Verizon: Play fair in wireless auctions, as long as VZ wins

17 Comments

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.

17 Comments

John Leibovitz

Chris, when you post these kinds of comments, it would be proper for you to disclose that your firm Capital Solutions is a paid consultant to Verizon Wireless and CTIA, just as I am disclosing right now that I am a co-founder of Frontline Wireless.

John

ck

i think google should buy vz and fire the ass of all these idiots!

Chris Parandian

“The truth of the matter is that Verizon and AT&T use less than half of the spectrum they own right now. Sure in big cities they may be using 90+%.” Exactly my point.

Once again, they cannot afford to sit on this spectrum. Success in the wireless business is critical to funding their larger fiber initiatives, responding to increased consumer demand and satisfying their shareholders.

Best, Chris

Jesse Kopelman

Those who claim Verizon can’t afford to sit on spectrum don’t understand what they are talking about. The truth of the matter is that Verizon and AT&T use less than half of the spectrum they own right now. Sure, in big cities they may be using 90+%, but head into rural areas and you will find <20% utilization. In the suburbs you tend to see right around 50% utilization. My claims come from actually going out with a spectrum analyzer to look at occupied spectrum as well as 6 years of doing frequency planning in markets like rural WV and ME as well as downtown Boston and Providence. Current build-out requirements are based on covered pops. This means you can cover only the most densely populated part of a license and still get credit for complete build-out. I’ve gone through this exercise in the past where by building one strategically located site, serving a few dozen highly populated square miles, the carrier got credit for building out a several hundred square mile license.

Morgan Warstler

Open devices. Open content. Leased access. it isn’t hard to do. Go look at the WCS spectrum auction and how screwed up it’s development has been – assuming thats the “sat on” spectrum historically.

The trick is to simply make 700Mhz a local extension of the internet – a license to sell wireless ACCESS to the Internet. Nothing more. Let web services have and handle the rest. Convnetional cell phone rates will plummet. Chaos.

My understanding is this is still going down geographically. So strategically, shouldn’t GOOG EBAY ETC just focus on buying the areas where Verizon is strongest? BID HIGH IN CONCERT on Verizon’s home turf?

Chris Parandian

Om,

Verizon can’t afford to sit on the spectrum… As a carrier successfully grows its subscriber base and doesn’t increase their spectrum position – the quality of their network will suffer (ask my old company AT&T Wireless). Furthermore, next generation services will require more bandwidth not less. Preventing wireless carriers from bidding to respond to demand only hurts consumers.

On a related note, the last time we saw strong conditions in an auction was the NextWave (C-block, PCS spectrum) auction back in 1996. NextWave defaulted on their payments the following year. The result of micro-managing that auction – prime spectrum benched for over 10 years stuck in litigation. Mr. Hundt created that debacle too.

Chris

http://www.mobilediner.com/

Sampath

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…

Tom Coseven

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.)

Jacomo

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

Om Malik

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.

Om Malik

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.

Jeff

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.

Rick

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.

Tom Coseven

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

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