17 Comments

Summary:

Yesterday, Verizon emailed us their statement about the 700 MHz wireless auctions, and the idea of open networks and the whole auction process as proposed by Google, Frontline and other technology companies. Verizon calls them The Google Block. Essentially, they want Interent-styled rules, something Verizon doesn’t […]

Yesterday, Verizon emailed us their statement about the 700 MHz wireless auctions, and the idea of open networks and the whole auction process as proposed by Google, Frontline and other technology companies. Verizon calls them The Google Block. Essentially, they want Interent-styled rules, something Verizon doesn’t view too favorably.

Steve Zipperstein, vice president and general counsel of Verizon Wireless in a testimony urged the Congress “to resist calls for so-called “open access” regulation, and to ensure a fair an open auction of the 700 MHz spectrum.” Given the amount of money Verizon gives as political contributions that shouldn’t be hard. (PDF)

Open and fair auctions, in which any company can participate on equal footing, historically have provided the best value for Americans. Since the first spectrum auction was conducted, billions of dollars have been added to the U.S. Treasury enabling programs that benefit all Americans.

Verizon essentially called the Google Block (with their very own special interests) a bunch of whining babies, and “Auction winners should be determined by market forces and by supply and demand.” In other words, let us bid, buy and bottle this section of the spectrum. What’s a few billion dollars for ensuring control over broadband access, and making those FiOS investments pay-off!

The sad bit is that, in this war of words, consumer interests are being put last. Here is a little rider to their suggestion: how about we put some penalties in the auction process.

The bidders have to submit a complete financial plan, how much they are going to charge and specific dates when the network is going to be launched. Failing to do so, there is a penalty of $5 million a day for service delays or non-use of spectrum. At $1.5 billion a year, no incumbent can afford to buy-and-forget about this spectrum.

That’s not good enough, how about simply leasing the spectrum, as someone suggested in our comments section. It is a better investment for the government over the long term, and basically keeps all players – incumbents or the Google block honest. It has worked in places that are as politically compromised as Washington DC.

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  1. Om, are you suggesting that VZ shareholders would let Verizon spend over 10% of its market cap on spectrum and then sit on it?

  2. Probably, as new technologies could erode the other 90%.

  3. I was thoroughly insulted just reading VZ’s comments on Martin’s “openness” yesterday. The obvious see-through was VZ’s attitude of just give us the spectrum and everything will be fair. As if were idiots.

  4. Anything that will open up the carriers’ networks will spur innovation, competition and ultimately benefit us, the public. Today new technologies and services die because they cannot gain access to the carriers’ networks and handsets are locked down. The real tragedy in the 700 MHz auction is the the designated entity status for small businesses is essentially dead. We can all thank Counciltree for that. One note to Om’s article is that there are strict build out requirements for spectrum winners in 700 MHz.

  5. Jeff,

    while there are buildout requirements, i am suggesting lets go one step forward. penalties. that should get everyone moving, regardless of who it is.

  6. Tom,

    this spectrum bid they are going to make is basically going to be not that outrageous for verizon – they will buy it, sit on it, and when everyone has gone home, they will built another tightly controlled network. Which basically means that they might end up with two of the three broadband pipes.

  7. PhoneDifferent Thursday, July 12, 2007

    Congress, FCC Roundup

    Man, when a story hits the rounds, it really hits the rounds. It’s Congress vs. Carriers vs. Apple iPhone vs. Unlocked vs. 700MHz spectrum vs. Google vs. FCC, and we’re in the eye of the storm. Man, that’s a…

  8. Here is what I understand so far:
    1. 22Mhz is to be set aside in the lower (COngested) bands of the 700Mhz spectrum for Shared or Open Access.
    This is to be made available for the Local and regional providers to bid on as well as some set aside for the public Safety folks.
    2. That leaves 38Mhz in the premium Upper Band of the spectrum for the Nationwide Heavies to bid on-which means VW, AT&T and possibly some others with deep pockets (hopefully Google & partner will use their deep pockets to challenge these big carriers for the spectrum). Google needs this Last Mile Pieces to dominate the Access and Content/Apps market.

    FCC/Fed need the auction $$$ (bet it will exceed $20Billion) so they will allow this 38Mhz to go to a major player.

    Google vs. Verizon Wireless will be the game.

    VW will not sit on the spectrum but will use it nationwide to support (side by side)their EV-DO Rev A (+) cell net which needs to off-load their Narrowband data efforst to something that would deliver a real Broadband service. They cannot afford to allow a 3rd party to win this spectrum because it will force them to revert back to providing a robust Cell voice service.

    Verizon FiOS network will not be impacted by this acution, in that Fiber is far to robust (100Mbps to 1Gbps)and flexible (CATV/Data & Voice) to be challenged by a 3-10 Mbps wireless link into a home.

    Jacomo

  9. A pure financial analysis would show Verizon couldn’t sit on it for long. At the currently projected bid price, controlling the 700 Mhz spectrum would increase Verizon’s debt by 60%. Call Dave Barden (BoA Securities) or Mike McCormack (Bear Stearns) and ask them what parking the spectrum would do to the price of VZ. My guess is the completely new management team would put it to use very quickly! (Don’t disagree with your point that it would be a closed network.)

  10. 2 points -

    No one who builds a network will allow “open access” as the pricing will ensure that RoI is -ve. Why doesn’t GOOG publish its Page Rank alogorithm and allow its server farms to be used “open” by everyone..The Silicon Valley group wants open as long as its not them opening up…The resistance to Linux is well know…We dont even have a open source document format that is used all over….

    The whole concept of GOOG building a network for $3-4B is BS. To get a comparable network like VZ (even in 700MHZ) is a $10-12B excercise at least…

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