The ACMA claims that: "The combinatorial clock auction is well suited to auctions where the value of an individual lot to a bidder depends significantly on what other lots that bidder can acquire. The winning bidders then are those that make the highest value combination of bids."
Both bands are allocated to LTE and for mobile broadband operators the combination of frequencies is highly sought after because the higher frequency gives greater capacity and the lower frequency greater range.
According to the ACMA, the packages will not be predefined. It will segment the spectrum into blocks (paired for transmit and receive) by frequency and geography. It will then be up to the bidders to put together packages they want and to bid on these. At the end of the process the ACMA will work out which bids represent the optimal return.
An ACMA spokeswoman said: "The auction system takes all of the bids and works out what is the highest value combination of bids by all parties and those are the winners '¦ And there is a rule that says they can only win one of the packages they are interested in."
Working out the winning bids will be no mean feat. According to Wikipedia, "Combinatorial auctions present challenges compared to traditional auctions. Some challenges are computational, some economic, and some hybrid. An example of a computational problem is how to efficiently determine the allocation once the bids have been submitted to the auctioneer. This is called the winner determination problem.
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Helpfully, it adds: "The combinatorial auction problem can be modelled as a set packing problem. Therefore, many algorithms have been proposed to find approximated solutions for combinatorial auction problem."
The ACMA has tendered for some expert advisors and an auction system to enable it to develop and conduct the auction. It has yet to determine exactly what spectrum will be auctioned and how it will be divided up. It has made recommendations to the minister on the frequencies to be auctioned and is awaiting a response.
The spokeswoman said: "The ACMA's recommendation is 90MHz in the 700MHz band and 140MHz in the 2.5GHz band. How we divide that up will be something we will be talking to stakeholders about in coming months. Some lots may be regional and some may be national."
The 700MHz spectrum is being progressively freed up as analogue TV services are shut down. The 2.5GHz has incumbent users from the broadcast industry.
The auction is scheduled to be held in late 2012. The ACMA will hold a Digital Dividend Auction Tune-Up on Friday 4 November "to provide potential auction participants with an opportunity to hear about the ACMA's work on preparing for the auction, including its development of the detailed CCA auction rules."
It says this will be just one part of an intensive engagement with potential bidders over the next 12 months. "It will be followed in 2012 with a series of workshops and training sessions, as well as consultation around the auction rules."
The ACMA will set reserve prices shortly before the auction date. It has declined to make any estimate of how much it expects the auction to raise.