Critics Pan Verizon's Proposed Spectrum Sell-off

Resale of Verizon Wireless's 700 MHz licenses could sway regulators to sign off on carrier's proposed partnership with cable companies, but plenty of groups are crying foul.

Critics of all stripes gave a cool reception to the plan Verizon Wireless announced on Wednesday to sell off a portion of its spectrum holdings in the coveted 700 MHz band, provided that federal regulators approve the carrier's proposed deal with leading cable companies to purchase a set of spectrum licenses and forge a marketing partnership.

Under the new proposal, Verizon would sell off its licenses in the A and B blocks of the 700 MHz band if the cable deal clears regulatory review. Under that arrangement, Verizon would acquire an array of so-called Advanced Wireless Services (AWS) spectrum licenses from a group of cable operators, which it would combine with its 700 MHz C block holdings to build out its nationwide 4G wireless network.

The Department of Justice and the Federal Communications Commission are currently reviewing Verizon's proposed spectrum transactions with SpectrumCo, a joint venture of Comcast, Time Warner Cable and Bright House Networks, and Cox and Leap Wireless, a process the carrier said it expects to conclude around the middle of this summer. Since the FCC and the White House have thrown their weight behind policies to free up spectrum for mobile broadband, and the 700 MHz spectrum Verizon is proposing to sell is often referred to as "beachfront property" for its strong propagation characteristics, the new proposal could sway regulators to sign off on the cable deal.

"We believe the move should facilitate Verizon Wireless winning DoJ and FCC approval of the AWS spectrum transaction, which we already had thought was likely," said Christopher King, an analyst with Stifel Nicolaus. "By putting its 700 MHz band lower A and B block licenses on sale, Verizon could ease potential regulatory concerns about its concentration of spectrum holdings, though there could be concerns that AT&T would be the main buyer."

Verizon acquired the A and B block regional licenses that it is now proposing to resell in the DTV auction the FCC held in 2008 to shift spectrum that had been used for analog television transmissions to advanced wireless deployments.

Verizon billed the proposed sale as an effort to "rationalize" its spectrum holdings, but representatives of television broadcasters and small carriers were quick to accuse the nation's largest carrier of hoarding spectrum while at the same time lobbying federal authorities to make more of the airwaves available under the pretense of scarcity.

"Today's proposal by Verizon to sell reallocated broadcast TV spectrum involves airwaves in the largest urban markets in America that it purchased more than four years ago," Dennis Wharton, executive vice president of communications for the National Association of Broadcasters, said in a statement. "The fact that it has warehoused this 'beachfront property' raises the fundamental question of whether a spectrum shortage actually exists."

Wharton's group has been a consistent critic of the wireless industry's efforts to press policymakers to shift spectrum from television broadcasters to the carriers, and has fought against any proposal that would pressure its members to give up their licenses. Earlier this year, Congress passed legislation authorizing the FCC to conduct auctions to resell broadcast licenses to wireless providers, giving the TV stations that participated a portion of the revenues, but the NAB won significant safeguards to ensure favorable operating conditions for broadcasters that remain on the air.

Verizon's latest spectrum proposal has also drawn criticism from groups that broadly support freeing up more spectrum for wireless broadband, but oppose the carrier's deal with the cable companies and generally warn against consolidation and anti-competitiveness in the mobile and broadband Internet sectors.

"There is less than meets the eye to Verizon's spectrum sale. At the end of the day, Verizon and the cable companies will still have created a cartel in which Verizon will rule the air for wireless broadband and cable will offer the only widespread true high-speed landline Internet services," said Harold Feld, legal director for the consumer advocacy group Public Knowledge.

"Verizon is trying to use the mere offer of a spectrum sale tempt the FCC and the Justice Department into approving the deal with the cable companies, and the agencies should resist the temptation," Feld added, suggesting that AT&T, Verizon's biggest rival, would be a likely buyer.

But even if AT&T were kept out of the bidding, the resulting capacity that smaller carriers might gain would do little to alter the competitive balance, he said. "At the end of the day, however the Verizon sell-off turns out, the gap between the biggest companies and the rest of the industry would grow and the competitive world would shrink even more. Consumers would again be the losers."

The Rural Cellular Association, a trade group, also weighed in with concerns about Verizon's proposed sell-off, echoing both the broadcasters' accusation of spectrum hoarding and the advocacy groups' warning about the anti-competitive implications of the cable deal.

"This announcement confirms what RCA has said: Verizon has developed a spectrum warehouse exceeding its needs," RCA President and CEO Steven Berry said in a statement.

"Selling its Lower 700 MHz A and B block licenses is not sufficient to resolve competitive concerns in the industry," Berry added. "Further, Verizon's announcement increases RCA's concerns with the pending cable transactions, including access to usable, LTE-ready spectrum and access to commercially reasonable roaming and backhaul arrangements. These deals require strict scrutiny, enforceable conditions helping to restore the competitive marketplace, and divestiture in markets where the transfers are not in the public interest."

Verizon, for its part, defended its resale proposal, touting the widely acknowledged value of the 700 MHz band.

"Since wireless operators, large and small, have expressed concern about the availability of high-quality spectrum, we believe our 700 MHz licenses will be attractive to a wide range of buyers," Molly Feldman, vice president of business development for Verizon Wireless, said in a statement.

Kenneth Corbin is a Washington, D.C.-based writer who covers government and regulatory issues for CIO.com.

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