After twenty years, two renewals (in 2011 and 2017), and proceedings all the way up to the Dutch Trade and Industry Appeals Tribunal, all the Dutch frequency licences for national commercial FM radio are expected to be reallocated simultaneously in an online auction in mid-July of this year. As from 7 March 2023, interested parties will have four weeks to apply for a licence.
Economy and Climate Minister Adriaansens (the Minister) expects that potential participants – large and small – will have relatively little experience with the auction process for frequency allocation. And for a good reason: only one large-scale ‘simultaneous multi-round auction’ (SMR auction) of frequencies has taken place in the Netherlands in the past decade. That auction was in the telecoms sector, not the radio sector.
In this blog, we briefly outline the earlier allocations of radio frequencies in the Netherlands and discuss some points of attention for participants in the upcoming SMR auction.
Radio frequencies to be allocated
Nine ‘packages’ will be allocated in the upcoming auction for a period of twelve years. A package consists of an FM lot with the corresponding DAB+ capacity. Two of the nine lots are qualified, meaning that specific conditions are attached to the content of the lot. One lot is subject to the requirement that the radio programme must contain sufficient news, while the other requires that sufficient Dutch-language music be broadcast (50%).
The remaining seven lots are unqualified, meaning that seven radio stations will be largely free to determine their programming. This is a significant change in relation to 2003: at present, the ratio is four unqualified lots versus five qualified lots:
- News (currently BNR Nieuwsradio)
- Dutch-language music (currently 100% NL)
- Non-recent, special music (currently Radio Veronica)
- Recent, special music (currently SLAM!)
- Classical or jazz music (currently Sublime)
The currently unqualified stations, Radio 538, Sky Radio, Qmusic and Radio 10, will therefore potentially gain three competitors.
It was originally envisaged with regard to the upcoming award of the news lot that at least 50% news had to be broadcast between 7 am and 7 pm. The same applied to the allocation in 2003, an important difference being that at that time – in addition to a financial bid – the percentage of news offered was also a factor (see below). BNR Nieuwsradio won the licence at the time, partly because it offered 75% news. After criticism from BNR Nieuwsradio and parliamentary questions about the possible disappearance of a ‘real’ news station, State Secretary Uslu of Culture and Media recently announced that the percentage would be increased to 70%.
Earlier allocations of radio frequencies incomparable with upcoming auction
The first comprehensive allocation of frequencies for national commercial radio took place in 2003. At that time, radio frequencies were not auctioned off but were allocated by means of a comparative test with a one-off financial bid. This meant that interested parties had to submit a bid, but were also assessed on the basis of their plan for the implementation of the station (known as a ‘beauty contest’).
The licences allocated in 2003 were to be valid for a period of eight years, but the licences were extended for six years (for a fee) in 2011. They were extended for a further five years in 2017. A new auction was scheduled for September 2022 but was postponed by the Minister due to sharply declining advertising revenues at the stations as a result of the corona pandemic. The Minister wished to extend the existing licences (again), but radio station KINK disagreed and appealed the decision. The court ruled in favour of KINK – also on higher appeal – as a result of which the radio stations will soon be re-auctioned after a period of 20 years.
A few new allocations have taken place since 2003, but none of them compare to the upcoming comprehensive allocation by means of an SMR auction. In 2013, for instance, one national FM lot (A7) was auctioned off, but that was done in the form of a one-off sealed-bid auction. Moreover, only one of the seven applicants was found to have met the requirements. An SMR auction consists of several rounds, with the State raising the lot prices in each round and participants having to bid again each time until a sufficient number of applicants have dropped out and supply and demand are equal. More information on the SMR auction is provided below.
Another example is the allocation of four obsolete regional FM lots in 2020, which did take place in the form of an SMR auction. That auction lasted only one day and the total proceeds were less than €500,000. Another ten regional FM lots were auctioned off in 2022, in which the total proceeds amounted to €136,400. The upcoming auction of national FM lots will most likely be different:
- a large number of competitive lots will be allocated (nine);
- each of the lots is much more valuable (the minimum proceeds will be about €73.7 million and the expected value of all the lots jointly is about €122 million, according to an investigation by SEO Amsterdam Economics);
- the interests of the current licence holders are much greater;
- more participants are expected to take part in the auction; and
- the auction will almost certainly take considerably longer.
Points of attention for the upcoming auction
- An SMR auction may be lengthy and may lead to uncertainty
Unlike in 2003, only the amount of the bid will be relevant in the upcoming SMR auction. Market parties have expressed concerns about this, fearing that lots will end up with parties with the deepest pockets, rather than parties with the best plan for the implementation of the radio station.
The Minister expects considerable scarcity, possibly resulting in a large number of auction rounds. The exact duration of the auction cannot be predicted and even the Minister will not hazard a guess. Depending on, among other things, the duration of the bidding rounds, the number of participants, the price increment in each round, and the extent to which the reserve prices are set correctly, the auction could last from a few hours to several days. In the most extreme scenario, the auction could even last several weeks – although the Minister seems intent on avoiding that.
A frequency auction lasting several weeks is not inconceivable, as the 2020 telecom frequencies auction demonstrated. That ‘5G auction’ is the only large-scale SMR frequency auction that has taken place in the Netherlands in the past decade. With only three participants but as many as 26 lots, that auction lasted more than three weeks and consisted of no fewer than 90 bidding rounds (of about one hour each). The auction ultimately brought in €1.23 billion for the State.
The longer the upcoming frequency auction lasts and the higher the prices in each round are, the more uncertain the outcome will be for the participants. The participants will be told after each round how many bids have been made and how many participants are still taking part in the auction, but not who they are or on which package they are bidding. The identity of the party that placed the highest bid will therefore also be unknown: a participant will not know whether its main competitor is still in the race.
The uncertainty will be compounded by the fact that participants are allowed to switch between packages during the auction. A participant may therefore believe that one competitor remains for its package in one bidding round, but be faced with two or three competitors in the following round. Package switching makes it difficult for auction participants to assess the actions of other participants and increases the risk of prices being pushed up – in other words: a winner’s curse. At the same time, uncertainty is beneficial to flexibility and sound competition during the auction by making signalling and concerted action more difficult.
Switching between lots also occurred in the 5G auction, as apparent from the bidding process later published by the National Digital Infrastructure Inspectorate (RDI, known as Agentschap Telecom at the time).
- Fast action during auction essential
The bidding rounds in the radio auction are expected to last 15 minutes or until all the participants have submitted their bids, whichever is sooner. Each participant will also have the option of using 30-minute extensions no more than twice. There will most likely be only a few minutes between the end of a bidding round and the start of the next round. The Minister rejected one party’s request for an additional 30-minute break between each bidding round, on the grounds that it would significantly extend the duration of the auction, probably by several days or even weeks (cf. the 5G Auction).
The RDI will not announce the price in the new round until after the end of the preceding bidding round. Participants therefore have little time to determine and actually submit their bids in the online auction system. This requires careful preparation of the bidding strategy and a streamlined internal bidding process. This gives rise to questions such as: Who must approve the bid internally and who may formally submit the bid? How will that be recorded? What is the maximum bid per package? Which package combinations are of interest? What are the related prices? What is the total budget? As from what amount is internal consultation required (for instance with the management board)? Thorough preparation therefore includes clear internal processes, a mandate, and practical organisation (bid computer, back-up infrastructure, etc.).
The short period between bidding rounds also means that parties must respond as fast as lightning if the RDI acts in a manner during the auction that unintentionally excludes or otherwise disadvantages a participant. If a participant waits until after the end of the auction before doing so, that may be held against him. The ability to take the necessary action within 15 minutes (such as applying to the court in the event of exclusion) therefore also requires thorough preparation.
- Communication before and during the auction is strictly restricted
Strict restrictions apply before and during the auction to what may be communicated – in addition to the restrictions that follow from the Mededingingswet (Competition Act). The same applies to an applicant, i.e. even before a party is actually admitted to the auction. For instance, applicants – and their advisors – may not disclose information regarding their strategy or budget, the number of frequencies desired or obtained, the type or combination of frequencies, and the prices expected or payable at the auction.
A participant that violates these rules may be excluded from the auction. If the violation is not established until after the auction, licences obtained may be revoked in retrospect. The communication restrictions are broadly formulated, meaning that applicants and participants must be wary in all their communications about the auction, also, for instance, in the media or annual reports leading up to and during the auction.
Please do not hesitate to contact us if you have any questions about the course of or preparation for an SMR auction.
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