The firm won a role advising EMI, a member of Virgin's consortium SpectrumCo, after appearing at The Lawyer's Legal Monte Carlo 99 conference.
However, because the firm is acting for rival bidder MCI WorldCom, it feels the conflict would be too strong.
EMI has now awarded the work to its long time adviser Rowe & Maw, which was originally conflicted out since it is acting for EMI's fellow consortium member, Nextel Communications.
Chris Ancliff, vice-president of legal and business affairs at EMI, says: "[Olswang] now feels there is a concern. They were originally happy that there were Chinese walls in place. But they thought about it some more and didn't feel comfortable."
Mark Deveroux, senior partner at Olswang, says the firm had referred the work to its internal conflicts committee. But he says: "In terms of best practice we decided that we should refer it to another firm."
Peter Dickinson, corporate partner at Rowe & Maw, says: "We were appointed by EMI a couple of days ago to ask if we would act for them."
The firm is working with US-based Jones Day Reavis & Pogue, which is acting as general counsel to Nextel.
Paul Maher and Stephanie Bates, both corporate partners at Rowe & Maw, will advise EMI.
On the sudden change in legal adviser, Dickinson says: "I assume that [Olswang] has difficulty dealing with the conflict with the consortium."
On whether EMI will be instructing Olswang in the future, Ancliff says: "We may do but I can't say for certain at this stage."
The five third generation (3G) UMTS licences on offer are due to be auctioned in March