Verizon Auctions Spectrum — With Conditions


Verizon Wireless faced a firestorm of criticism
last week after proposing to auction off a large swath
of its wireless licenses, while at the same time clinging to the
claim that the industry
is in the thrall of a spectrum

The top U.S. cellular
carrier last week said
it would auction off its
700-Megahertz A and B
spectrum on the open
market. But the sales,
which would raise billions
of dollars for Verizon
Wireless and
free up huge chunks of
spectrum in dozens of
major cities across the
country, come with a

The auctions would
only take place if two
separate deals win approval
from federal
regulators — Verizon’s
December agreement
to purchase AWS spectrum
licenses from
SpectrumCo, the consortium
of cable operators
Comcast, Time
Warner Cable and Bright House Networks, for $3.6 billion, and
its $315 million deal to buy additional AWS licenses from Cox

That condition spurred several public-interest groups to accuse
Verizon of hoarding spectrum and using the auction as a
carrot for the federal government to approve the cable deals.

“This sale demonstrates that Verizon has, in fact, warehoused
spectrum, and the company will likely profit handsomely
from this spectrum-speculation strategy,” Free Press
research director Derek Turner said in a statement. “Verizon
does not need cable’s spectrum.”

Public Knowledge legal director Harold Feld called the
auction a ploy by Verizon to gain approval for the Spectrum-
Co and Cox deals, which
are still before the Federal

“Verizon is trying to
use the mere offer of a
spectrum sale to tempt
the FCC and the Justice
Department into approving
the deal with
the cable companies,”
Feld said. “And the
agencies should resist
the temptation.”

In a research note,
Sanford Bernstein cable
and satellite analyst
Craig Moffett wrote that
the 700 MHz auction
could signal that Verizon
believes it is close to
receiving approval for
the AWS spectrum and
anticipates the deal will
come with conditions.

“The Verizon announcement
that the FCC will use
SpectrumCo deal approval
as a vehicle for making policy,” Moffett wrote. “And that
policy is likely to take the form of spectrum caps that, by extension,
can be applied to other carriers as well (read: AT&T).”

On a conference call with analysts to discuss its first-quarter
results, Verizon Communications chief financial officer Fran
Shammo denied any ulterior motives for the sale.

“We did not just wake up yesterday and decide we were going
to sell spectrum because we ran into a roadblock at the
FCC,” he said. Verizon is “still very confident” that the AWS
deals will receive approval
from the FCC
and Department of Justice,
he said.

He explained that the
AWS spectrum is very
efficient from an “overbuild
perspective” on
the capacity of the Verizon
Wireless LTE
platform, particularly
in the East. The auction
of the 700-MHz A
and B blocks is contingent
on the approval of
the AWS spectrum sale
“because, obviously, we
would need this spectrum
if that is not approved,”
Shammo said.

Verizon Wireless
said it would begin the
process of soliciting interest
from potential
buyers to ensure the
process can move forward
quickly once the
license transfers have
been completed.