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| Verizon's Likely $B Adjustment |
| Written by Dave Burstein |
| Monday, 03 November 2008 22:01 |
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Sprint couldn't sell Nextel despite being reported to welcome bids that were little more than the presumed value of the spectrum. That reopens the question of how much spectrum is worth and specifically whether Verizon needs a multi-billion dollar revision to their balance sheet. I've known this issue since the folks at Stiefel calculated prices in the last auction were generally down. Verizon didn't take a writeoff at that time and I believe hasn't since, although accounting principles suggest a change in value should be reflected . If the news reports on Sprint are accurate, a revaluation should be hard to avoid. (Yes, I realize that very few accounting firms would enforce those rules against a company the size of Verizon or AT&T. Many on wall street use cash flow instead of GAAP earning because they don't trust the auditors of major companies. I believe that doesn't work well anymore. Companies wanting to mislead the street are now manipulating cash flow.) Smart policy will bring down the cost of spectrum and allow both more competition and better utilization of bandwidth. 95% of U.S. spectrum is not in use at any given time at the average location, Dave Farber taught us when Chief Technologist of the FCC. Cognitive radio - the technology behind white spaces - can make much of that usable in the next few years. AT&T and probably Verizon are about to deploy millions of femtocells across the U.S. Done right, that can double capacity in many areas. So can upgrading protocols and phones. Often forgotten is that U.S. wireless franchises are typically granted for ten years, with absolutely no guarantee of renewal on the same terms. At least some contracts explicitly make renewal dependent on accepting any changes in FCC regulations. Verizon's financial statements are calculated on the assumption that FCC changes will not diminish the value of the licenses. I'm sure an opinion from senior advisors justifies that. I'm equally sure it is bad accounting if the premise is uncertain, as it is. Verizon's CFO and her auditors need to read their contracts closely. Jonathan Adelstein, an FCC commissioner who has earned respect for courage, has spoken about a "use it or lose it" policy for spectrum. A friend of mine owns 700 megahertz spectrum across a state that is striving for better broadband coverage, and hasn't done anything with it. That's simply waste and poor public policy. Without spending a single federal dollar, U.S. wireless coverage can be extended from the current abysmal level to probably 97% to 99% by some simple changes in the regulations along the lines suggested by Commissioner Adelstein. Buildout requirements could be very fair, and after ten years the carrier has had plenty of opportunity to recover their initial investment. This will allow near-universal coverage without any subsidy whatever and possibly with a substantial gain to the U.S. treasury. Any carrier who thinks it impractical to serve their territory well can simply give up their franchise after it expires. In almost all U.S. territories, a bidder will probably emerge happy to pay for the right to serve. France is putting pressure on Iliad/Free to build out their 3.5 gigahertz spectrum, and many other countries have forced carriers to return licenses if they haven't built. In India and many other countries, carriers pay (moderate) annual fees to continue their license. The U.S. with renewals without charge is actually the outlier. Anyone who thinks reasonable conditions unfair at renewal simply hasn't read the bidding documents. It's very clear there. |