Going for cover

With growing digitalisation, being able to get online is becoming ever more important. To avoid a growing digital divide, regulators are looking for ways to improve broadband coverage. This means building networks in places that may not be commercially viable and typically entails support. Economists have long advocated using competitive mechanisms for handing out such support.

One idea that is gaining traction is to use spectrum auctions to get greater coverage. Making prospective users pay in terms of improved coverage rather than spectrum fees avoids many of the issues that would arise if one were simply to invite competitive bids for government support. But it also has its challenges, as competition is often limited and there is a risk that bidders might seek to gain substantial funding for little additional coverage. To make this work, one needs to be able to define coverage targets appropriately and use the right auction design.

The addition of a reverse auction stage to the 2022 Austrian multiband auction is a good example. In this stage, bidders could offer to serve additional areas in exchange for a reduction in the amount they had to pay for the spectrum they won. Fortunately, it was possible to identify geographic units (so-called ‘Katastralgemeinden’) that were un- or underserved and which could all be covered at roughly the same cost. This meant that additional coverage commitments could simply be expressed as the number of these units that a bidder would be prepared to serve in exchange for a reduction in the amount payable for spectrum. The specific areas that winners would cover could then be picked from a list.

To avoid gaming, we designed a single round sealed bid process in which bidders could indicate their willingness to supply additional coverage by specifying combinations of numbers of additional units they would serve and the reduction in payments they would demand in return. The auctioneer could then select the offers that provided the greatest additional coverage for a given budget, selecting the combinations that achieved this at the lowest cost. As protection against overpaying, offers where the discount per unit was above a certain threshold would be discarded. Neither this threshold nor the total available budget were disclosed to bidders beforehand.

The reverse auction achieved additional coverage of more than 800 out of the 1200 units that were available – almost doubling the additional coverage from coverage obligations linked directly to the auctioned spectrum.