Leasing Lessons Learned, part 2 of 2

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

With AWS-1 and 700 MHz auctions concluded in the past year and auctions for the AWS-3 band expected in 2009, there is an increasing supply of spectrum available for lease. If past is prologue, these are some of the lessons learned that can be applied to future transactions:

Determine Your Priorities – Each party needs to determine its priorities. For the licensee, the need for a lump sum payment may be the most important factor, or maybe the licensee would prefer periodic payments or an upside benefit if the lessee meets certain performance benchmarks. The lessee may insist on having a significant degree of control of the spectrum, or the right to extend the lease. Regardless of the priorities, it is important that these be assessed up front and communicated to the other party to help structure the deal and to determine early in the process if there will be any fundamental differences in the way the parties want to proceed.

Put It All on the Table – Once priorities have been identified and the outline of a transaction is in place, all those priorities and other critical deal points should be communicated to the other party. Raising deal points in piecemeal fashion prolongs the negotiations and limits the ability of parties to compromise on points that already have been decided. More importantly, the party that identifies new issues far into the process risks his credibility and may force the other party to employ the same tactics, delaying the time for an agreement to be reached.

Don’t Skimp on the Due Diligence – Be sure the FCC licenses are in order and there are no problems such as build-out issues, renewal challenges or rule making proceedings that could have a substantial impact on the value of the spectrum. If the license has been partitioned, make sure you understand exactly what you are getting (there are often partitions of undefined areas hidden in the FCC’s database, especially with respect to rural broadband PCS and WCS licenses). The licensee should also seek to mitigate risks regarding the lessee’s financial ability to perform the agreement, especially when payments are scheduled to be paid out over time.

Understand Your Regulatory Obligations – The FCC specifies two kinds of leases. Spectrum manager leases leave ultimate control with the licensee and require only notification to the FCC. De facto transfer leases place most of the regulatory burdens on the lessee and require prior FCC approval, a process that takes about 30 days. Sometimes, the lessee will want to lease the facilities as soon as possible and will not want to wait. In other cases, the lessee will want to exercise more control. In either case, understanding how the FCC process affects the transaction and the lease term are important considerations. In addition, the FCC requires lease agreements to contain specific language concerning the rights of the parties if interference is alleged, and the allocation of responsibilities in dealing with the FCC. Be sure these provisions are in the agreements.

By applying these lessons, lease transactions can be finalized more quickly with a high degree of trust and satisfaction.

Spectrum Bridge has incorporated these and other “lessons learned” in to the entire SpecEx marketplace system to insure that leases (and sales) can be completed as transparently, cost-effectively and quickly as possible. We are here to assist you and make the entire transaction go as smoothly as possible. By leveraging our online databases, standardized agreements, in-house experts and our growing ecosystem of industry partnerships, you can buy, sell and lease spectrum with greater ease and higher confidence than ever before. (Editor’s Note: Rini Coran developed the standardized leasing agreements used in the SpecEx marketplace)

Stephen E. Coran is an attorney at Rini Coran, PC, a Washington, DC law firm that provides strategic, transactional, regulatory and governmental relations counsel to help clients succeed in a dynamic telecommunications, media and technology marketplace. For more information, contact Mr. Coran at (202) 463-4310 or scoran@rinicoran.com or visit http://www.rinicoran.com/.