Verizon Willing to Sell Some of 700 MHz Spectrum

Verizon already owns the 700 MHz C-block, which it would keep. Purchase of the SpectrumCo and Cox licenses would give it a dominant position in that chunk of the AWS-1 band as well, doubling the AWS spectrum the carrier already has in some markets, as well as a near national footprint, industry officials say. The announcement came less than a week after Verizon Wireless officials met with FCC General Counsel Austin Schlick, Wireless Bureau Chief Rick Kaplan and others at the agency to discuss the spectrum deals, which were unveiled in December.

"Since wireless operators, large and small, have expressed concern about the availability of high-quality spectrum, we believe our 700 MHz licenses will be attractive to a wide range of buyers,” said Molly Feldman, vice president-business development for Verizon Wireless. “Moreover, provided our acquisition of AWS spectrum is approved, our open sale process will ensure these A and B spectrum licenses are quickly and fairly made available for the benefit of other carriers and their customers.” Verizon announced it was working with Little Rock, Ark.-based Stephens Inc., a “nationally recognized, independent financial services firm,” that will manage the sale of the licenses on the secondary market.

Verizon is not offering any concessions or “trying to make some larger political point,” said spokesman Ed McFadden. “If the FCC approves our pending purchase of spectrum, we will have other spectrum to sell. We are simply making that known and beginning the process for selling it. It’s that simple. The announced plans are in line with our network strategy to anticipate customers’ needs and build ahead of demand."

The 24 A-block licenses cover 152 million POPs and 589,000 square miles, the 54 B-block licenses 48 million POPs and 329,000 square miles, McFadden said. Verizon Wireless agreed in December to pay about $3.6 billion for 122 AWS licenses from SpectrumCo (CD Dec 5 p1), a venture of Bright House Networks, Comcast and Time Warner Cable, and later to pay another $315 million for 30 AWS licenses from Cox Communications. The licenses cover some of the larger markets in the U.S.

Critics of the Verizon/cable deals were quick to takes shots at the Wednesday announcement. Neither AT&T nor T-Mobile offered comment Wednesday.

"My thinking is they met with the FCC and the FCC said, ‘We have a problem. You're probably going to have to give up some spectrum,'” said one competitive carrier official. “You're not using your lower 700 MHz spectrum and you need to do something about that.” The official said if the FCC approves the sale of the AWS licenses, Verizon could offer handsets with chipsets that take in only its CDMA voice network, plus the 700 MHz C-block and its part of the AWS band, possibly side stepping any 700 MHz interoperability mandate. “It’s a very strategic move,” the official said. “They've essentially recreated the bifurcation of 700 MHz, but now they've done it with AWS.” A second competitive carrier official said Verizon has been shopping around parts of the spectrum for some time: “I would say the government shouldn’t take the bait here.”

"Verizon is being very smart and very strategic,” said Public Knowledge Legal Director Harold Feld. “They have read the vibe over at the FCC that, with no new spectrum in the pipeline, spectrum concentration concerns are heightened. They also know that the FCC and competitors have focused on 700 MHz spectrum as uniquely valuable. In what Steve Jobs would call an aikido move, they take the chief objection and flip it. … But if you drill down past the surface and look under the hood, it becomes clear that Verizon has lots of reasons to dump the A and B block spectrum.”

Verizon faces build-out benchmarks for the spectrum and the lower A block is subject to interference from TV Channel 51 as well as AT&T’s converted Qualcomm spectrum, Feld said. “Both the A and B block are likely to be subject to an interoperability requirement, whereas Verizon’s C block in the Upper 700 is not.” Most importantly, he said, “the large blocks of AWS spectrum it will get from SpectrumCo fits its LTE architecture better than the scattered 6 MHz pairs of the A & B block. From Verizon’s perspective, this is much like selling off its more rural lines to FairPoint and Frontier. It’s getting rid of stuff you no longer want at a profit."

"Until today’s announcement, Verizon denied that it was hoarding spectrum. This sale demonstrates that Verizon has in fact warehoused spectrum and the company will likely profit handsomely from this spectrum speculation strategy,” said Free Press Research Director Derek Turner. “The undeniable truth is a disproportionate amount of the country’s most valuable spectrum is concentrated in the hands of Verizon and AT&T, who enjoy market shares that dwarf other sectors of the American economy.” The Verizon statement doesn’t address the marketing agreements between Verizon and the cable companies also unveiled in December, the Communications Workers of America said. “The heart of the deal remains unchanged,” CWA said. “We cannot allow historic competitors to become partners through a marketing and joint venture agreement."

"Selling its lower 700 MHz A and B block licenses is not sufficient to resolve competitive concerns in the industry,” said Steve Berry, president of the Rural Cellular Association. “In light of this announcement, the FCC should be more focused than ever on ensuring an interoperability requirement in the lower 700 MHz spectrum.”

"The B-block licenses are likely attractive to AT&T, which is building 4G on the 700 MHz B-block,” UBS said in a research note. “Sprint and MetroPCS could also be interested.”

Stifel Nicolaus analyst Chris King predicted there will be industry interest in the spectrum Verizon proposes to sell. “We believe the move should facilitate Verizon Wireless winning DOJ and FCC approval of the AWS spectrum transaction, which we already had thought was likely,” King said. “By putting its 700 MHz band lower A&B block licenses on sale, Verizon could ease potential regulatory concerns about its concentration of spectrum holdings, though there could be concerns that AT&T would be the main buyer.”

NAB said the announcement raises larger questions about carriers’ claims they need more spectrum. “Today’s proposal by Verizon to sell reallocated broadcast TV spectrum involves airwaves in the largest urban markets in America that it purchased more than four years ago,” a NAB spokesman said. “The fact that it has warehoused this ‘beachfront property’ raises the fundamental question of whether a spectrum shortage actually exists.”