Monday 7 April 2008

700 MHz Spectrum - Google: Loser or Winner?

Google on last Thursday revealed for the first time that it had been among the bidders for the federal 700-megahertz spectrum auction, which provides access to the Internet via mobile devices. Didnt we already know?

But the Mountain View-Calif.-based company now says that was all part of the game plan.

Google had said last July that it would guarantee a minimum $4.6 billion bid if the Federal Communications Commission would grant four license conditions the company sought for the spectrum. The FCC granted just two, giving open access to outside applications and devices, but Google proceeded with a bid.

"Google's top priority heading into the auction was to make sure that bidding on the so-called 'C Block' reached the $4.6 billion reserve price that would trigger the important 'open applications' and 'open handsets' license conditions," wrote two of the company's lawyers on the corporate blog. "We were also prepared to gain the nationwide C Block licenses at a price somewhat higher than the reserve price; in fact, for many days during the early course of the auction, we were the high bidder. But it was clear, then and now, that Verizon Wireless ultimately was motivated to bid higher (and had far more financial incentive to gain the licenses)."

Most observers had already assumed that Google had, in fact, bid, and some had even worried that the company would win the auction, which could have added risk to the company's business operations.

The company's lawyers said that the auction "doesn't mark the end of our efforts toward greater wireless choice and innovation."

"We will weigh in at the FCC as it sets implementation rules for the C Block, and determines how to move forward with a D Block re-auction," they wrote on the blog.

The FCC plans to use the D block for public safety networks.

It appears everything went as planned for Google. It didn't have to cough up any money in the 700 MHz auction but it ensured the open-access provisions (at least most of them) that it fought for at the FCC. But with the same faces, namely Verizon and AT&T, emerging as winners in the auction, the auction isn't going to change the face of the wireless telecom industry as industry pundits had hoped.

As exciting as it would have been to see a newcomer to the wireless landscape, incumbents such as Verizon have the wherewithal to spend billions on licenses and billions more to build out network infrastructure. That's their core business. And with the 700 MHz band the last of the so-called beach-front property, operators were prepared to drive the price up to a hefty level, especially given the fact that new 4G networks need a nice chunk of extra spectrum, about 20 megahertz, to deliver the broadband data speeds that are advertised.

Verizon Wireless was the big winner for the 700 MHz auction after winning the Upper C Block of spectrum, which is laden with open access provisions. Google did not win any licenses. Satellite television company EchoStar subsidiary Frontier won a significant amount of licenses in the E Block--enough to give the company a nationwide footprint. Verizon Wireless not only won the coveted C Block, but also most of the A Block and 77 licenses in the B Block, which contained the smallest licenses in the auction. For its part, AT&T managed to scoop up 227 of the smaller slices of spectrum.

No comments: