In similar circumstances, homesteading, dear tags, etc, they use a lottery. They have in the past used a lottery for spectrum/frequency allocations. . I admit I don't know if those were permanent or for fixed periods.
According to the link above, they've only been auctioning the spectrum for the last 5 years, before that they used lotteries, and before that they actually attempted to figure out what would be in public interest.
I guess I wouldn't mind them auctioning licenses for fixed periods. But I would like them to keep more spectrum for their own use, specifically for military use. The military would/will have to lease those frequencies from whoever buys them, or (more likely in the current budget climate) do without. In fact I know of military applications for which are having buy new equipment, because they can no longer use the spectrum the older equipment can operate in. It's geographic problem, as in some places they can use the frequencies, they just can't use them in other places they need to do so.
The auctions are used when there are multiple, mutually exclusive applications for use of the frequencies. They are used to help select the best use for those frequencies.
http://wireless.fcc.gov/auctions/default.htm?job=about_auctions
They don't just auction off all frequencies. They allocate a wide range of frequencies for a wide range of purposes, including military. Even when the frequencies are auctioned off, the bidders have to agree to use those frequencies under a wide range of restrictions, they can't just choose to use them however they want.
In fact I know of military applications for which are having buy new equipment, because they can no longer use the spectrum the older equipment can operate in. It's geographic problem, as in some places they can use the frequencies, they just can't use them in other places they need to do so.
The FCC only regulates the use of the spectrum in the United States. Other countries often regulate the use of the spectrum in the same way for the sake of compatibility, but we really can't dictate that other countries will work with us to make sure our military equipment doesn't get interfered with in other countries.
Therefore our military has been switching to more flexible software controlled radios.