17 February 2025

Cashless spectrum auctions are a proposed novel award model where bidders do not pay cash for spectrum licences, but instead commit to coverage or infrastructure rollout obligations. These commitments could include, for example, expanding coverage to underserved areas or achieving certain performance milestones within a set period.

This is a radical departure from how most countries award spectrum today. What are the benefits and challenges? And how would they work?

Benefits of cashless auctions

There are many potential benefits from a cashless auction, such as:

• Incentives for network expansion: Cashless auctions incentivise operators to invest in infrastructure, particularly in underserved or rural areas, which could align with public policy goals for widespread connectivity.
• Lower financial barriers for operators: By reducing the financial strain of spectrum fees, cashless auctions enable operators to invest more in network infrastructure.
• Social benefits: The focus on coverage obligations ensures that the spectrum allocation results in tangible benefits for the public, such as expanded access to high-speed internet and improved telecom services, particularly in underserved areas.

Challenges

As discussed above, cashless auctions are a great way for the regulator to achieve coverage in underserved areas whilst easing the financial burden of a spectrum auction for the operators. However, they come with certain challenges:

• Reduced revenue for governments: The primary downside for governments is that they may lose immediate cash inflows. This aspect is often overlooked. The revenues from spectrum awards can be used to provide a range of public services, or alternatively it could be used to pay down (or avoid increases in) national debts.
• Monitoring and enforcement complexity: Ensuring operators meet coverage commitments can be complex, requiring robust systems and leading to potential administrative costs and disputes. Similar issues occurred with beauty contests in the past, which similarly included non-cash commitments.
• Risk of underperformance: There is a risk that operators may fail to meet their commitments, especially if they face financial difficulties or if obligations are poorly defined. The threat of revoking licences can also be difficult for regulators, as this would undermine the efficiency of the auction process and deprive the public of access to crucial spectrum.

How can cashless auctions work?

Cashless auctions would involve competitive bidding based on criteria other than cash, such as coverage rollout. However, unless the criteria are objective, transparent and fair, a cashless auction may end up functioning as a beauty contest, a form of competitive award that lost popularity in favour of the traditional cash auctions.

Another challenge will be the auction format. It is not clear exactly how bidding will work in a truly cashless auction. Auctions need a currency. Whilst that does not necessarily need to be cash, it needs to be flexible for bidders to trade-off various spectrum quantities and bands. One option would be for the various obligations to be converted into common ‘bidding units’ with the regulators then using similar auction formats as the standard cash auctions (i.e. SMRAs or clock auctions). This in itself will be challenging, potentially resulting in auction designs becoming yet more complicated.

Moving towards cashless auctions

As of today, we have not yet seen an entirely cashless auction, although there are many examples of coverage commitments being introduced into auction processes. The most common way to do this has been to bundle coverage obligations with the spectrum available, and ideally adjusting the reserve price appropriately to reflect the additional investment required from operators to meet the obligations.

There have also been recent examples of auctions that have gone beyond this and introduced the concept of using coverage commitments as partial replacement of cash payments during auctions, including:

• Colombia 2019: MinTic awarded spectrum in the 700MHz, 1900MHz and 2.6GHz bands. In the 700MHz band, the submitted bids were expressed via a “bid index” formula derived from two components:
  • Cash commitment: operators specified a total bid price and committed to a cash payment equivalent to 40-100% of that bid price
  • Coverage commitment: for bids with a cash commitment below 100%, operators specified a list of communities that they would cover and a timeline for covering the communities

• Austria 2020: RTR auctioned spectrum in the 700MHz, 1500MHz, and 2100MHz bands. The award included an innovative two-stage approach to auctioning coverage obligations:
  • In the first stage, winning bidders for each 700MHz lot had to commit to providing coverage to 150 under-served communities.
  • In the second stage, bidders could voluntarily commit to cover additional communities in exchange for a bid discount.

Summary

There is a lot of interest in cashless spectrum auctions, driven by the desire to reduce the financial burden on operators, to keep money in the industry and to drive meaningful progress toward universal connectivity and digital inclusion. We have seen some regulators incorporate cashless elements into their spectrum auctions. However, before we see truly cashless auctions, details of how they will be implemented needs to be fully thought through.