Verizon Wireless Responds to Kaplan Questions on 700 MHz Deals

Verizon Wireless explained in the letter (http://xrl.us/bm86bo) it bought 102 Lower 700 MHz A and B block licenses and has already sold 24 “to eight small and regional providers.” On the remaining licenses, Verizon “has taken a number of steps to prepare to use those licenses including [radio frequency] system design, site construction planning, and discussions with vendors,” the letter said. “In all markets covered by these licenses, three phases of the initial RF system design have been completed: identifying cell sites for development, selecting configurations of antennas, and determining center height requirements for the antennas. In most areas, the final phase of the RF system design, determining backhaul requirements for the selected cell site locations, has also been completed.” Verizon said it has completed deployment budgets for most of the markets and planning on site construction has been underway since last year.

Kaplan also asked about Verizon’s evaluation of the A and B blocks. “First, we have explained that the Lower 700 MHz A and B bands are not as good a complement to our existing spectrum holdings as is the AWS spectrum that is the subject of this proceeding,” Verizon Wireless said. “The Lower 700 MHz band requires an additional duplexer in each device because of the spectral distance between the Upper and Lower 700 MHz bands, and this is particularly challenging because it is more complex to add an additional duplexer that operates below 1 GHz.” Verizon also cited Channel 51 concerns and FCC rules that “require A Block licensees to avoid interference to adjacent full power TV Channel 51 operations and that set exclusion zones which limit A Block licensees’ ability to deploy service within certain distances from a Channel 51 station."

Verizon provided details on various discussions it has held since 2009 on the possible sale of the A and B block spectrum, but those details were mostly redacted from the public version of the letter.

Kaplan also asked whether Verizon Wireless would necessarily abandon its plans to sell the 700 MHz spectrum if the AWS transactions are not approved. “Verizon Wireless has demonstrated that it needs the AWS spectrum resources to meet its customers’ growing demand for mobile broadband services, and has made the sale of the Lower 700 MHz A and B block licenses expressly contingent on approval of the AWS purchase,” the carrier said. “Should the Commission not consent to the sale of substantially all the AWS licenses to Verizon Wireless, the Company would have re-assess all available options to meet its customers’ needs."

Joel Kelsey, Free Press policy adviser, said in response to the letter that the proposed sale of A and B block licenses is “more about politics than competition.” Free Press opposes the Verizon/cable transactions. “Verizon currently holds enough spectrum to launch a 20 x 20 LTE Advanced Network that could reach the overwhelming majority of Americans,” Kelsey said. “No other carrier even comes close to having this much unused spectrum. In the markets where Verizon currently holds AWS licenses, it has no urgent spectrum need. Its strategy is to corner the 4G spectrum market, and its tall tales about capacity issues are simply a tool to help it achieve that goal."

"Verizon Wireless doesn’t explain why they need the AWS spectrum before it can sell off the rest of its 700 MHz Lower A&B Block,” said Public Knowledge Legal Director Harold Feld. “By its own admission in the letter, it was already spinning these off to other carriers. ... The best way to read this letter is: ‘Hey, we overbought in 2008 because we didn’t know how we were going to build out our network. Now that we no longer need these Lower 700 MHz licenses, we're selling them off.’ That’s a reasonable thing to do, but that also means that Verizon will still sell off its remaining Lower 700 MHz licenses even if the FCC says no on SpectrumCo and Cox."

Verizon is confident the SpectrumCo and Cox deals will be approved by regulators, Chief Financial Officer Fran Shammo said during the Barclays conference Wednesday. Meanwhile, LTE enables more pricing plans than 3G and could potentially enable subsidized content data plans, Shammo said.

There’s no indication that anything has changed since the FCC extended the review period for the spectrum deal, Shammo said. The FCC tacked three weeks onto its review of the spectrum purchase. With the three-week delay, a decision is expected before early August, Shammo said. The company continued to work with the Department of Justice on its review of the deal, he said. The deal is on track, he said. Shammo noted the company recently tapped investment bank Loop Capital Markets to help it manage the proposed sale of its 700 MHz lower A and B Block licenses (in exchange for getting regulatory approval). “It’s not a fire sale. This is a fair market value sale,” he said. There would be plenty of interested buyers, he said. If the spectrum deal gets approved, Verizon would have sufficient spectrum beyond 2015, Shammo said. The carrier could also re-appropriate its 3G spectrum to 4G, he said. Combining with the efficiency from the 700 MHz spectrum, Verizon should be “in a pretty good shape,” he said.

LTE for rural areas is a niche market for Verizon, Shammo said. The company recently launched its HomeFushion wireless broadband. It’s an option for customers who can’t get broadband or with slow speeds, he said. “The market size right now is about 10 million homes,” he said. But as the carrier continues its LTE buildout, the market would expand, he said. The product isn’t a replacement for broadband in the urban area, he said. The company is bundling its other services with HomeFushion, he said.

Verizon is working on offering data sharing, which allows multiple devices to be connected to Verizon’s network under an existing data plan, Shammo said. Customers would have plenty of choices on data service but they will have to give up their existing unlimited data plan if they want data sharing, Shammo said. LTE allows carriers to price data in various ways, he said. Shammo suggested that LTE even allows carriers to help shift the bandwidth cost away from the consumers. He envisioned a plan that allows content providers to pay for usage of their applications and services thereby keeping those apps and videos from counting against a user’s allotment of data.