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Why You Should Be Bullish on Verizon

April 20, 2012 | About:
Verizon (VZ), was founded in 1983 and one of the original Ma Bell’s. It currently covers a network population of approximately 296 million with a worldwide coverage that operates in two segments: Verizon Wireless and Wireline. I am going to focus on the wireless segment that offers cell phone service, data services and internet access all via mobile broadband. This segment — piece of the pie — of the mobile communications industry is facing a gridlock. No matter what Verizon and its major rivals, AT&T (T), Sprint Nextel (S) and Deutsche Telecom (DTEGY.PK) do, there simply is a physical shortage of spectrum — physical airwave frequencies that data travels on. At near capacity now, I question how does the communication industry propose to handle expanding usage of these airwaves?

Recent technology of smart phones, iPhones, iPods and who knows what else in the way of new technology breakthroughs that lay just around the corner, gives rise to real concern, especially when there is no indication of this exponential increase for this type of technology slowing down.

Spectrum Shortage

Spectrum shortages account for dropped phone calls, delayed email messages and slow video streams. I personally dislike it when my broadband connection is simply not available or worse yet when my connection drops right in the middle of an Internet search causing me to lose all my internet displayed data. That is, if my connection comes back anytime soon and stays active.

According to Ruzicka, strategy director for the Stratecast research group at Frost & Sullivan, no matter what the communications industry is willing to do or pay, it is at a gridlock stage, a traffic-jam situation with a roadblock clearly in sight. The spectrum shortage is purely a physical issue where this is all there is and there is no more.

Verizon, no stranger to the wireless communications industry and certainly a major player (actually considered to be the biggest U.S. mobile provider) is feeling the bulk of this spectrum pinch in certain markets right now but more about what Verizon is doing about this in a minute. First I want to discuss what the other players in the wireless world are attempting to do and what the FCC has in mind for assisting this spectrum limitation dilemma.

AT&T, in an attempt to offset anticipated spectrum shortages, made a run at acquiring T-Mobile (Deutsche Telecom) but declined to move forward on the deal when the federal government sued to block the transaction. Meanwhile Sprint Nextel, Verizon’s closest rival, has negotiated a 15-year agreement with LightSquared (privately held) for spectrum hosting and network services to include 4G wholesale and 3G roaming services. This would allow LightSquared to build and operate Sprint’s wireless network, however, as of February 14, 2012 the Federal Communications Commission (FCC) revoked its conditional approval. The FCC cited LightSquared’s proposed network use of airwaves as having potential interference with GPS signals and systems. LightSquared, controlled by Phillip Falcone, a hedge fund manager, issued an immediate statement stating that network testing was “severely flawed” and he is committed to finding resolution with the federal government and the GPS industry.

FCC Incentive Auctions

I suspect in the coming months the FCC auctions of licenses for the electromagnetic spectrum will heat up. So far the FCC has conducted 87 spectrum auctions raising over $60 billion with spectrum auctions. On April 16 at the National Association of Broadcasters (NAB) 2012 conference, FCC Chairman Julius Genachowski spoke to a resistant TV broadcast and news media audience about the revenue generating prospect of selling some of its radio and TV frequency spectrum for other uses such as wireless communications.

I for one embrace the idea. In the future I see more traffic being generating by wireless broadband and less on traditional TV and radio usage. If we are truly to move forward into the future a shift in resources is going to be necessary and I considered the electromagnetic spectrum a natural resource just as viable as our nation’s coal, water and forested lands.

The world’s first "incentive auctions" — repurposing spectrum for flexible use — were authorized recently by Congress. A first-of-its-kind authorization, the FCC is now focused on the implementation of this style of "auction." FCC chairman Genachowksi stated he expects the process to be complex and many questions of economics and implementation yet to be worked out. No indication has been forthcoming as yet to when the first incentive auction will take place.

Verizon Spectrum Sale

Verizon is stepping up the pace for this desperate need to reposition spectrum licenses from TV, radio and cable over to the faster growing wireless segment of the communication industry. The FCC has demonstrated a desire for this type of shift but, as we all know, the regulatory powers to move slow.

Verizon in its dire need to gain more access to all the electromagnetic spectrum announced Wednesday, April 18, plans to put up for sale a substantial amount of its radio spectrum (A and B spectrum licenses in the 700 MHz frequency band) while at the same time seeking regulatory approval to purchase a block of wireless frequency spectrum from cable service providers.

Is this controversial? You bet. Not only is Verizon moving faster than the FCC, it is inciting ridicule from both sides of the communications industry — wireless and cable. Do I smell some jealously going on here from those upset for not coming up with this plan sooner?

I love this country and seeing American ingenuity and capitalism at its finest at a time when the economy is weak and government intervention is gaining way to much ground. I am high on Verizon. It is taking the lead, moving the wireless communications industry into the future.

I have to say, I get angry at Verizon when my broadband drops out right in the middle of a research project but I do love its initiative. I am going to sound like a sideline cheerleader but what the heck... I love America. I love ingenuity. I love capitalism.

Go Verizon!

About the author:

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Rating: 3.9/5 (15 votes)

Comments

batbeer2
Batbeer2 premium member - 2 years ago
Verizon Wireless and Verizon Communications are two distinct companies !

Verizon Wireless, until recently, filed with the SEC as "Celllco". If you like Verizon Wireless, consider buying Vodafone. They own an unconsolidated 45% stake.
batbeer2
Batbeer2 premium member - 2 years ago
So would you rather own these assets through VOD or through VZ, and why ?

I believe VZ, without the 55% Cellco stake, is not very profitable. VOD without the 45% Cellco stake earns about $ 11B per annum. After tax.

Interestingly, VZ has an enterprise value of $ 150B while that of VOD is $ 140B and I'm not counting Verizon's underfunded pension liabilities.

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