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No spectrum for competition: Why Ivan reversed
Written by Dave Burstein   
Sunday, 11 April 2010 11:17
Ivan Seidenberg shocked D.C.saying "I don't think we'll have a spectrum shortage," when tens of millions of dollars of Verizon lobbyists have been screaming for a year "the Commission must act to identify and allocate additional spectrum for wireless services." From Verizon's point of view, Ivan is right. They don't need more spectrum for most of a decade and probably longer. For the next 5-7 years, they couldn't even use the spectrum in any major way. The limit on what they will build is technology (LTE is not quite ready) and capital spending (which they are cutting.)
     Ivan has a damn good reason to be dubious about more spectrum: it might go to competitors. No incumbent likes that. As it is, Verizon and AT&T are becoming more and more dominant in wireless. More spectrum for others might change that, or force Verizon to cut prices to prevent losing customers.
Verizon paid $35B for Alltel, largely to get rid of a competitor about to go national. That was at least $10B more than the assets were worth to anyone but an incumbent.
     Verizon is currently committing $billions to indirectly put pressure on the smaller U.S. operators such as Leap and Metro PCS. I get fine Verizon voice service for $12/month via Verizon's deal with Tracfone prepaid because I'm not a heavy user. Verizon is undercutting their own customer base by allowing that as such a low price, even cheaper than Tracfone part-owner AT&T would offer.
     There's no money in the Tracfone deal;  Ivan acknowledges "the wholesale market for us is a very small piece of our total and the prepaid piece for us is a smaller piece." The only logical reason for Verizon to play this game is to annoy the prepaid companies that have been nibbling at the edge. Verizon for several years has played cartel enforcer, cutting prices as necessary to discipline Sprint. In the short run, this can be costly. Verizon is willing to take the long view and forego profits to handicap others. They seem to be suceeding; Craig Moffett writes "And that brings us to the question of a merger. The national roaming agreement between Leap and Metro reduces the impetus for a merger… but the additional costs associated with Leap's new national pricing plan virtually necessitate one."

     Canada, Mexico, France and most other nations are reserving spectrum for new entrants. Personally, I like competition and think that would be a good thing. The economics of scale in telecom mean the spectrum may not be enough to make new entrants viable in the U.S.. AT&T and Verizon now have enormous scale and therefore much lower costs, which may be too much to overcome. It's hard to analyze. Ivan's shareholders presumably don't want to face that risk.

      More competition is a major goal of the Obama team, because they are afraid of using direct government power. Less than two months after Obama was elected, it became clear freeing more spectrum would be the administration's primary tool. I wrote Obama's Unbelievable But True Wireless Plans back in December 2008. "Doubling available spectrum is practical and top of agenda for Obama's tech people." This wasn't precognition. Kevin Werbach on the transition team had been writing since the 1990's that freeing spectrum should be central to policy. Transition team colleague Susan Crawford (now a University of Michigan professor) had blogged similar several times. Whomever they chose for the FCC would almost certainly support competition through expanding wireless spectrum. 

      Ivan is ferociously competitive. Also very smart.