Verizon's Shammo throws cold water on licensing Dish's spectrum

Verizon Wireless (NYSE: VZ) does not feel a need to strike a deal with Dish Network (NASDAQ: DISH) to get access to its mid-band wireless spectrum, according to a senior Verizon executive. The comments from Verizon Communications CFO Fran Shammo at an investor conference could cool speculation that a deal for Verizon to lease Dish's airwaves is imminent.

Fran Shammo Verizon CFO

Shammo

Speaking at the Wells Fargo Securities Technology, Media & Telecom conference, Shammo noted that Verizon paid $10.4 billion to acquire a trove of mid-band AWS-3 spectrum at an auction that ended in January. Verizon won a total of 181 licenses in the AWS-3 auction covering 192 million POPs, or around 60 percent of the population. However, Verizon refrained from getting AWS-3 spectrum in markets like Chicago and New York City, where it felt the prices were too high.

"If I wanted more spectrum I would have bought it in the auction," Shammo said.

Dish's designated entities (DEs), in which Dish holds an 85 percent economic stake, agreed to give up around a third of the paired AWS-3 spectrum licenses they won earlier this year in the auction -- mostly spectrum licenses covering Boston, Chicago and New York. Shammo said that Verizon might re-bid for those licenses when the FCC re-auctions them, which might be in late 2016 or in 2017.

Verizon saw that it would need to pay $6 billion to get AWS-3 spectrum covering the New York and Chicago metropolitan areas, Shammo said. Those prices were too high, so Verizon walked away and has decided to densify its network in those markets and add capacity through the deployment of small cells and distributed antenna systems (DAS). "I can build the same capacity for $1.5 billion," he said.

"Why would I go out and buy spectrum and be held hostage by a third party? It makes no sense to do that," Shammo said. He noted that historically spectrum was cheaper than adding capacity through network gear like small cells, but that formulation was flipped in the AWS-3 auction.

Some financial analysts, including those at New Street Research, have said given that Verizon's LTE data traffic has grown 75 percent in the last year, it will face a spectrum shortfall in the next few years, one that could be remedied by getting access to Dish's spectrum. Shammo dismissed those concerns and noted that Verizon only has around 40 percent of its spectrum deployed for LTE services and can still refarm its 1900 MHz PCS and 850 MHz cellular spectrum for LTE.

Shammo noted last month on Verizon's third-quarter earnings conference call that the carrier still has "a sizable 4G upgrade opportunity" and can shift customers off its CDMA network to its LTE network. At the end of the third quarter, Verizon still had roughly 15 million feature phone and nearly 7 million 3G smartphone customers remaining in its postpaid connections base of 105 million.

"We have plenty of runway for capacity purposes," Shammo said. "So I'm not in a situation where I have to be held hostage by anyone to pay anything for spectrum."

Shammo said Verizon will decide in January whether to register as a bidder for next year's incentive auction of 600 MHz broadcast TV spectrum but indicated, as he has in the recent past, that Verizon is more interested in higher-band spectrum for capacity since its main LTE network already runs on 700 MHz spectrum, which has similar propagation characteristics to the 600 MHz band.

"This [600 MHz] spectrum is unique for some but not for all," he said. "It'd be nice to have but not an absolute priority like AWS-3."

Shammo also touched on Go90, Verizon's over-the-top mobile video service, which launched to subscribers of all carriers in October. He noted that Verizon will be ramping up marketing for it as Black Friday approaches and said the launch has gone well but that it's still too early to discuss how many users the service has. Those kinds of metrics will likely come in April 2016, when Verizon reports its first-quarter results, Shammo indicated.

Go90 has more than 10,000 titles and its main differentiating factor from services like Netflix and Hulu is that it is full of live content, including National Football League games and concerts, he said. He also noted that DreamWorks Animation's AwesomenessTV has created three exclusive shows for Go90, which is primarily aimed at millennials. However, he said Go90 will be adding more features and content over time.

The service is advertising-based, and Shammo said Verizon can deliver granular segments of users to advertisers -- 18-24-year-olds in New York City, for example. Advertising is built into the app, which is appealing to marketers since the ads cannot be blocked. Shammo acknowledged that companies like Facebook (NASDAQ: FB) and Google's (NASDAQ: GOOG) YouTube are going after the same audience with their advertising but said Go90 is very appealing to advertisers. "It's an audience they're not getting to today," he said, adding that the app can let advertisers "more strategically advertise to demographics."

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Related articles:
Verizon and T-Mobile remain steady wireless network spenders in Q3, with less clarity on AT&T and Sprint
Verizon teams with NBA to bring exclusive content to Go90 video service
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
Analysts: Dish could strike a spectrum deal with Verizon or a perpetual leasing agreement
Verizon adds 1.3M postpaid subs in Q3, sees jump in EIP adoption in shift away from smartphone subsidies

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