preferences, regulators can design auctions that not only work in theory but also in practice.
