Although it's fun to picture the CEOs of America's biggest telecommunications companies sitting in an auction room waving little white sticks in the air ("Do I hear $15 billion? Going once, going twice…"), FCC auctions are completely electronic and online.
When the FCC first began auctioning radio spectrum in 1994, it used the Automated Auction System (AAS) that required each bidder to use special software and dial into an FCC call center for actual bidding. With the Internet's growing popularity in the late 1990s, the FCC reintroduced the AAS as an online application [source: CompuTech]. The new Integrated Spectrum Auction System (ISAS) is the product of that effort, a fully online auction system available to anyone with an Internet connection.
The structure of an FCC spectrum auction is called a simultaneous multi-round (SMR) auction. This means that all of the available licenses are auctioned simultaneously. The bidding on these licenses is broken into rounds of set, predetermined length. There is no set limit of rounds, however. The auction only stops when there is a round with no new bids. This can take weeks, even months.
Since all licenses are available for bidding simultaneously, the FCC has built a function into the system called package bidding. This allows a bidder to select a group of licenses to bid on as a single "package." This is especially useful if a large telecommunications company is trying to establish a nationwide service using a specific radio frequency. In an early 2008 FCC auction, AT&T and Verizon both bought large, geographically diverse packages of 700MHz spectrum, ensuring a nationwide footprint of coverage.
Using the Web-based ISAS system is as easy as selecting the licenses you wish to bid on and choosing a maximum dollar amount for each one, kind of like eBay. Each license comes with a minimum bid amount and nine larger dollar amounts, each representing a 10 percent increase. Bidders check the box with their maximum bid amount and wait for the round to end.
Bidding during rounds is confidential, but at the end of the round, all bids are made public. Since this is a multi-round system, bidders use this information to adjust their maximum bids or reconsider which licenses are most important to them. At the start of the next round, the minimum bid is set at ten percent higher than the provisional winning bid (PWB), the highest bid from the previous round.
In the next section, we'll talk about what's actually sold at an FCC auction.