Verizon's Shammo: The 'philosophy that Verizon is spectrum short is just false'

Verizon (NYSE: VZ) CFO Fran Shammo is fighting back against the notion that Verizon is rapidly running out of capacity on its wireless network. Speaking today at an investor conference, Shammo said that only 40 percent of the carrier's total spectrum assets are currently being used by its LTE network technology, which he said indicates the carrier still has enough network capacity to continue to grow.

"We are extremely efficient the way we deploy spectrum," Shammo said. "I still have 60 percent of a spectrum capacity sitting out there [using CDMA/EVDO network technology] that I can move in time [to LTE] to create capacity within my network without really spending any additional money on spectrum. So this philosophy that Verizon is spectrum short is just false. We have plenty of spectrum."

Shammo explained that, until recently, the cheapest way for a wireless carrier to add capacity to its network was through purchasing new spectrum. And he pointed out that Verizon continues to do that; the carrier purchased $10.4 billion worth of spectrum licenses during the FCC's recent AWS-3 spectrum auction. But he said that, due to the rising cost of spectrum, it's now more financially efficient for Verizon to improve its network capacity by refarming its spectrum to the more efficient LTE technology, and also by densifying its network.

"You need to densify that network," Shammo explained, noting that Verizon continues to see 50-75 percent increases in data usage on its network every year. "We don't see that slowing in the near term."

Shammo said Verizon will continue to densify its network by deploying small cells, in-building wireless systems and diversified antenna systems to meet consumer demand. "You have to stay ahead of that demand or else you're going to get congestion in your network, especially in cities like New York and Chicago and LA."

Nonetheless, Shammo confirmed Verizon would participate in the FCC's upcoming 600 MHz incentive auction of TV broadcasters' unwanted spectrum. But he said 600 MHz is mostly useful for covering large geographic areas rather than improving network densification in urban areas, and he said Verizon already has extensive geographic coverage through the 700 MHz spectrum it purchased in the FCC's 700 MHz spectrum auction in 2008.

"There are places I could use it [600 MHz] but there are a lot of places I can't," Shammo said, noting Verizon wouldn't purchase 600 MHz spectrum in urban areas like New York City, for example.

Shammo's comments on Verizon's network capacity situation are notable in light of a recent report from New Street Research that states Verizon only has half the network capacity it will need by 2020. "While Verizon has touted small cells as an alternative, small cells only carry about 1/3 the capacity of a macro site, and the company would need to roll out over 80,000 small cells in just the top 25 markets to maintain the current QoS [quality of service]; this would present a significant cost and a significant network planning challenge," the New Street analysts warned in a new report on network capacity in the wireless industry. The firm essentially argues that Verizon will need to purchase additional spectrum or shed millions of customers in order to maintain its current network quality.

Shammo isn't the only one disputing New Street's position. TMF analyst Tim Farrar recently argued New Street's network capacity calculations are based on "a completely flawed premise." Specifically, Farrar noted that New Street's analysis doesn't take into account a range of factors including the efficiencies carriers may gain from deploying new technologies like LTE-U and more powerful MIMO technologies.

Apart from Verizon's network situation, Shammo also commented on Comcast's plans to test wireless services sometime in the second quarter of next year, and the prospect in general of the cable industry competing directly with wireless players. "Cable companies are going to enter the wireless world," Shammo predicted. "We just have to be prepared to deal with that."

Shammo was also questioned about Yahoo, which is reportedly planning to sell some of its Internet technologies and services. "I think it's way too premature to talk about Yahoo," Shammo said without providing any further comments. Verizon has been rumored to be interested in purchasing Yahoo's assets.

Finally, Shammo also said Verizon expects that fully 70 percent of its new customers in the fourth quarter will select its equipment installation plans, but he said that figure will never reach 100 percent because Verizon's enterprise customers don't purchase phones through those plans.

For more:
- see this Verizon webcast

Related articles:
Analysts debate whether Verizon will run out of network capacity
Verizon is running out of spectrum but could get escape hatch by leasing Dish's airwaves, analysts say
Verizon's Shammo: We'll be in the 600 MHz auction, but more interested in high-band spectrum like AWS
Verizon's Shammo: We don't have a 'great need' for 600 MHz airwaves, remain focused on small cells

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