Google really knows how to mess up a wireless spectrum auction for incumbent Telcos

by David Spark on August 3, 2007

The FCC’s auction of the 700 MHz spectrum was going to go like any other. The top Telco’s and cable companies would be the only ones that could afford to participate. They’d make the bids, snatch up the available airwaves, and if they needed the space they bought, they’d use it otherwise they’d sit on it for “future development.” Good luck shareholders.

The 700 MHz auction is turning out to be a different game. The spectrum being made available for auction (what’s being vacated as TV stations move over to digital, assuming we really do achieve the cut off date in 2009 or it gets pushed back even further as it has historically) could turn out to be a great channel to deliver wireless broadband. It’s a single low power channel that can go through walls and blankets the entire country.

Watch August 3rd, 2007 appearance on KQED’s “This Week in Northern California” with Belva Davis talking about the FCC 700 MHz auction and Google’s involvement.

To ruin the Telco and cable companies’ monopolized fun, Google has decided to participate in this reindeer game. Google publicly announced they’re willing to bid up to $4.6 billion for a piece of the 700 MHz spectrum on the condition that the FCC requires all participants adhere to four points of openness. Well, the FCC agreed to device and application portability. But they’re not allowing open wholesale access to the networks for resellers, or allowing for geolocation interconnection among the networks.

This story is jam packed with arm chair quarterbacks with their theories on whats going to happen with the Telco’s dominating the wireless airwaves and what Google’s intentions are. I have to extend a huge thank you to Scott Slater of the Personal Broadband Industry Association for giving me an enormous brain dump today at the AlwaysOn Conference at Stanford. He’s got a really grand view of the future of wireless broadband Internet communications that nobody else in the media seems to see.

So here are the issues and arguments at stake:

  • Deregulated ubiquitous wireless broadband Internet access – An open broadband Internet network that works across the country in which any IP-based device could intercommunicate with any other device. Such a network could deliver a level of innovation in devices and applications unfettered by a controlling network metering access, devices, and applications. Slater argues that the bid for the 700 MHz isn’t about a 3rd broadband network, but rather connecting everything to everything. Without a network intermediary, a truly open 700 MHz network could change the way businesses operate.
  • Google wants to sell ads on all devices – The more people that use the Web, the more applications that are made available (including Google’s), and the more sites that host Google ads ultimately results in Google making more money. So it would stand to reason that Google wants as many people using devices with Web browsers for people to access applications and content. CEO Eric Schmidt admits that Google ads on mobile phones will be more than twice as profitable as Web ads because of hyper-personalization and targeting.
  • $4.6 billion might not be enough – It’s what Google has offered and it’s the public reserve price for the available spectrum for device and application portability. The Telco’s and cable companies have more money than Google.
  • Google is going to prove its theory regardless – Whether Google purchases some of the 700 MHz spectrum or they fail, they’re going to create a ubiquitous wireless broadband network. They’re already doing it in Mountain View, CA where they’ve deployed a municipal Wi-Fi network. They have plans to do it in San Francisco, and maybe they’ll do it in a broader form with the Sprint WiMax network for which they’ve already created a partnership to host their applications and data. Whether they win in the 700 MHz spectrum or not, they’re going to create zones of blanketed connectivity that operate fully on IP proving their theory of ubiquitous wireless broadband communications across devices. It will be a model that should scare Telco’s and get the shareholders complaining.
  • It’s more than phone portability – The FCC Chairman and commissioners are patting themselves on the back for myopic accomplishments. Yes, the advent of phone number portability was great. And now the new rule for the 700 MHz auction requires handset and application portability. That’s great too. But that’s what Europe already has. Everyone buys unlocked phones and can switch to any network they want. So we’re innovating at the speed of Europe? Commissioner Deborah Taylor Tate said, “My hope is that we have created an incubator for the next killer app, the next platform or the next cool device.” The next killer app, platform, or device would happen no matter what you do. Look at the trades. Walk a trade show floor. It’s happening now in spite of the domination controls you’ve given Telco’s.
  • Google’s ad network isn’t vertically integrated with wireless devices, yet – Google wants its Web applications to be used anywhere. Its competitors are better positioned to distribute ads on mobile devices on mobile networks. Microsoft has Windows Mobile and its newly purchased ad network aQuantive, plus a few others: Screentonic and AdECN. Yahoo! and AT&T Wireless have already been distributing portals and applications over mobile devices. Google is late to the game, but it’s furiously developing mobile applications (some available now like Google Maps and Gmail) and the Google phone which they hope could work on multiple networks and not be locked to just one network like the iPhone (that won’t last for long).
  • The incumbents create hooks to keep customers using their technology – Everything that Qualcomm and the carriers create: the chip, the network, the phones, the applications, and the yearly contracts, are all designed to hold onto the customer. You have to pick our phones and chips to use our technology and we decide what applications you can use.
  • Wireless carriers aren’t offering broadband – For broadband Internet access, Slater says there’s a duopoly, cable and DSL, and they’re deregulated. He doesn’t see wireless as a competitor in the broadband Internet space. Because he defines broadband as consistent 1 Mbps. When I did work for Sprint, the company had no problem advertising that they had “broadband” access if the network hit 100 Kbps.
  • Telco’s have to continue to increase value of their proprietary technology – The Telco’s have told their shareholders that they’re going to buy this spectrum. They’ll need to purchase it and do something with it so as to create continued value. Slater things they’ll just buy it and warehouse it.
  • Google domination or altruism? – Is Google being altruistic or are they trying to control the pipes and all the ad content that goes on it? Or is it something in between? Lance Ulanoff of PC Magazine argues that such a purchase by Google would put it in a dominant position. Even if they do win the auction, it’s going to be very difficult to get its network up to speed. He points to Qualcomm’s difficulties trying to get its mobile broadcast video network, MediaFLO, to work on the UHF spectrum. Slater agrees and doesn’t think the network will be built out overnight, but he believes Google will give away the spectrum or partner with companies that can build out the network. They don’t want to build or run a network themselves. Google will simply make more money if there are more people, more devices, and more applications on the network.

Some are arguing that the 700 MHz spectrum may be the last chance for unfettered deregulated wireless broadband. This could be why Google has entered the race. Given America’s history of existing networks, the U.S. isn’t up to speed versus the rest of the world in broadband deployment and coverage. In fact, it ranks 17th in the world. The reason the wireless fight is so important is because access has shifted to individuals, and it’s not about connecting buildings to the last mile. Slater argues that if the 700 MHz spectrum was controlled by local TV stations, it should return to the localities and not be gobbled up to the few national incumbents.

UPDATE August 26th, 2008: Google is going to the masses now in hopes that the community of users will see the value of free airwaves rather than telephone companies bidding and holding onto spectrum.

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