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NEW YORK – Verizon Communications CEO said he is not taking sides on whether AT&T should be allowed to buy T-Mobile USA, but he thinks that if the deal is blocked, the U.S. government needs to find ways to get more spectrum in the market. He also said he is not worried about more competition from a potential Sprint iPhone.
Speaking at a Goldman Sachs investor conference here Wednesday, Lowell McAdam, Verizon’s CEO said that his company hasn’t taken a stance in the debate whether AT&T should be allowed to buy T-Mobile. AT&T announced its plans to buy T-Mobile in March for $39 billion. But the U.S. Department of Justice sued AT&T last month to block the deal, stating that it would harm consumers to lose one of the four major competitors in the wireless market. AT&T has vowed to fight the DOJ in court. Sprint Nextel, the No. 3 wireless carrier in the U.S. has been among the most vocal opponents to the deal.
But Verizon, which owns the largest wireless carrier in the U.S. and is AT&T’s biggest rival, has remained silent on whether it feels the U.S. should block the deal. Still, McAdam said that the outcome of the pending court case needs to be closely watched. Verizon hasn’t shown a desire to acquire additional players in the market, but what the court ultimately decides could affect future consolidation in the market, which Verizon is likely to be a part of.
“Our view has been to stay on the sidelines and see what happens in the DOJ case,” McAdam said. “Then we will take a position. While we are all for free markets, we need to be very thoughtful in how this impacts the market. And we need to see whether this is a way that the government is regulating the industry without actual regulation.”
But McAdam hinted that the company is likely to favor the acquisition. And he explained that from an economic standpoint that the merger made perfect sense for each company. And he said that if the merger is blocked because of concerns over competition, the government needs to address the fundamental issue of spectrum in other ways.
“AT&T buying T-Mobile is like gravity,” he said. “It had to occur. T-Mobile has spectrum, but no capital. And AT&T has the capital but needs the spectrum. If the government wants to stop this merger, it needs to get more spectrum out on the market.”
Wireless carriers, such as AT&T, say they need more spectrum over the long term to handle the growing demand for mobile data on smartphones and tablets. The wireless industry association CTIA has been pushing the Federal Communications Commission to find additional spectrum to be auctioned. The FCC has acknowledged that spectrum is an issue, and it said its National Broadband Plan that it will plans to find 500MHz of spectrum over the next decade to free up for auction.
Verizon has said previously that it has enough spectrum to support its wireless network through 2015. McAdam said that the company has been working in the secondary markets to acquire whatever additional spectrum it might need in the near term. And even when the day comes when the company needs more spectrum, he said he feels like the company is in a good position, because it will likely only need additional spectrum in specific markets.
“Even if we see high levels of adoption of data that we have forecast, high usage will mostly be in certain cities,” he said. “So we can go in there with a rifle to pick off spectrum in specific markets, rather than take a shot gun approach.”
McAdam said he has been talking to the FCC’s Chairman Julius Genachowski about the spectrum issue. And he suggested several things he thinks the FCC can do to free up spectrum, which includes getting approval from Congress for incentive auctions that will allow TV broadcasters to sell unused spectrum licenses. He also said that the FCC needs to help facilitate the secondary spectrum market, which allows companies that may have bought spectrum in previous auctions to sub-lease those licenses to others.
“There are a lot of companies sitting on spectrum from the AWS auction, but they can’t afford to build out the networks,” he said. “I’ve encouraged Genachowski to help facilitate a secondary market. It could be like a fantasy football or baseball draft where companies are able to trade spectrum.”
On other topics, McAdam also said that he is not worried about competition from Sprint Nextel, as the carrier is expected to announce its own version of the upcoming Apple iPhone, rumored for release next month.
“I have always been very pleased with our performance when we have a level playing field in the market,” he said. “So as we add another carrier to the mix with the iPhone, I won’t worry about it. I will tell you that about two years before we got the iPhone, we were rumored to be getting. So we’ll have to see what happens with Sprint. But if it does happen, I am not worried.”
