FCC Spectrum Auction Design: A 12-year Experiment

This short article provides a glimpse at the auction process’s evolution, from its initial design to the rules governing the Advanced Wireless Services (AWS) auction held from August 9, 2006 to September 18, 2006. It also provides observations about the strengths and weaknesses of various auction designs, and it proposes ways to improve future auctions. Section II briefly describes the political environment that lead to the first electromagnetic spectrum auction in 1994 and the nature of the rights that are auctioned. Section III explains the basic auction design that the Federal Communications Commission (FCC) adopted, while sections IV and V discuss the rules that were implemented to accommodate that initial design and the bidding strategies that arose to take advantage of those rules. Sections VI and VII describe the rules FCC adopted for later auctions in order to put boundaries around that strategic behavior. Section VIII concludes with observations about the shortcomings of FCC’s chosen auction design, and it proposes an alternative design that should lead to more efficient use of the electromagnetic spectrum