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Good or bad news: Google confirms 700MHz entry

Posted : 04 Dec 2007

Cementing its wireless-spectrum plans, Google announced Nov. 30 that it will bid in the upcoming U.S. Federal Communications Commission (FCC) auction of the 700MHz frequencies. The decision creates a win-lose scenario for both Google's partners and its competition.

"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," said Google Chair and CEO Eric Schmidt.

Parsers of Schmidt's pronouncement were quick to note that "bidding on spectrum" does not necessarily equate to "building and operating a network." Google said it will not bid in partnership with other companies in the auction, which is expected to bring some $15 billion into the U.S. Treasury. What happens after the auction is another matter—Schmidt and his team are unlikely to wish to move into the capital-intensive, low-value-added business of supplying broadband pipes.

That means that one of the winners in the Google move could be Frontline Wireless LLC, a startup formed to bid in the auction and to build out a hybrid private/public network. Frontline is headed by a trio of veteran telecom executives including former FCC chairman Reed Hundt. Backed by prominent Silicon Valley investors including Netscape founder Jim Barksdale and John Doerr of venture capital firm Kleiner Perkins Caufield and Byers, Frontline has proposed the building of a nationwide broadband network that would be available for public-safety use during emergencies and leased to commercial carriers at other times.

While Frontline likely has deep pockets, it cannot match the cash available to either Google or Verizon Wireless in an auction the magnitude of the 700MHz sell-off. If Google snaps up prime broadband spectrum in the so-called "C-block" (the most highly valued slice of the 700MHz frequencies, and the one that falls under the open-access requirements issued by the FCC), it would make perfect sense to partner with an independent company like Frontline, with the expertise and the willingness to build and operate the network.

"[Our] contacts feel Google will not build and operate the network," wrote Global Equities Research analyst Trip Chowdhry in a research note today.

As always, Google's primary mission is to ensure that its search pages, its Web-based applications, and is advertising, appear on as many screens on PCs and mobile devices as possible. Having Frontline build a network based on Google-owned spectrum would be a logical route to that goal.

Verizon's dismay
Verizon Wireless, on the other hand, may be the one on the losing end with Google's announcement. The wireless carries at one point hoped to have the field more or less to itself in the auction. Verizon said it will open its existing cellular network to devices and applications from outside providers. Many observers, including Frontline's Hundt, saw that move as a ploy to discourage rival bidders for the C-block. If so, it didn't work, and Verizon now faces a rival bidder with lots of resources (while Google's cash on hand stands at just over $13 billion, its $217.8 billion market cap gives it plenty of leverage to access more cash if needed for the auction) and equal determination.

AT&T paid $2.5 billion last month for 700MHz spectrum held by Aloha Partners. Most analysts now expect that, while the company may still bid in the auction, it's unlikely to contest the C block. Verizon has seen other big telecoms nearly destroyed by ruinously high bidding for government-held spectrum; it will almost certainly seek to avoid a naked bidding war with Google.

As for U.S. consumers, they are likely winners. At the very least, Google's participation means that the reserve price, or minimum winning bid, of $4.6 billion for the spectrum will be met. The higher the price paid, the more powerful the incentives for the winner to build and roll out (or partner with another company to build) a network that is truly open to innovative new applications and services. In this case, at least, what's good for Google is good for end-users, as well.

- Richard Martin
InformationWeek

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