700 MHz Auction Observations: Verizon (Part I)

Verizon (VZ) was the most successful in the 700 MHz auctions by utilizing a multi-pronged strategy to secure a superior spectrum position for the foreseeable future and positioning themselves to be in a position to control their own destiny regarding the industry trend towards open networks.

While AT&T (T) completed its objectives in the recently concluded 700 MHz auctions in filling out its spectrum holes, Verizon deserves kudos for the shrewdest, most comprehensive and successful auction strategy.

1. C Block Wins: Recognizing that they lost the political battle for the open access provision for the C block to Google (GOOG), Verizon won the entire C block that covered land in the continental U.S. for nationwide coverage, so that it controls how quickly it and and the wireless industry will evolve to open networks. Verizon can slow roll or fast roll, depending on whatever strategy they choose, their financial means, or competitive threats. Either way, to use a poker analogy, they have the high hand around the table, it's their bet and their fate is in their own hands regarding open access.

2. A and B block wins: For capacity augmentation for the following highest density cities / regions: Chicago, Los Angeles, Florida, Texas, and the DC through Connecticut corridor.

3. Make the Competition Pay: Lastly, as noted at Wireless Strategy:

One last tidbit: It was interesting to find that a whopping 73% of AT&T's winning bids in the B block were placed in Rounds 26 and 27. This is significant because Verizon placed their last bids on A and B licenses in Round 26 in order to start their acquisition of the C block in Round 27, so it's quite clear that Verizon's strategy was a significant contributor to the high cost of AT&T's winnings.

Indeed, per this RCR Article:

The average price per megahertz/potential customer covered for the entire C Block was $0.76 [which Verizon dominated]. The B Block’s average price per MHz/pop was $2.68, according to Optimal Markets Inc. According to Verizon Wireless, the carrier paid $1.03 per MHz/pop, compared with the auction average of $1.20.

Good job, Verizon -- Achieve your objectives and force your opponents to pay more to achieve theirs.

Disclosure: Author holds no position in VZ or T; he holds a long position in S.

Comments

[User 186405]

You are absolutely correct. They are positioned not for the next year but for the next few years.