RCA: Verizon warehousing 44 MHz in some markets, doesn't need more

Critics of Verizon Wireless' (NYSE:VZ) planned $3.9 billion acquisition of AWS spectrum from cable companies used a Senate hearing to assail Verizon's chief rationale for the deals: that it needs more spectrum to cope with a looming capacity crunch for its LTE network. Executives from Verizon Communications and Comcast defended the deals by arguing that they will not harm competition and that the added spectrum will improve Verizon's service.

In December Verizon agreed to pay $3.6 billion for the nationwide AWS spectrum licenses held by SpectrumCo, a joint venture of cable companies Comcast, Time Warner Cable and Bright House Networks. Separately, Verizon said it will buy Cox Communication's 20 MHz of AWS spectrum covering 28 million POPs for $315 million. Verizon has spent the past few months defending the deal, arguing that without the spectrum its LTE network will begin running out of capacity in some markets by 2013 and in many more spots by 2015.

However, Steve Berry, the president of the Rural Cellular Association, used his testimony at the hearing before the Senate Judiciary Committee's antitrust subcommittee to blast that logic. The RCA represents the interest of carriers with fewer than 80 million subscribers, including Sprint Nextel (NYSE:S) and T-Mobile USA--thus leaving out just AT&T Mobility (NYSE:T) and Verizon. Berry said Verizon's cable deals would have an "insidious and disastrous effect on competition."

"This transaction would transfer at least 20 MHz of prime, unused, and nearly nationwide spectrum into the hands of a carrier that already holds as much as 44 MHz of unused spectrum in many markets," Berry said in his testimony. "At the same time, many competitive carriers are approaching exhaustion of their current holdings. Verizon's dominant control over other critical market inputs, including wireline backhaul, roaming for both voice and data services, and monopoly control over access to cutting-edge, interoperable devices, exacerbates this problem."

Berry said that if the deals go through, the FCC must impose significant spectrum divestitures; commercially feasible provisioning of roaming; interoperability and the availability of interoperable devices; and affordable backhaul and special access services.

Timothy Wu, a law professor at Columbia University and a former chairman of consumer group Free Press, said the spectrum license transfers need to be examined in light of communications law and not antitrust law. "Spectrum belongs to the public, and it is the government's role to make sure their asset is being used properly," he said.

Verizon defended the deals as necessary. "It's critical that this previously unused spectrum be put to good use," Randal Milch, executive vice president of Verizon Communications, said during the hearing, adding: "We don't think we can engineer our way out of the spectrum crunch. More spectrum is necessary."

David Cohen, Comcast's executive vice president, said that the cable companies tried to sell their AWS spectrum to "just about everyone in the space," including T-Mobile, but that only Verizon was in a position to buy it, according to the Washington Post.

The deals also call for Verizon and the cable companies to be allowed to sell each other's services. The cable companies can also, if they choose, become MVNOs of Verizon. Critics at the hearing, including Sen. Herb Kohl (D, Wis.), the subcommittee's chairman, questioned those aspects of the deal. Kohl said it might amount to a "truce" between companies that were previously competing. 

Cohen defended the commercial agreements as benign. "The commercial agreements at issue here are ordinary and customary, market standard agreements. There is no merger here," he said. "Not one competitor will be removed from the marketplace."

For more:
- see Berry's testimony (PDF)
- see this WSJ article (sub. req.)
- see this Reuters article
- see this Washington Post article
- see this National Journal article
- see this The Hill article

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