With a customer base of more than 40 million subscribers and nearly 500,000 new customers added each month, Verizon Wireless has firmly established itself as the leading wireless carrier in the country. If it can maintain that growth through the rest of the year, Verizon should be neck-and-neck with a combined Cingular Wireless L.L.C./AT&T Wireless Services Inc. as the nation’s largest carrier. But in order to sustain that growth, Verizon Wireless has had to get additional spectrum.
This month alone, Verizon Wireless has pledged nearly $1.5 billion on spectrum and network infrastructure through a pair of deals: the carrier acquired Qwest Communications International Inc.’s wireless assets in 14 states for $418 million and paid nearly $1 billion for 10 megahertz of spectrum in New York during NextWave Telecom Inc.’s recent auction. The Qwest deal, which many analysts claimed Verizon Wireless received for a bargain price, included 10 megahertz of spectrum in a number of top markets in the West and Midwest covering more than 30 million potential customers and already-installed CDMA infrastructure. Likewise, the additional 10 megahertz of spectrum in New York was a fraction of what Verizon bid for similar spectrum during the Federal Communications Commission’s failed Auction 35.
Combined, these two deals cover more than 50 million potential customers in 11 of the nation’s top 100 markets as well as 1.5 million new pops that Verizon Wireless’ extensive network did not serve. While the carrier said it was comfortable with its network capacity prior to the recent deals, additional spectrum is always welcome.
“Spectrum is the raw material of our business and we need to make sure we have enough to support our needs for both current and future growth,” said Verizon Wireless spokeswoman Nancy Stark.
While July has been an active and expensive month for Verizon Wireless, the carrier has a history of large spectrum acquisitions to go along with a number of smaller deals that have enabled it to continue to support its rapidly growing customer base.
Last month, Verizon Wireless acquired 10-megahertz spectrum licenses covering 1.1 million pops in the Arkansas Basic Trading Areas of Little Rock and Pine Bluff from American Wireless Licenses Group L.L.C. for $7.75 million. That deal followed a relatively quiet 2003 in which Verizon Wireless announced only a handful of smaller spectrum acquisitions covering more than 400,000 pops in Pennsylvania, Virginia, New Hampshire and Vermont.
The relatively tame 2003 was preceded by an active 2002, in which Verizon Wireless spent $750 million for NorthCoast Communications L.L.C.’s 50 PCS licenses covering 47.4 million pops in 14 top 100 markets, including New York, Boston and Minneapolis. That year the company closed its $1.7 billion acquisition of Price Communications Corp.’s Southeast network, which included 500,000 customers and covered 3.4 million pops.
The acquisitions don’t include Verizon Wireless attempt to pick up 113 PCS licenses covering 150 million pops for more than $8 billion as part of the FCC’s Auction 35.
“I think for them they are finding that spectrum is cheap right now and they might as well get it at these prices while they can,” said Tole Hart, senior analyst of mobile communications at Gartner.
In total, Verizon Wireless has managed to add precious capacity in a number of top markets where it previously controlled much less spectrum than its smaller competitors, including an additional 20 megahertz in New York and Minneapolis, and bumped its total spectrum holdings in the nation’s top 50 markets from an average of 28.4 megahertz to nearly 31 megahertz over the past several years.
Verizon Wireless has also gained spectrally efficiency through its CDMA 1x deployment, part of the $4 billion spent annually maintaining and upgrading its network. Verizon management said that has helped reduce network capacity issues by providing up to twice the voice capacity using the same spectrum.
Hart noted that in addition to supporting growing voice capacity needs, Verizon Wireless’ spectrum acquisitions should help the carrier support its CDMA2000 1x EV-DO network rollout, which should provide customers with data throughput speeds in excess of 300 kilobits per second at the expense of some voice capacity.
“I think they were probably able to spectrally support the DO launch in most markets, but the additional capacity should lessen the burden on the network,” Hart added.
Verizon Wireless’ spectrum portfolio is set to grow again early next year as the FCC is scheduled to auction off spectrum licenses that were returned by NextWave earlier this year, as well as a number of additional licenses that are still sitting fallow. Those licenses include a number of markets where Verizon may have to add capacity in order to continue on its current growth curve as well as some market in which the carrier does not currently control any spectrum.
While Verizon Wireless would not comment specifically on its future spectrum acquisition plans, Stark did note the carrier is always looking at ways to bolster its holdings if the price is right.
