Google’s Wireless Bid

Last week Google announced that it would enter the FCC’s upcoming wireless auction to the tune of $4.6 billion. There is a catch however; the FCC led by Chairman Kevin Martin, must abide by four conditions set forth by Google. These conditions, or as some may see them demands, revolve around the idea of open access to the wireless spectrum. The amount Google has said it will spend is large, it represents anywhere from a quarter to half of what the FCC anticipates making from the auction, but this does not mean that the company is heading for a walk in the park. By entering the auction, if they indeed do so, Google will be directly challenging major telecom companies that it is assumed will also be heavy bidders. Furthermore, Google dollars may allow it to buy up virtually any company it wants the FCC may not be quite as acquiescent; there is a proposal on its table which takes into account some of Google’s stipulations, but falls short of a full backing.

Access Intelligence sums up Google’s list as follows:
* Open applications: Consumers should be able to download and utilize any software applications, content or services they desire;
* Open devices: Consumers should be able to use a handheld communications device with whatever wireless network they prefer;
* Open services: Third parties (resellers) should be able to acquire wireless services from a 700 MHz licensee on a wholesale basis, based on reasonably nondiscriminatory commercial terms; and
* Open networks: Third parties (like ISPs) should be able to interconnect at any technically feasible point in a 700 MHz licensee’s wireless network.

According to Google the reason for making its requests is relatively simple, open networks will lead to competition and innovation while closed networks will lead to more monopoly. Google CEO, Eric Schmidt says, “In short, when Americans can use the software and handsets of their choice, over open and competitive networks, they win.” Google is not alone in its line of thinking, BusinessWeek suggests, “This potential new freedom for users to buy ringtones, video games or even their actual calling plans from any provider could drive the sort of innovation that’s common on the Internet, but exceedingly rare on the mobile manifestation of the Web.” Not so according to AT&T. Datamonitor credits AT&T VP of legislative affairs Jim Cicconi as stating, “This is an attempt to pressure the U.S. government to turn the auction process on its head by ensuring only a few, if any, bidders will compete with Google . . . And in a display of dissembling rarely seen, even in Washington, Google claims that this attempt to foreclose any competition in the bidding process must be done in the name of, stunningly, competition.” In even less kind terms “In effect, Chairman Martin’s plan faces Google and others with a ‘put up or shut up’ opportunity.”

Outside of its direct challengers, Google has other critics, or at least those that might read between the lines of the company’s “Don’t be evil” credo. An open spectrum could supply Google with tremendous opportunities, or as BusinessWeek says, “Despite Google’s democratic rhetoric, some commentators saw a strong dose of self-interest in the company’s move.” Among the commentators is Blair Levin, an analyst at Stifel Nicolaus, “Today, we have 200 plus million cell phones. If those are now all 200 plus million enabled broadband devices, what’s the value of Google? It’s significantly greater.” Om Malik of the blog GigaOm sees alternative motives as well. “In reality no one commits spending $4.6 billion (or more) unless they have vested interests . . . I suspect Google has a lot more wireless applications coming, and needs to basically insure a way to get them to the people.”

The FCC has taken some steps which bring its regulations for the auction in line with Google’s requests; this may be a direction it would have taken on its own, regardless of how or what Google may have asked. Kevin Martin proposes opening up about a third of the forthcoming spectrum to devices and applications but so far is holding off on requiring the winning bidders to sell access at wholesale prices. The proposal gained majority backing in the FCC and has the support of AT&T. The telecom’s support of the proposal, writes Multichannel News, “was a change from two weeks ago, when AT&T wrote the FCC, saying adoption of any Google-backed rules would invite ‘a serious legal challenge’ to the auction.” Whatever the reason for AT&T’s change of direction it is now backing the FCC, “We believe Chairman Martin has struck an interesting and creative balance between the competing interests debating the Google Plan,” says Jim Cicconi. Google, however is not as pleased. “While these all are positive steps, unfortunately, the current draft order falls short of including the four tailored and enforceable conditions,” said Eric Schmidt. Chris Sacca, head of special initiatives at Google similarly stated on his blog, “While any embrace of open platforms is welcome, only if the FCC adopts all four principles will we see the genuinely competitive marketplace that Americans deserve.”

As Google makes waves of whatever kind in the wireless arena, it is interesting to note that the day before the company announced a possible bid of almost $5 billion they announced their earnings. One of the two announcements led to a drop of 5 percent in the company stock price.

A more complete version of this post, including links to market research, can be found at the website of Analyst Views Weekly.

More information on this topic can be found in the Online Access section of Northern Light’s Internet & Information Services Market Intelligence Center.

And in the following articles:

Google to Bid for U.S. Airwaves If Condition Added Reuters, July 21, 2007
Google Inc said on Friday it would take part in a major auction of wireless spectrum airwaves, meeting a minimum required bid of $4.6 billion, if U.S. regulators added a sale condition that Google said would promote an open wireless market. The prospect of Google’s participation in the auction escalates the debate over how the valuable airwaves should be used.
Google Pushes for Rules to Aid Wireless Plans New York Times, July 21, 2007
If Google succeeds with federal regulators, it could change the way millions of Americans use their cellphones and how they connect to the Internet on their wireless devices. In the Internet giant’s view of the future, consumers would buy a wireless phone at a store, but instead of being forced to use a specific carrier, they would be free to pick any carrier they wanted. Instead of the wireless carrier choosing what software goes on their phones, users would be free to put any software they want on it.

Google’s Disappointing Quarter BusinessWeek Online, July 20, 2007
Google made no apologies on July 19 for missing analysts’ earnings expectations in the second quarter. Simply put, Google executives said they overspent on luring quality people in the period—though they will keep closer tabs on staff spending in the future. “The kind of people that we brought in are so good that we are happy we did this,” Google Chief Executive Eric Schmidt said on a conference call discussing the results.

Google’s Gargantuan Wireless Bid Puts FCC on the Spot The Street, July 20, 2007
The company said Friday it would bid for $4.6 billion worth of wireless spectrum at a coming federal airwave auction — but only if the Federal Communications Commission adopts so-called open standards for a speedy wireless broadband alternative to existing phone and cable Internet connections.

Google May Spend $4.6 Billion on Wireless Airwaves Bloomberg, July 20, 2007
Google will only commit the money if the Federal Communications Commission forces winning bidders in an auction to lease their unused airwaves at wholesale rates, Google Chief Executive Officer Eric Schmidt said today in a letter to FCC Chairman Kevin Martin.

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