Verizon has clearly studied everything AT&T did wrong last year when it tried to acquire T-Mobile. That includes staying alert for early signs of trouble and taking preemptive moves to keep the course of approval running smoothly. It also includes showing grace under fire rather than trying to browbeat the FCC into submission. To head off concerns about the growing “spectrum gap” between Verizon (and AT&T) and its competitors, Verizon has offered to sell its Lower 700 MHz A&B block licenses in a private auction if the FCC grants the application to transfer the AWS-1 spectrum to it from Spectrumco.
At the same time, Verizon also insists that it is doing this of its own free will and not because the FCC is making it do so or because it has run into any trouble. As I will explain, I believe Verizon is telling the truth. The 700 MHz A&B block licenses Verizon promises to auction to competitors is not nearly as useful to it as the AWS-1 spectrum it will get from Spectrumco and Cox. Given that everyone has extolled the virtues of the 700 MHz spectrum as the most important, game changing super-duper useful for mobile broadband spectrum in the entire universe, and since the licenses in question do cover some major markets, that no doubt comes as a surprise to many. Indeed, rather like the stereotypical used car salesman offering to swap your beat up lemon for his hardly ever driven luxury cream puff, this offer looks too good to be true. Why would Verizon want to swap Magic Elixir 700 MHz spectrum for Totally Awesome But Not Magic AWS-1 spectrum?
Below, I give a run-down of my guesses as to why Verizon decided to make a preemptive offer to divest when so many experts opined this would sail through without serious problems. I also explain why, despite the real virtues of the 700 MHz spectrum, Verizon has good reason to want to ditch these licenses (and was already starting to sell them off before the Spectrumco deal). Finally, I’ll explain why, IMO, this doesn’t address the fundamental problems of the VZ/Spectrumco deal because (a) it doesn’t address the side agreements that make this look like the formation of a cartel; (b) for reasons I have explained at length before, AT&T is the most likely winner of any “private auction” Verizon will hold; and, (c) even if AT&T were excluded from getting the licenses, the Spectrum Gap will actually be worse, not better, as a result of the transaction.
In chess terms, Verizon is offering to sacrifice two pawns to gain a queen. Hopefully, the FCC will resist the invitation and avoid a Fool’s Mate for competition.
Because this ended up being rather long, I’ve divided it into three parts. Part I explains how the spectrum situation changed dramatically in just a few months, so that concern about the Spectrum Gap, the difference in spectrum between the two largest providers and all other wireless providers, came to have such increased significance in the FCC’s thinking. This prompted Verizon to make public what it already planned to do, ditch the 700 MHz A&B blocks, despite the fact that this leaves them open to accusations of spectrum warehousing during the pendency of the Spectrumco/Cox deal.
In Part II, I explain why AT&T will likely win the licenses (a conclusion others have reached as well), absent some condition by the FCC to keep AT&T out of the private auction (which I consider politically unlikely). Part III explains why, even if AT&T were excluded from the private auction for Verizon’s Lower 700 MHz A&B licenses, it still would aggravate the spectrum gap. Since the transaction would make competition worse off post-transaction (and fail to address the whole ‘cartel’ thing), the FCC should still deny the application for transfer.
More below . . . .
