Verizon Wireless shed further light on its plans to offload its A- and B-Block 700 MHz licenses, noting that the move would “rationalize” its current spectrum holdings as it does not see those licenses fitting into its current plans.
Verizon Wireless announced yesterday that it would look to sell off a substantial chunk of its 700 MHz spectrum holdings if, and only if, the Federal Communications Commission approves a number of pending transactions involving the acquisition of 1.7/2.1 GHz spectrum.
While emphasizing the potential auction of its 700 MHz assets would be “contingent” on the closing of those spectrum deals, Verizon Communications CFO Fran Shammo explained the proposal was not made in order to help facilitate the FCC’s decisions. Shammo noted that the company did not just “wake up yesterday” and make the decision to auction off the A- and B-Block licenses because the company ran into a “roadblock” at the FCC.
Despite Verizon Wireless’ attempt to remove the auction proposal from garnering FCC approval for the 1.7/2.1 GHz spectrum and related deals, analyst noted the move could have an impact.
“We believe Verizon’s move could enhance chances of winning government approval for the spectrum purchases, which have faced increased scrutiny in recent months as expectations have been tamped down for freeing up additional spectrum for wireless carriers,” noted Jeff Silva, senior policy director for telecommunications, media and technology at Medley Global Advisors. “By moving quickly with concessions Verizon is better positioned to reduce regulatory risk connected with government approval of pending spectrum transactions. It is important to recall the now-defunct AT&T/T-Mobile merger never advanced to the divestiture-discussion stage with the Justice Department.”
Silva did add that the Verizon Wireless deals, unlike the AT&T/T-Mobile proposal, would not remove a current competitor from the market.
“While the [Verizon Wireless/cable deals would not result in the elimination of a national wireless carrier as would have been the case with the failed AT&T/T-Mobile tie-up and even considering Verizon’s 700 MHz sale, we tend to believe the ‘frenemy’ transactions will remain troubling for the FCC and DoJ,” Silva explained. “However, even if litigation among the parties were to materialize, we are of the view that Verizon’s 700 MHz sale would be a winner in court.”
Trading down
Shammo noted that the 1.7/2.1 GHz spectrum would be a great way to enhance capacity of its LTE services and that the lower 700 MHz location of the A- and B-Block licenses in relation to its current upper 700 MHz C-Block license that the carrier has used for its current LTE rollout made more sense. This would also make sense in that using 700 MHz spectrum for capacity enhancements in dense, urban areas could be difficult due to the strong propagation characteristics of 700 MHz spectrum that could provide a challenge in mitigating interference between closely spaced cell sites.
“Verizon Wireless has show that they are good stewards of spectrum and efficient use of spectrum,” Shammo said during the company’s quarterly conference call. “As a company policy we would not hoard spectrum.”
Verizon Wireless picked up 13 licenses for $2.8 billion during the AWS Auction 66 in 2006. Those licenses mostly covered markets on the east coast.
Verizon Wireless spent about $4.7 billion on the A- and B-Block 700 MHz licenses during the FCC auction, an amount it likely expects to surpass in reselling those assets, with Shammo noting that the carrier is aware of the value of those licenses in the “free market” and that if it did not receive bids hitting that perceived value it could decide on an alternative for those licenses. That could prove challenging if the FCC does require those divestitures as part of approving the 1.7/2.1 GHz spectrum deals.
Shammo added to the company’s altruistic reasoning for auctioning off its 700 MHz assets, noting it would allow competitors to also build out LTE-enabled networks.
Despite Verizon Wireless’ explanation, critics of the proposed spectrum sale were quick to link the auction to the FCC’s current deliberations.
“Verizon Wireless’ offer to sell any spectrum is wholly contingent upon not just the FCC’s full approval of the spectrum sales from SpectrumCo and Cox to Verizon Wireless, but also the government’s decision to allow the related joint venture, resale and wholesale deals between all of those companies,” noted Carri Bennet, general counsel for the Rural Telecommunications Group. “This offering is a lure and what Verizon Wireless really wants is the government’s blessing of its cable-wireless cartel.”
RTG also questioned the quality of the spectrum Verizon Wireless is offering to auction, noting that the only real buyer would be rival AT&T Mobility.
“Furthermore, just as was the case when Verizon Wireless purchased Alltel Communications five years ago, Verizon Wireless is voluntarily offering carefully pre-selected ‘scraps’ of spectrum to its competitors, but it already knows that the likely buyer of those scraps will be AT&T – a move further designed to perpetuate the ‘Twin Bell’ duopoly,” Bennet added.
The Rural Cellular Association also called out Verizon Wireless’ altruistic claims to being “good stewards” for spectrum, noting the potential auction is proof that the carrier has been warehousing more spectrum than it truly needs.
“This announcement confirms what RCA has said: Verizon has developed a spectrum warehouse exceeding its needs,” said RCA President and CEO Steve Berry, in a statement. “It is critical that these licenses are used to fully develop an LTE ecosystem throughout the Lower 700 MHz band.”
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