“Google Inc., owner of the most-used search engine, will apply to bid in the U.S. government’s auction of wireless airwaves to take advantage of the growing market for mobile-phone advertising…”
After weeks of playing coy, Google said Friday it will bid in the auction for a highly coveted part of the nation’s airwaves, setting the stage for a multibillion-dollar game of corporate poker that could determine who controls the wireless Web in the United States.
“The Mountain View, California-based company said is readying its application to participate in the Federal Communications Commission’s January auction of 700 MHz wireless spectrum, but said it would not enter a joint bid with T-Mobile USA Inc. or another wireless carrier and instead will shoulder the entire cost of any spectrum it buys.”
“Google wants to change the typical experience, and so it is doing a lot of the pre-work to enter the cell phone business,” Jeff Kagan, a wireless and telecom analyst, said in a statement. “First you pave the roads, and then you can bring the cars onto the freeway. Google is now starting to pave the roads.”
The company hinted that it is likely to offer at least $4.6bn for the most valuable piece of spectrum on offer. However, most observers believe that other recent events have reduced the incentive for it to bid more aggressively, and that Verizon Wireless remains the most likely eventual buyer.
Google’s highly unusual decision to reveal its plan comes ahead of Monday’s deadline for bidders to file a private notice with the Federal Communications Commission if they want to take part in January’s auction of so-called 700 megahertz spectrum.
The company will file its application on Monday, after which FCC rules prevent it from discussing the matter further until the auction ends — potentially as late as March, said Google’s Chris Sacca, head of special initiatives.
“We believe it is important to put our money where our principles are,” explained Eric Schmidt, the company’s chairman and CEO. “Consumers deserve more competition and innovation than they have in today’s wireless world. No matter which bidder ultimately prevails, the real winners of this auction are American consumers, who likely will see more choices than ever before in how they access the Internet.”
Google said this year that it would take part, provided the FCC forced the winning bidder for the largest of the five blocks of spectrum on offer to operate an “open” network. That would further Google’s wider ambition to ensure broad wireless access to its services.
Google had joined citizen groups in arguing for such open access, and today Google CEO Eric Schmidt praised FCC Chairman Kevin Martin and the FCC for creating the C Block.
In a statement, the company said it will formally apply without explicitly stating that it plans to apply for a portion of the spectrum known as the “C Block,” Google’s statement suggests that it will do so.
Google and others lobbied hard earlier this year to ensure that whoever wins a key portion of the spectrum up for auction — the so-called “C Block” — will be required to allow users to download any software application they want onto their mobile devices, and to use any mobile devices they would like on that wireless network. The C Block’s reserve price at auction is US$4.6 billion.
Meanwhile, Google and the Open Handset Alliance recently released the Linux-based Android open development platform for cell phones, which will run well on all existing data networks as well as on any more open versions that might result from the FCC auction, Schmidt has said.
The openness requirements were initially attacked by US mobile operators. However, this week Verizon Wireless reversed course, saying that it would next year relax restrictions on the handsets and applications allowed on to its existing network.
“They are taking the auction condition and saying they can apply it to their whole network,” said Blair Levin, a former FCC chief of staff and now an analyst at Stifel Nicolaus. “The incentive for Google to bid has got less significant.”
That might help to explain the timing of Verizon Wireless’s surprise move, he and other analysts said, since it made an expensive bidding war less likely.
Other players include AT&T and Verizon Wireless, the two biggest cell phone companies, as well as Frontline Wireless, a start-up backed by venture capitalists John Doerr and Ram Shriram.
The reason for the interest: The auction run by the Federal Communications Commission is destined to be the last of its kind as similarly desirable spectrum is already spoken for.
“It does not get any better than this for carrying signals through walls and carrying high volumes of traffic,” Randall Stephenson, chief executive of AT&T, said during a recent visit to Silicon Valley. “This is very important stuff.”
Participating bidders must then make a financial deposit by Dec. 28, depending on which licenses they plan to bid on, he added — the more spectrum blocks they are eligible to bid on, the more they must deposit.
Finally, the auction will begin using an electronic, anonymous bidding process. Bidding will be conducted in stages, but winners would not be announced until the auction is concluded.
The FCC expects to raise more than $10 billion for the U.S. Treasury in the auction. The spectrum is being made available with the conversion of television channels to digital from analog.
The fact that Google will bid without partners “says to me that they have a vision for what to do with the spectrum, but that it does not line up with anybody who has got experience in the industry,” Bill Hughes, principal analyst for In-Stat, said in a statement.
“There are a lot of companies that have invested a lot of money in wireless and been boondoggled,” Hughes added. “Market research through product development is the most expensive method, but Google wants to give it a try, and they have got the money to do it.”
“If they are not partnering, it means that they have sufficient funds to win the auction,” said Trip Chowdhry, an analyst at San Francisco-based Global Equities Research. Google could ask another company to help it build a network if it wins, he said.
Google may spend $12 billion or more to acquire airwaves suitable for wireless Internet access, including the portion the FCC has designated for open access, said Chowdhry, who advises buying the company’s shares and doesn’t own any.
“Google’s intent to bid in the 700 MHz auction and Verizon’s sudden support for open networks suggest that we may finally see the competitive wireless marketplace that consumers demand.”