A Verizon executive told investors there is no wireless spectrum shortage in the United States and Verizon has historically purchased and warehoused spectrum it had no intention of using immediately.

Fran Shammo, chief financial officer of Verizon Communications, drew attention to Verizon’s controversial spectrum acquisition policy as part of a conversation with investors about the recent FCC auction that sold 65 megahertz of wireless frequencies for an unprecedented $44.9 billion, far and away the highest ever seen in a spectrum auction.

“In every purchase of spectrum up to this auction, the scale was that it was more efficient to buy spectrum than it was to build capacity because the scale was spectrum was cheaper to build on capacity,” Shammo said.

Before the auction, there were significant differences in Verizon Wireless’ network capacity in different cities. In New York City, Verizon controls 127MHz. In Los Angeles and San Francisco it manages with 107MHz, but only has 97MHz to work with in Philadelphia, San Diego and Chicago.

Verizon Wireless has always held spectrum it acquired at auction but never put into widespread use on its network. But bidding during the FCC’s most recent Auction 97 made bidding and warehousing unused frequencies an expensive proposition, more expensive than beefing up Verizon’s existing network with additional cell towers, microcells, and other technology to make the most use of existing spectrum assets.

“This auction flipped [our acquisition] equation in certain markets,” Shammo said in reference to Verizon’s bidding strategy. “And so we became much more diligent on what markets we strategically wanted and [which] we were willing to let go because when you looked at it, if I was to get what I wanted initially when I went in, I would have spent an extra $6 billion when I could create the same capacity with $1.5 billion by building it.”

In the most recent auction, Verizon Wireless considered spectrum acquisitions crucial in California, where it added frequencies in Los Angeles, San Diego and San Francisco. But Verizon gave up bidding on spectrum for densely populated New York and Boston where the asking price grew too high. That forces Verizon Wireless to increase the efficiency of its existing network in those cities. It will do so by deploying more cell towers to divide the traffic load, as well as adding microcells and other small-area solutions in high traffic urban areas.

Despite not getting everything it wanted, Verizon took the auction results in stride, claiming its network was fully capable of handling growing traffic loads even in areas where it failed to win new spectrum.

“People think that spectrum is the Holy Grail and if you don’t have enough spectrum, you can’t have the capacity,” Shammo said. “But actually that’s not true now because technology has changed so much. If you look at small cell technology, diversified antenna systems, and when you think [about] Chicago, if you walk down the street, you see small cells on lamp posts. So, the municipalities are starting to open up to that small cell technology.”

AT&T paid $18.2 billion for nearly 250 licenses, compared with $10.4 billion Verizon will spend on 181 licenses. The presence of Dish Networks in the bidding clearly irritated AT&T and Verizon, primarily because the satellite dish provider incorporated two “designated entities” — SNR Wireless LicenseCo and Northstar Wireless — as bidding partners, winning up to 25% off their bids as part of a “small business discount.” The two DEs won over $13 billion in licenses with $3 billion in savings.

AT&T accused Dish of circumventing auction activity rules and distorting the bidding.

“As a result, Dish the corporate entity won no licenses,” said Joan Marsh, AT&T’s vice president of federal regulatory matters. “The Dish DEs, who each enjoyed a 25% discount, won substantial allocations.”

Marsh complained Dish already controls around 81MHz of spectrum that remains unused for wireless telecom services.

Dish also made life difficult for large carriers who have learned to predict the likely bidding strategies of their competitors based on experience. Many were surprised Dish managed to both bid up prices and win a substantial percentage of spectrum, all for a wireless business it has yet to build.

T-Mobile was not happy either. CEO John Legere called the auction “a disaster for American wireless consumers.” T-Mobile suffered considerably in the auction, outspent by Dish & Friends 132 times for important wireless licenses.

“Three companies alone spent an insane $42 billion between them, grabbing a ridiculous 94 percent of the spectrum sold at this auction,” Legere wrote, referring to AT&T, Dish Network and Verizon Wireless. “This whole thing should scare the hell out of you and every other wireless consumer in the U.S., because there is another important auction next year, and the results have to be different if wireless competition is going to survive.”

With the auction over, Verizon Wireless will continue to shift its spectrum usage around to accommodate network changes. Verizon will continue to emphasize enlarging 4G LTE services while gradually reducing the percentage of its network used for other purposes. Verizon expects to shut off its CDMA voice network in the early 2020s and is reducing the amount of spectrum dedicated to supporting its legacy 3G network.

Could this be Comcast’s next target?

As Wall Street continues contemplating mom and dad at the FCC and Department of Justice calling off Comcast’s elopement with Time Warner Cable, some analysts believe Comcast will have to spend the money now burning a hole in its pocket on something.

“Given the strength of Comcast’s balance sheet and an insatiable appetite for acquisitions, we do not believe Comcast would be content with its existing portfolio (no different than after they failed in their 2004 attempt to buy Disney),” wrote Richard Greenfield from BTIG Research.

Greenfield has grown increasingly pessimistic about the Comcast-Time Warner Cable deal since realizing regulators were not going to follow the usual procedure of rubber-stamping approval with mild, short-term conditions to appease politicians. As President Barack Obama highlights telecommunications public policy in his second term, the cable industry (and broadband in particular) has come under unprecedented scrutiny and visibility in the press.

This winter, the FCC redefined broadband speed to mean a connection offering at least 25Mbps. That virtually eliminates DSL as a meaningful competitor, and would hand a combined Comcast/Time Warner Cable over 55% of broadband homes in the United States. The FCC’s approval of Net Neutrality and regulating broadband as a public utility led the audience in attendance to give a standing ovation to Chairman Thomas Wheeler and the two Democratic commissioners voting in favor of the policy change. The public sentiment is clearly against industry deregulation and unfettered deal-making, particularly when it involves Comcast, one of the most-loathed corporations in America.

Greenfield

Greenfield notes momentum is on the side of consumer groups fighting for Net Neutrality, oversight, and an end to cable industry consolidation.

Assuming Comcast’s deal with Time Warner Cable fails, what can Comcast spend its money on without running into a regulator buzzsaw?

Comcast could easily continue a mergers and acquisitions strategy if it avoids attempting to dramatically increase its cable footprint. For instance, Comcast could still choose to sell some of its less important cable systems to Charter Communications — already part of the proposed Time Warner Cable transaction — and make up that subscriber loss by acquiring Cablevision, which provides service in the important suburban New York City market. Of course, the Dolan family is notorious for not selling to anyone, and a considerable number of extended family members are employed as executives in the company.

Cable operators have returned to a strategy of hedging their content costs by spending billions to acquire content producers and sports teams in hopes of moderating their price demands. In the 1980s and early 1990s, large cable operators insisted on owning a piece of nearly every cable network shown on their systems. Today, having an ownership stake in the cable networks one negotiates with at contract renewal time is a helpful advantage.

Comcast has several attractive acquisition targets Greenfield believes it can consider:

• Time Warner (Entertainment): Not affiliated with Time Warner Cable, owning Time Warner (Entertainment) would gain Comcast important cable networks like TNT, HBO, and the Warner Bros. studio.
• Netflix: Acquiring one of the best assets cord cutters have might prove difficult with regulators in Washington, but buying the ultimate TV Everywhere experience could deliver a digital platform that puts Comcast’s own online content portal to shame. The deal would also come with the talent that made Netflix an international success. If Comcast were to acquire Netflix, it would combine a superior streaming platform with an enormous content library.
• Acquire online video content sites and producers: Linear live television continues to be challenged by an array of on-demand content and video clips from various websites like Vice — videos that could be further monetized by matching Comcast’s advertising sales team with online media.
• Next generation online video set-top box manufacturers: The traditional cable box is dead to a lot of subscribers who prefer the simplicity (and price) of Roku and other similar alternatives. Current cable boxes are huge, expensive, and simply lack the creative imagination of the competition. If Comcast can’t beat Roku, it could buy it.
• Buy Sprint or T-Mobile: Greenfield believes Comcast lacks a wireless component in its product lineup as consumers increasingly move towards portable devices. Comcast would be financially foolish to build a network from the ground up, so acquiring an existing one makes more sense. AT&T and Verizon Wireless are likely out of reach, but Sprint and T-Mobile are not. Both carriers’ parent companies seem ready to sell, if the price is right. Of the two, Sprint might be willing to sell first. Sprint’s owner — Japan’s Softbank — has discovered the United States is a huge country that can swallow up endless amounts of investment and still leave it saddled with a second-rate network.

Greenfield is only speculating and there are no indications Comcast is seriously considering a next move should the Time Warner Cable deal be killed in Washington. But it does signal Wall Street does expect Comcast to do something.

Charter Communications has quietly dropped usage caps and allowances from the company’s terms and conditions, once again giving Charter broadband customers unlimited access to the Internet.

Like Cox Cable, Charter almost never enforced their usage caps, which were specified as 100GB for its “base” service, 250GB for “Plus” and “Max” tiers and 500GB for “Ultra” service. Customers threatening to cancel service over usage cap matters were assuaged with a commitment by retention specialists that the caps were just a “guideline” and would not be enforced except in the most egregious instances of customer “overuse” of the Internet.

In place of the caps, Charter has returned to boilerplate language found in almost every ISP’s Acceptable Use Policy:

Excessive use of bandwidth that in Charter’s sole opinion, places an unusually large burden on the network or goes above normal usage [is prohibited]. Charter has the right to impose limits on excessive bandwidth consumption via any means available to Charter.

Customers routinely exceeding a terabyte of usage a month have never been contacted by Charter, so such usage apparently does not place a burden on their network. However, Charter also reserves the right to cut your speeds through “reasonable network management tools,” some that may now be forbidden by the FCC’s Net Neutrality policy:

Charter uses a variety of reasonable network management tools and practices consistent with industry standards. In the event the periods of congestion necessitate such management, Charter has available the following tools and practices (without limitation and as may be adjusted over time): (i) use of an upper limit of bandwidth allocated for uploading of files during congested periods; (ii) Subscriber Traffic Management (STM) technology to temporarily lower the priority of traffic with the greatest impact on peak congestion; (iii) spam filtering and detection techniques; and (iv) measures to protect the security and integrity of its network, resources and subscribers. In limited instances if employed, these techniques may affect the throughput rate at which subscribers may send and receive data, the ability of users to establish session connections within the network, or result in the delay of certain traffic during times of peak congestion.

Charter has “simplified” their Internet offers down to two for most customers: 60/4Mbps for Spectrum Internet ($59.99) and 100/5Mbps for Internet Ultra ($109.99). A source at Charter tells Stop the Cap! the company is conducting very limited trials raising speeds to 100/25Mbps for its base package and boosting its Ultra tier to 300/50Mbps, in case fiber competitors arrive. Those tests are not expected to become widespread however as the prevailing view at Charter is to wait until it deploys DOCSIS 3.1 and then raise speeds to 300/50Mbps for its entry-level package and 500/300Mbps for Ultra.

Starting in January, Charter began notifying its broadband-only customers it was raising prices $5 a month (from $54.99 to $59.99).

More than three years after Canadian regulators required Bell Canada’s northern subsidiary, Northwestel, to undertake a $233 million modernization and upgrade plan, the CRTC has ruled the company is overcharging consumers for Internet access and has ordered rate cuts.

Customers in Nunavut, the Northwest Territories and Yukon pay some of the highest prices in the world for DSL Internet access, more than three times higher than what comparable broadband costs in southern Canada. The CRTC has found those prices unjustifiable, especially after its 2011 finding that Northwestel enjoyed strong financial performance while chronically underinvesting in its network.

The CRTC decision requires the company to cut prices for its DSL Internet 5 (5Mbps/512kbps) and DSL Internet 16 (16Mbps/768kbps) in N.W.T. and Yukon by 30% this May. Northwestel’s budget plans DSL Internet Lite (768/128kbps) and DSL Internet 2 (2.5Mbps/384kbps) will be reduced in price by 10 percent.

Customers of Northwestel’s most popular DSL plans pay between $65-90 a month for 2.5 or 5Mbps service with usage caps of 40 and 125GB per month, respectively.

Customers will also no longer face a $20/month broadband-only surcharge if they don’t want landline service and Northwestel’s overlimit fee, now $2-3/GB in the Northwest Territories, will be cut by at least $0.50/GB.

“Although we recognize the exceptional situation that exists in Northwestel’s territory, we must not let these challenges hinder the development and affordability of telecommunications services in the North,” said Jean-Pierre Blais, the CRTC’s chairman, in a March 4 release. “Access to reasonably priced Internet services plays an essential role in the North’s economic and social development. With this decision, we are reducing the gap between what consumers pay for Internet services in the northern and southern parts of Canada.”

Because of the company’s past pricing practices, Northwestel will not be permitted to increase residential Internet rates until the end of 2017 at the earliest, and will need CRTC approval for any other rate increases.

Northwestel’s operating service area includes the Yukon, Northwest Territories, northern British Columbia and Nunavut.

Residents in the northwestern and north-central regions of Canada have complained for years about poor service and high prices charged by Northwestel for Internet access.

[flv]http://www.phillipdampier.com/video/CBC North Northwestel gets slammed in Whitehorse 6-20-13.flv[/flv]

Back in the summer of 2013, Northwestel was the subject of a CRTC public hearing that got heated after customers and competitors complained the company had a de facto monopoly. (2:53)

At a 2013 hearing, Blais heard from a number of angry residents upset about Northwestel’s performance.

“I know you are frustrated; we heard it from the interveners, but we’ve pushed things considerably,” Blais said at the time.

“The DSL package that I pay for out at Lake Lebarge is absolutely ridiculous in comparison to high-speed in town,” said Jeremy Jones. “[Northwestel charges] $90 for [5Mbps DSL with a usage cap of] 125GB. The only way to increase it would be to put in another phone line and second modem and that would have ended up being another $100+ per month. We’ve decided it is cheaper just to go over it if we need to.”

Customers are also frustrated by the fact the company receives over $20 million annually in federal subsidies, but those benefiting the most from Northwestel’s finances are its shareholders.

Native communities in isolated areas of northern Canada have learned it is better to build their own networks than wait for promises from Northwestel to be fulfilled.

The K’atl’Odeeche First Nation built its own fiber network on its reserve in Hay River, N.W.T. after Northwestel reneged on an agreement to improve existing DSL service. Today, the native community gets better Internet access than the rest of Hay River, and the community is willing to share their enhanced Internet connectivity with Northwestel for the benefit of others nearby if the company would agree to connect to it.

“We saved them millions of dollars in infrastructure upgrades and I think it’s only fair that they lease a small portion of that infrastructure for them to meet their CRTC mandate,” said Lyle Fabian, the IT manager for the First Nation.

Fabian believes other First Nations should strive for broadband self-sufficiency by also building their own networks to take control of their digital future. In almost every case, Fabian said, those networks will deliver better service than what is on offer from Northwestel.

While the CRTC-ordered rate cuts will help customers in the Yukon and Northwest Territories almost immediately, Internet access in satellite-based Nunavut will continue to be exorbitantly expensive until the CRTC completes a review of those rates. Nunavut residents pay $179.95 a month for 5Mbps/512kbps service with a 30GB usage cap.

[flv]http://www.phillipdampier.com/video/First Mile – First Mile Community Stories Tour Katlodeeche First Nation Community Network 5-23-12.mp4 [/flv]

Henry Tambour from K’atl’odeeche First Nation in the Northwest Territories of Canada gives a 2012 tour of the first phase of the locally owned and operated fiber network. The community of 300 elected to take control of their broadband future back from Northwestel. (4:12)