Background: Google's Interest in the 700 MHz Wireless Spectrum

Google's apparent promise to place a very high bid for a portion of the current UHF TV spectrum, if the US Federal Communications Commission follows through with a plan catalyzed by former Netscape chairman Jim Barksdale, has completely changed the game for wireless incumbents who weren't expecting stiff competition from a search engine company.

Google's apparent promise to bid as high as $4.6 billion for 60 MHz of the spectrum to be ceded by analog television in February 2009, has sparked a new round of speculation, perhaps fueled simply by the company's size. But a review of the history of this little summer sleeper of a story reveals that even if it does intend to divide and conquer, Google's strategy isn't that much of a secret.

During a similar FCC spectrum auction last year, carriers and communications companies had found themselves pooling their resources in order to collectively bid hundreds of millions, guaranteeing at least a slice of the wireless pie. When such incumbent pools managed to lock out News Corp.'s DirecTV unit from placing an adequate bid, even after it pooled its own resources with merger partner EchoStar, chairman Rupert Murdoch literally pooh-poohed the entire concept of satellite services before agreeing to sell DirecTV back to Liberty Media.

The problem of incumbent players locking out potential newcomers is a serious one, but may have perhaps languished on the back burners of the nation's lawmakers until brought to light last June by Barksdale, who now heads a group called Frontline Wireless.

First, he touted the need for at least some of the auctioned spectrum to be developed on behalf of public safety providers. Some firemen today often find themselves face-to-face in a burning building with no means of communication, simply because their wireless equipment - even with the same brand - was requisitioned at two different times. That first part of the message gained support from Sen. John McCain (R - Ariz.), a long-time champion of unencumbered communications for first responders.

To ensure that first responders get at least 10 MHz to themselves, Frontline proposed that winning bidders in the 700 MHz auction share responsibility for developing at least that 10 MHz strip. Barksdale's recent appearance before the House Committee on Oversight and Government Reform prompted its chairman, Rep. Henry Waxman (D - Calif.) to write FCC Chairman Kevin Martin last week, urging him to adopt the Barksdale plan.

"If the Commission does not seize the opportunity the 700 MHz auction offers to solve this intractable problem," Rep. Waxman wrote, "interoperable wireless communications for public safety could be out of reach for years."

But there's a second part to that plan, which would have more ostensibly benefitted Frontline. Waxman refers to it later in his letter to Chairman Martin: "I also urge the Commission to adopt rules that structure the auction in a way that promotes the development of additional facilities-based competitors. An open access and wholesale model on this spectrum would provide an optimum environment for such competition to emerge and for carriers, device makers, software providers, and other entrepreneurs to develop new wireless products and services for consumers."

What is implied though not stated by Waxman is that it should perhaps not be necessary for a communications carrier to own a portion of spectrum so that applications providers can buy their way into that spectrum through the carrier. Instead, perhaps the applications provider can own the spectrum and lease or sell the rights to provide access to those services, to other carriers directly.

This is where Google jumps into the picture. With the most to gain from the deployment of applications that give value to wireless services, Google may have a better shot than Frontline at upsetting the apple cart (pun intended) so that applications providers have a chance at holding at least some of the cards in the bargain. This is what Google's Head of Special Initiatives, Chris Sacca, alluded to in a corporate blog post late last week, when he wrote, "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."

Under such a business model, Google could own the spectrum without having to own any transmitters. It could then sell connection rights to that spectrum to any carrier it so chose - perhaps several - under a plan which would give Google principal branding for key applications over the carrier's wireless service. Google would not need to charge the consumer for its applications access; instead, its revenue would come partly from the carrier(s), and partly from advertising space made available through the service.

In embracing the Frontline concept, Google is wrapping itself ever more tightly around the "open" banner. In addition to open services (defined above), the company is urging the FCC to adopt a plan that permits open devices - where the consumer is free to choose the wireless device he wants, perhaps over and above the spectrum owner's choice - open networks which enable multiple ISPs to lease access, and "open applications." For this, Google provides the following definition: "Consumers should be able to download and utilize any software applications, content, or services they desire."

The definition stops there, prior to any mention of a plurality of applications providers. This has led some, including the usual band of Google skeptics, to turn up their flames, questioning the extent of the company's embrace of openness.

The fact that Google would be willing to bid $4.6 billion - which many as late as last week would agree is well within "lockout" territory - also led telcos to issue a challenge. AT&T last week warned the FCC that the Google approach to openness amounted to what it called "corporate welfare," effectively giving smaller players a potentially taxpayer-funded handicap in the game.

Having apparently failed to heed the irony of that statement, AT&T dramatically backed down from that position last Friday. Reuters reported then that the change of stance came about after AT&T was reassured that winning bidders would not be required to resell the spectrum they acquired, and that the FCC would "ensure that neither Google nor others would be able to obtain any block of spectrum without paying an appropriate price to the U.S. Treasury."

Equally ironic, however, is the fact that AT&T may have remained opposed to the proposed auction rules if their most prominent championed was merely Frontline Wireless and not Google. Verizon Wireless, meanwhile, remains opposed - for now - sticking by its earlier statement: "To rig the 700 MHz auction in any way - to limit its value and potential to deliver exciting new products and services - would be a huge disservice to the nation."

The implication there is that Google is carefully engineering its own lockout against Verizon - a charge which Google's Chris Sacca denied on Friday: "While we think that a robust and competitive auction based on these four principles will likely produce much higher bids," Sacca wrote, "and we are eager to see a diverse set of bidders competing, $4.6 billion is the reserve price that FCC has proposed for the auction. With any concerns about revenue to the U.S. Treasury being satisfied, we hope the FCC can return its attention to adopting openness principles for the benefit of consumers."