Verizon: Refarming PCS spectrum won't be enough to meet LTE demand

Verizon Wireless (NYSE:VZ) said that refarming its 1900 MHz PCS spectrum for LTE service will not be enough to meet the growing mobile data traffic demands on its network, according to an FCC filing.

Verizon said that it will redeploy PCS spectrum for LTE "as soon as it is possible," but that "PCS spectrum cannot accommodate the dramatic growth in customer LTE demand and is instead needed to further supplement" the AWS spectrum Verizon is seeking to acquire from cable companies. The disclosure was part of a filing Verizon made defending its pending $3.9 billion purchase of AWS spectrum from SpectrumCo, a joint venture of cable companies Comcast, Time Warner Cable and Bright House Networks, as well as Cox Communications.

The arguments Verizon marshals in the filing are similar to ones the company made to the FCC earlier this year. Verizon expects the deal to receive regulatory approval by mid-to-late summer, and has offered to sell its Lower 700 MHz A Block spectrum--which it has said is less valuable than the AWS spectrum it wants to acquire--if it gets regulators to sign off on the deals.

In the filing, which is heavily redacted and was filed last week but just posted on the FCC's website, Verizon noted that it plans to redeploy PCS spectrum, currently reserved for its 3G CDMA network, beginning in 2015. The company said that at least a 5X5 block of PCS spectrum will be required to meet "service quality objectives" but that this spectrum will not be sufficient to meet LTE demand.

Many carriers, including T-Mobile and MetroPCS (NASDAQ:PCS), which oppose Verizon's AWS deals, have turned to spectrum refarming to help them increase capacity as they offer LTE services.

Verizon also noted that over half its capital expenditures go toward capacity enhancements for its network, but that cell splitting, small cells, LTE Advanced and Wi-Fi offloading will not be enough to cope with demand. Verizon said that LTE device activations and data usage is exceeding the company's previous forecasts (Verizon said in late April that it had 8 million total LTE subscribers, or approximately 9 percent of its postpaid base).

In December, Verizon agreed to pay $3.6 billion for the nationwide AWS spectrum licenses held by SpectrumCo. Separately, Verizon said it will buy Cox Communication's 20 MHz of AWS spectrum covering 28 million POPs for $315 million. All of the deals include the option of Verizon reselling cable services and cable companies reselling Verizon service. The cable companies can also become MVNOs of Verizon.

Both the FCC and Department of Justice need to sign off on Verizon's deals, which have attracted strong opposition from other wireless carriers. The Rural Cellular Association has said that if the deals are approved 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.

For more:
- see this FCC filing (PDF)
- see this separate FCC filing (PDF)

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