Verizon 'Likely' To Bid in Incentive Auction but Has Limited Need for More Low-Band Spectrum, CEO McAdam Says
Verizon is “likely” to participate in next year’s TV incentive auction, CEO Lowell McAdam said Thursday at the Goldman Sachs Communacopia Conference in New York. That message was marginally more positive than comments Chief Financial Officer Fran Shammo made in July during an earnings call, in which he said only that Verizon had yet to make any decisions (see 1507210042). But McAdam also warned Thursday that the 600 MHz spectrum is less valuable to Verizon than the mid-band spectrum it bought in the recently concluded AWS-3 auction. He also downplayed any likelihood Verizon will make a play for Dish Network.
Sign up for a free preview to unlock the rest of this article
Communications Daily is required reading for senior executives at top telecom corporations, law firms, lobbying organizations, associations and government agencies (including the FCC). Join them today!
Verizon’s 700 MHz spectrum “gives us what we need,” in low-band, McAdam said during an interview with Goldman Sachs analyst Brett Feldman. “I liken good spectrum management to building a wedding cake. And when you got that strong base of 700, you are really well set. Having a second base isn’t as valuable as building the tiers in the higher spectrum.” The mid-band AWS spectrum “is clearly more interesting to us, but depending on the price per megahertz POP you may take something that’s not quite as ideal and you may use it,” McAdam said. “It just really depends on how the auction goes.” Verizon was the top bidder in the 2008 700 MHz auction and the No. 3 bidder in the AWS-3 auction.
McAdam also stressed, as Shammo did in July, that the rules of the incentive auction are critical. As the rules “are clarified, we will be able to clarify our position,” he said. McAdam stressed the importance to the carrier of its small cell deployments to keep up with capacity demands, especially for video over its wireless network. Verizon has deployed small cells “in every major urban market, Chicago, San Francisco, many, many places in New York City,” he said. Video makes up 60 percent of Verizon’s wireless traffic and that is likely to move toward 90 percent, McAdam said. “We will always need more spectrum.”
McAdam was asked by Feldman if Verizon is interested in buying Dish, with its extensive spectrum holdings. AT&T recently wrapped up its buy of Dish satellite-TV rival DirecTV. Dish CEO Charles Ergen “has built a great business,” McAdam said. But purchase of the company isn't consistent with Verizon’s business plan, he said. Dish “can be a great business, but it doesn’t need to be part of Verizon,” he said. “We have had discussions about how we can provide [Ergen] megabytes and he could pay for it with spectrum,” McAdam said. “But to get the spectrum by buying the entire company isn’t something that we are interested in.”
McAdam also said he expects the IoT to become increasingly important, driven by intelligent cities, healthcare, driverless and connected cars, and a smarter electricity grid. “Investors should expect to see the connections on the network go up dramatically,” he said. “You can do a lot of these connections even with 2G or 3G. But when you get to 5G, that opens up even more” because of improved latency and throughput.
"When you look at how much spectrum Verizon has converted to LTE over the past two years, it’s hard to believe that they won’t be active bidders in the incentive auction," BTIG analyst Walter Piecyk told us. "The real question is how much competition they will have beyond AT&T and T-Mobile."
“Verizon is a critical anchor on the buy side, so McAdam’s comments are encouraging for broadcasters and the auction itself,” said Paul Gallant, analyst at Guggenheim Partners. “But he’s clearly not committed to jumping in, given his preference for mid-band and the possibility of doing a spectrum deal with Dish.”
Richard Bennett, network architect and visiting fellow at the American Enterprise Institute, said that he doesn't expect Verizon to be a major player in the incentive auction, but that it will buy the 600 MHz spectrum to fill coverage gaps and “to acquire some trading chips.” Verizon/Dish is “intriguing but impractical, given Verizon's FiOS investment, for any purpose but reducing TV license fees,” Bennett said.
“Mr. McAdam just confirms what other wireless experts have said for a long time -- lower-band spectrum is not per se more valuable,” said Roger Entner, analyst at Recon Analytics. “At the same time, the insatiable hunger of Americans for wireless services will in all likelihood compel operators like AT&T, T-Mobile, and Verizon to participate. If Verizon could come to terms with Dish for using its spectrum, Verizon could in one swoop gain access to more spectrum than it could win in the incentive auction. At the same time, knowing [Dish's] Mr. Ergen, this is a big if.”