FCC wants to know if Verizon is warehousing spectrum

The U.S. Federal Communications Commission is curious why Verizon Wireless(s vz)(s vod) bought a bunch of 4G spectrum back in 2008 but now plans to sell it, just because some better airwaves have come along. In a letter to Verizon, FCC Wireless Bureau Chief Rick Kaplan asked Verizon some pointed questions about its proposed sale of A-block and B-block 700 MHz licenses, and though he never mentioned the word “warehousing,” that was the certainly the direction his queries were heading.

Verizon is trying to buy the cable operators’ Advanced Wireless Service licenses, which would give it a near nationwide footprint of airwaves for an LTE overlay to complement its current 4G network at 700 MHz. To sweeten the pot and gain regulators’ permission for the buy, Verizon has offered to sell off its spare airwaves in the 700 MHz band to other operators.

Carriers like T-Mobile and Sprint, along with a slew of consumer advocacy and telecom industry groups, have criticized the deal, claiming Verizon is merely trying to lock up the most valuable 4G airwaves in the market in order to keep them out of its competitors hands. The implication here is that Verizon locked down the A and B blocks, and now that much more valuable AWS frequencies are in play, it will do the same with the cable operators’ licenses.

In the letter (pdf), Kaplan points out that under the terms of the 700 MHz auction Verizon is required to build networks in the A and B blocks by no latter than June of 2013, yet it appears to have done nothing with those licenses. He asks:

“…what steps to date, if any, has Verizon Wireless taken to deploy mobile services using the Lower 700 MHz A of B block licenses (either or both)? On what timetable has Verizon Wireless been planning to deploy mobile service in these Lower 700 MHz blocks?”

Kaplan also wanted to know why the sale of those 700 MHz licenses was contingent on it grabbing the cable AWS spectrum. The FCC wants to how that’s relevant, if Verizon had tried to sell its extra 700 MHz licenses in the past, and whether Verizon truly plans to abandon the spectrum sale if the cable deal isn’t approved. Kaplan wants answers next Tuesday.

Verizon is in a tricky situation here. Those A and B block licenses don’t fit well into its LTE plans for multiple reasons: the goofy configuration of the 700 MHz band, the fact that they don’t form a nationwide footprint and interference concerns in A block. When Verizon bid on them and won them in 2008, it probably wanted them as insurance – or to keep them out of AT&T’s hands. It was hoping something better would come along, and it did — in the form of nice big gift-wrapped package of clean nationwide airwaves delivered by its new cable buddies.

The truth is that operators pull these kind of warehousing shenanigans all the time. AT&T(s t), Verizon and the cable companies haven’t done squat with the AWS licenses they won them in 2006. But you don’t actually admit to your regulator that warehousing is what you planned to do along. It got Comcast(s cmsca) in trouble a few months back. Now the FCC is asking Verizon the question directly, and a lot hinges on Big Red’s answer. If you’re trying to convince the FCC to approve a spectrum sale, it’s not a good idea to tell them you have been a lousy steward of the public airwaves so far.

Photo courtesy of Flickr user Mark Strozier