One of the key factors for ensuring a successful spectrum auction is clearing up the legal and regulatory issues before the auction begins, or better yet, before the auction is even announced. We speak from experience, having been regulators at the FCC during the fateful “C Block Personal Communications Services” auction in 1995. There were many legal and regulatory issues surrounding the C block, including foreign ownership issues for Nextwave, the largest “winner” in the auction, and ultimately bankruptcy litigation with the FCC having to fight for the licenses in bankruptcy court when Nextwave declared bankruptcy (more here, and here, and here).

The takeaways from this multi-year, multi-billion dollar fiasco were that the FCC should have more carefully reviewed the foreign ownership of the auction applicants before the auction and that they should never have tried to be a banker. Ultimately the real losers were members of the public who saw the spectrum go unused for years during legal battles then got only a fraction of the bid prices deposited into the US Treasury.

These types of problems are not confined to the US. In Canada there is currently a post-auction foreign ownership problem that is eerily reminiscent to the Nextwave issue. Globalive, the winner of $442 million in AWS licenses at auction last year, was just disqualified from being a license holder by the Canadian Radio-television and Telecommunications Commission because they were deemed to be non-Canadian, a violation of the eligibility rules (more here and here).

There are also pre-auction legal issues in both Thailand and India that are delaying the auction of spectrum licenses. In Thailand there are legal issues involving foreign ownership requirements and whether the existing regulator, the National Telecommunication Commission (NTC) has the legal right to auction the licenses in advance of the creation of a new combined telecom/media regulatory body called the National Broadcasting and Telecommunications Commission (NBTC) (more here). In India there is an intra-governmental disagreement between the Department of Telecommunications and the defense ministry about the defense ministry vacating spectrum to be allocated to 3G services (more here).

We expect to see more of these types of issues as telecommunications continues to globalize and attract more foreign investment; as governments seek to reallocate spectrum from government to non-government uses; and as spectrum auctions cut across regulatory agencies (as is often the case in the 2.5/2.6GHz bands that have traditionally had a broadcast or media component but are increasingly moving to services that allow mobile telecom services).

While the issues are complex, one thing is clear: regulators need sound policy and well written enforceable rules to avoid costly auction delays and potential spectrum assignment disasters that can take years to fix.

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