AWS Buys Will Help Verizon Address Spectrum Crunch, Mead Says

"There is no disputing the fact that there is a looming spectrum crunch,” Mead said. “The FCC estimates that the industry demand for mobile data by 2015 will be 25-50 times greater than in 2010, and the FCC also predicts that if additional spectrum is not available in the near term mobile data demand will likely exceed capacity by 2014. This is certainly the experience of Verizon Wireless.” The company is paying several billion dollars to buy more than a hundred AWS licenses from four cable operators.

Verizon Wireless will need more spectrum in “some markets” by next year and in “many more” by 2015, and can’t wait for spectrum to be sold in an FCC voluntary incentive auction of broadcast spectrum or a possible auction of government spectrum, Mead said. “To manage the coming spectrum crunch we've deployed new hardware and new software technologies that make more efficient use of our spectrum and we've reached into the secondary market both to buy and to sell spectrum."

"Everyone in the room” is familiar with Verizon’s proposed buy of AWS spectrum from the cable operators, Mead said. “That spectrum is not in use today, but will be put to use by Verizon Wireless quickly to expand the capacity on our LTE network.” Verizon looks forward to a decision by the Justice Department and the FCC by mid-summer, he said. Mead also noted Verizon’s promise to sell its 700 MHz A and B block licenses if the AWS deals are approved. The decision to sell the 700 MHz licenses “clearly indicates we're not interested in warehousing spectrum,” he said. “No one is forcing us to sell those licenses. ... We believe both of these initiatives demonstrate we're responsible stewards of these high-value and extremely costly assets. These initiatives are signs of a healthy secondary spectrum market, a market that is sorely needed given the looming spectrum crunch."

Spectrum’s “an industry issue,” Mead said when Cramer asked him about it. “In the case of freeing up government spectrum, making sure that the incentive auction process is efficient, there are a couple things the government can do,” Mead said: “But there’s a tremendous amount of unused [spectrum] owned by private companies and getting that in the hands” of carriers that will use it “is one of the things we can do as an industry.” Mead defended Verizon’s spectrum portfolio. “We don’t have the most spectrum,” he said. “We have the most efficient use of spectrum."

Hesse had little to say about the Verizon/cable deals, instead focusing on what he sees as a key industry issue: Growing lack of public trust in the wireless industry. Hesse cited results of a recent survey by the Reputation Institute, which found the wireless industry’s reputation is now the lowest of any major industry. “That’s a bummer,” he said. “It’s both, obviously, disappointing and it’s very troubling.” The wireless industry’s “Achilles’ heel is trust and reputation,” he said. Cramer later asked Hesse about the survey results. “I was surprised by the information and the data,” Hesse said. “I don’t think it’s deserved, I just think we have to do a better job of marketing ourselves. There’s a lot that we're doing to improve the industry’s reputation in areas like cybersecurity, what we've done in green, what we've done in distracted driving.”

Hesse also noted that international wireless penetration can be a major indicator of whether challenges to authoritarian regimes will fail. “If you look at Tunisia, there’s about 100 percent cellphone penetration, Egypt about 90 percent,” he said. “Now they're having trouble in Syria, it’s about 60 percent.” Totalitarian North Korea only has about 4 percent penetration, the lowest rate in the world, he said. “The privileged are the only ones that have cellphones and they're not the ones who are going to want to upset the apple cart."

Philipp Humm, CEO of T-Mobile USA, said T-Mobile is back after last year’s failed deal. “We had nine tough months under the pending AT&T deal, as you can imagine, but now we are back with a reinvigorated challenge strategy and brand to return T-Mobile to growth,” Humm said: T-Mobile wants to be known not only for affordability “but also for cutting-edge 4G technology."

Another deal likely isn’t in the cards, Humm responded to a question from Cramer. “There is no second AT&T deal around the corner,” Humm said. “We are looking at different options to strengthen our balance sheet, to strengthen our financial position, it’s well known that we are looking at the alternative of potentially selling some of our towers, so we're looking at different strategic alternatives.” T-Mobile saw some clear negative effects from being locked in its failed merger with AT&T last year, Humm conceded. “That being said, we have been quite successful in the meantime winning market share in quite a lot of areas."

Data demands will continue to increase, Humm said. “It’s our job as an industry to deliver products and plans that can sustain that growth,” he said. “The need for spectrum is urgent, given it takes a while for new spectrum to be auctioned and put to use.” Humm noted that T-Mobile is already “refarming” much of its 1.9 GHz spectrum for 4G data. T-Mobile has emerged as a key opponent of the Verizon/cable deals, but Humm had little to say on that. Instead, he closed his presentation by showing a new commercial that went on the attack against AT&T, questioning whether the latest version of the iPhone is too slow.

AT&T Mobility CEO Ralph de la Vega, who went last, tied together comments by Hesse and the T-Mobile commercial. “That’s why this industry has a bad rap, is because we take the truth and we stretch it,” he said. “When a third party tested our network in nine markets, we had the fastest LTE in the country. I think we each try to put our best foot forward and in doing so it confuses the customer.” PC World recently labeled AT&T’s 4G LTE network “the fastest network in the country despite what anybody else says,” de la Vega said. All four nationwide U.S. carriers are investing in their networks and most have announced plans to roll out 4G, he said. “I am confident that we're going to have the speed that our customers need.”

Customers want more than speed and want new products as well, de la Vega said. He predicted that the biggest trend of the next year will be more use of mobile commerce. “I think it’s time for the smartphone to replace the wallet,” he said. “Mobile payments and mobile commerce I think are going to flourish next year."

De la Vega highlighted AT&T’s recent announcement of Digital Life, a home automation and security platform which will be offered as a professionally installed system through the carrier’s stores and through AT&T.com. Users will be able to install security cameras, window and door sensors, automated door locks, thermostats, smoke and carbon monoxide detectors, and power control. FCC Chairman Julius Genachowski toured AT&T’s Digital Life house in New Orleans’ Garden District Monday, de la Vega said. Verizon rolled out a similar home monitoring and control package last year. “When people actually see this application and they see it in action, the wow factor is very, very high,” de la Vega said.

De la Vega was asked by Cramer about one of the big questions raised at CTIA -- whether equipment makers like Apple are gobbling up too much of the industry’s profits (CD May 9 p9). “Apple is a friend,” de la Vega said. “If you look at our margins before we launched the iPhone in 2006, our margins were 36 percent and our churn was 1.5 [percent],” he said. “Fast forward to this past quarter our margins are 41.6 [percent] and our churn is 1.1 [percent] and the lowest we have seen in seven quarters.”

Top executives from Spotify, Mozilla, Visa and Electronic Arts discussed at a Wednesday session how their companies are making use of mobility. “All things are mobile,” said CTIA President Steve Largent. “You cannot overestimate the impact wireless technology is having on American life. It’s changing how we interact with each other, how we do our jobs and how we entertain ourselves. It’s raising the bar on how we expect to access information."

Spectrum is critical, Largent said, citing a recent study by Recon Analytics which looked (CD May 2 p14) at projected economic and job growth if another 500 MHz of spectrum is reallocated for commercial use. New spectrum “would mean a lot to the industry too,” Largent said. “Recon estimates it would increase wireless service providers by $96 billion, wireless device by $22 billion and wireless application and content sales by more than $13 billion. Those numbers should have everyone’s attention and they highlight the importance of new spectrum.” The study (http://xrl.us/bm6tzm) was commissioned by CTIA. Getting more spectrum in the market “is one of our primary missions at CTIA,” Largent said.