Britain’s 2000 spectrum auction gave each licence to whoever kept bidding longest. Firms raised their offers over many rounds, and the sale ended when there were no new bids on any licence.
The format is called a simultaneous ascending auction. US authorities first used it to sell radio frequencies in 1994, and the UK government copied it in 2000 for 3G mobile licences.
How the 2000 sale ran
Bids in each round were secret. A bidder had to stay active in every round, either holding its bid or raising it by at least a set minimum. The bids were revealed only once each round closed.
That auction ran for 150 rounds over six weeks. It raised £22.5 billion, four and a half times the expected sum, and equal to 2.5% of GDP at the time.
Prices did not stay there. The 5G auction in 2018 raised £1.4 billion.
Why sell frequencies this way
The design comes from Paul Milgrom and Robert Wilson, who won the 2020 economics prize given in Nobel’s memory for their work on auctions. Wilson argued that in a sealed auction the top bid tends to match the item’s true value, even when no single bidder knows that value. Milgrom found that sellers earn more when bidders can learn about one another’s bids.
The Adam Smith Institute, a free-market think tank, argues the alternative is worse. It says officials picking a winner lack information about how each firm would use the band, and can be swayed by lobbyists.
Does the best firm win?
Not always, according to Maarten Janssen and Vladimir Karamychev. Their study in the Economic Journal in December 2010 found the lowest-cost firm always wins when only one licence is on sale.
Mobile auctions sell several licences, and regulators stop one firm winning every band. In that market a firm’s profit depends on how efficient its rivals are, and firms would rather not face efficient competitors. The authors found this effect can be strong enough that the most efficient firms do not win.
The stakes are long. Spectrum licences usually run for between 12 and 20 years.
