Verizon Executive Dismisses Spectrum Hoarding Fears

Milch cited his company’s low-band spectrum, hailed by the smaller carriers, saying Verizon did not “outmuscle” anyone for that auction-bought spectrum. “They didn’t participate,” he said of T-Mobile. He also questioned whether low-band spectrum is really the boon the smaller carriers made it out to be, noting how T-Mobile earlier this week had touted its strength in urban areas due to its mid-band spectrum. “A lot of this depends on what we need at the time,” Milch said of the value of different spectrum to carriers.

Lee had cited the possibility of “spectrum hoarding” and whether bigger carriers may try to “box out others” in their purchase of spectrum. The Justice Department raised the issue in a filing to the FCC last April, spurring denials then of any hoarding intentions (http://1.usa.gov/1mHMD5q). The question has been vigorously debated as regulators and lawmakers consider spectrum aggregation limits in the design of the broadcast incentive auction, slated for mid-2015. Earlier in the hearing, Lee said, “We must be careful around any antitrust analysis” absent evidence that any carrier is actually “hoarding spectrum.”

One central focus of the hearing was on the market power of Verizon and AT&T and the question about what is real competition. Sen. Amy Klobuchar, D-Minn., chaired the hearing and asked T-Mobile Vice President-Federal Regulatory Affairs Kathleen Ham about recent quarterly losses and whether T-Mobile could stay competitive for the long haul. In her opening statement, Klobuchar had hailed T-Mobile as a recently reemerged “maverick” providing new “vigorous competition” in recent months, as advertisements during the Super Bowl showed. But AT&T and Verizon still have 68 percent of subscribers and “dominant” market power, Klobuchar said.

"T-Mobile’s the little engine that could,” Ham said, saying “we'll have to see in time” on its ability to stay competitive. “Right now we're doing our darnedest to compete.”

Ham had testified about the company’s “fundamental challenges that put at risk its ability to retain its disruptive presence in the marketplace,” with a smaller scale yielding smaller profit margins, lower cash flow and other shortfalls. Verizon and AT&T benefit in terms of equipment purchase, backhaul clout and low-band spectrum, she said. AT&T and Verizon have about 80 percent of low-band spectrum, Ham said, citing the influence of the broadcast incentive auction, which could be a game-changer for years.

Mobile Future Chairman Jonathan Spalter warned against “any special weight given [to] spectrum below 1 GHz.” Competitors seek spectrum above that, too, he said, instead urging a focus on consumer needs. Carriers should have “flexibility” in acquiring and using spectrum, Spalter said.

Stakeholders have become “too complacent and comfortable” with the idea of two dominant wireless players, which would not hold water in other industries like aviation, said C Spire Senior Vice President-Strategic Relations Eric Graham. He complained of stratification, with two giants, two metropolitan operators and then a few smaller carriers. C Spire’s challenges involve a clear pathway to latest devices, spectrum access and certainty on roaming, and with those dimensions covered, C Spire can “compete with anyone,” Graham said. He worries about an urban-rural divide because spectrum is not interoperable in the larger world of devices.

The rumored possibility of a T-Mobile-Sprint merger “likely would lead to a reduction in competition,” with the market going from four players to three, said Free Press Policy Director Matt Wood. He said the “jury still out” on that possible merger, with no formal announcement of any sort. The wireless market shows “some signs of improved competition, especially when compared to other telecom sectors,” but affordable roaming rates and special access rates remain challenges for smaller players, Wood said, urging the FCC to do more about market concentration. He lauded the Justice Department’s blocking of the AT&T/T-Mobile deal and said the health of the wireless market comes “because of, not in spite of, well-timed oversight.”

But one panelist welcomed consolidation. “You certainly can see competitive markets with only two players,” said Roslyn Layton, a doctoral fellow with Aalborg University’s Center for Communication, Media and Information Technologies. “It’s very difficult to be the third or fourth carrier.” She’s vice president of Strand Consult, which represents 170 mobile providers.

Verizon’s Milch deflected concerns that the market isn’t competitive enough. “Last year alone, the wireless carriers invested $34 billion in their networks,” Milch said, noting that figure’s several times higher than elsewhere in the world. “It’s one of the characteristics, I believe, of a competitive market that you” have all this investment in order to compete. He cited “deep rivalry among the carriers” and efforts to attract customers. Verizon has more than 50 data roaming agreements, he said, also noting how cable companies are involved in the business of backhaul. “Between January and September 2013, telecommunications companies spent almost $7 billion on advertising, an 11.7 percent increase over the same period in 2012, and during a period when other consumer segments’ advertising spends were decreasing,” Milch testified (http://1.usa.gov/1bMxIC4). “These fierce marketing spends reflect the competitive struggle for wireless customers through a wide range of devices, applications, voice and data plans, as well as other innovative services."

The witnesses were generally receptive to the idea of a kill switch requirement, as Klobuchar has proposed in cellphone theft prevention legislation introduced earlier this month. “We are eagerly awaiting secure and free kill switch capabilities from other phone manufacturers,” Milch said. “We don’t want an instance where it’s a hackable kill switch.” But Verizon is “actively engaged” with app developers and manufacturers “to bring forward these options,” he said. T-Mobile’s Ham said, “We share your goals.” C Spire’s Graham mentioned general support for the initiative.

Klobuchar said one of takeaways from the hearing is that there are “still challenges, particularly where it comes to rural areas” and that more proposed mergers and acquisitions would deserve attention. “Any further consolidation will naturally raise concerns” and have to pass a “high bar,” Klobuchar said.