Leasing Lessons Learned, part 1 of 2

By: Stephen E. Coran, Attorney, Rini Coran, PC
Part 1 of 2

In 2003, the Federal Communications Commission (FCC) adopted rules to promote development of “secondary markets” in spectrum. In addition to adding clarity to policies that historically had evolved through court cases and regulatory proceedings, the FCC expanded the scope of its leasing rules, established two different leasing categories designed to place regulatory and operational compliance obligations on the appropriate party and streamlined the process for approving leasing arrangements.

In the past five years, licensees and spectrum users have engaged in thousands of transactions to promote increased commercial use of spectrum. Companies such as Clearwire and Sprint Nextel, which recently combined their 2.5 GHz spectrum assets, have made extensive use of the FCC’s leasing rules to create a nationwide footprint for WiMax services. Other companies such as FiberTower and IDT have successfully marketed their microwave spectrum for backhaul to support mobile and fixed wireless businesses. And the major wireless carriers, such as Verizon Wireless, AT&T and T-Mobile, have entered into dozens of such arrangements as well.

Among other recent trends, major carriers are beginning to lease spectrum in rural areas to “partners,” who are willing to build the leased spectrum using the major carrier’s technology and to comply with strict service quality requirements, so that incoming customers will have the same high-quality experience when traveling into rural areas as they receive in their urban home markets. These arrangements enable major carriers to focus their own capital spending on their core metro area markets, while presenting to customers a virtual footprint that extends far into the countryside.

More and more, the secondary market appears to be headed in the direction of licensees using the lease process to improve their customers’ experience, and thereby reduce churn, without having to make long-term commitments. Lease arrangements for three to five years enable carriers to address their needs for the foreseeable future without being locked into obligations that may or may not be appropriate in meeting their long-term goals. Short-term arrangements may also provide an easy exit for the lessee, who can meet service obligations, create value and then return the spectrum and monetize its investment...