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Verizon Prepares For Uncertainty Regarding Potential FCC Rules

Following the recent FCC auction for the AWS-3 spectrum bands meant for use in wireless telecommunications, Verizon is selling off large parts of its business.

During the auction, Verizon was the third largest bidder, only losing out to AT&T and Dish Network, and the company paid out a total of $10.4 billion for AWS-3 frequencies. It now seems Verizon is heading in a new direction. To help pay down the auction debt, Verizon has agreed to sell its wired Internet services in California, Florida and Texas to Frontier Communications Corporation for a total of $10.54 billion.

The Verizon staff who worked in areas being sold to Frontier are expected to be able to continue work under employment from Frontier. The transaction should be completed during the first half of 2016.

In addition to the wired Internet sales, Verizon is also leasing a majority of its wireless towers (11,300) to American Tower Corporation for $5 billion. The deal will also give complete ownership of some towers over to American Tower Corporation. The lease will last for approximately 28 years, at which time American Tower will have the option to purchase the towers.

Given that Verizon is selling and leasing off its current services, and situating itself entirely on the east coast, it seems clear that Verizon must have plans for major change in the near future. Given the purchase of several AWS-3 frequencies and the recent policies the FCC is pushing to enact, Verizon might be wanting to rebuild parts of its network from scratch.

Come the end of the month, if the FCC passes the recent proposal from FCC Chairman Wheeler, cities that feel unsatisfied with the Internet cost and performance in their area will be allowed to build municipal broadband networks to compete with large private sector telecommunication companies such as Verizon.

To avoid the risk of being replaced, Verizon might be taking this opportunity to centralize its networks and upgrade. Selling off the older towers would give significant capital for this upgrade and potentially result in Verizon being able to offer faster and lower-cost services than any of its competition.

After contacting Verizon, we were presented with information from the investors meeting held yesterday when Verizon's CEO and CFO spoke about the company's future plans.

"The intended use of cash on hand and the expected proceeds from these transactions are consistent with our stated priorities following the Vodafone transaction, invest in our network and spectrum, deliver the balance sheet and return value to shareholders," said Verizon CEO Lowell McAdam. "An important consideration was the current regulatory uncertainty and the potential impacts of future investments of a reclassification of broadband under Title II."

"Post closing, the remaining landline footprint will include approximately 23 million households. We expect to ultimately pass more than 17 million of these homes with FiOS and have more than 75% FiOS coverage," said Verizon's CFO Fran Shammo.

From these statements, it is evident that Verizon is taking action to deal with the upcoming FCC regulations in a different way than other major ISPs. While most companies like AT&T are ready for legal battles and a potential lawsuit against the FCC, Verizon is working to innovate and overcome challenges placed on it by the potential regulations.

By upgrading its network to give a majority of customers access to FiOS (Verizon's fiber-optic network), Verizon likely hopes to give its users fast and affordable broadband Internet that will satisfy users, and potentially prevent the development of municipal broadband networks in areas currently served by Verizon. This strategy could invoke fierce reactions from other ISPs who would rather fight the FCC's ability to place regulations on broadband Internet than adapt.

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