Google Waves $4.6B in The Face of Spectrum

Google plans to commit a minimum of $4.6 billion to bid on spectrum in the
January 700MHz auction. That is if the Federal Communications Commission (FCC)
allows for an open access network and wholesale services.

If Google enters the high-stakes auction for the spectrum considered ideal for
wireless broadband, it would create a third competitor to telephone and cable
companies offering high-speed connections.

The Mountain View, Calif.-based search and advertising giant specifically
conditioned its participation in the auction on the FCC approving rules
allowing consumers to connect any legal devices and run any legal application
on the network.

In addition, Google wants the FCC to license the spectrum for wholesale access
and allow third parties such as Internet service providers to interconnect at
any technically feasible point in the network.

“All four of these conditions adopted together would promote a spirit of
openness and could spur additional forms of competition from Web-based
entities, such as software applications providers, content providers, handset
makers and ISPs,” Chris Sacca, Google’s head of Special Initiatives, wrote on
the company’s blog.

Ten days ago, FCC Chairman Kevin Martin issued a
draft set of auction rules that would dedicate the primary commercial blocks
of spectrum for sale to open access requirements but did not call for
wholesale access. The rules are now in circulation to the four other FCC

“The commission’s draft order…includes some reference to ‘open access’
principles,’ CEO Eric Schmidt wrote in a letter to Martin earlier this week.
“While these all are positive steps, unfortunately the current draft order
falls short of including the four tailored and enforceable conditions, with
meaningful implementation deadlines, that consumer groups, other companies and
Google have sought.”

Schmidt added, “In short, when Americans can use the software and handsets of
their choice, over open and competitive networks, they win.”

The dominant wireless carriers, who covet the spectrum themselves, have
opposed attaching open-access requirements to the auction. Steve Largent,
president and CEO of the incumbent wireless carrier trade group CTIA, last
week blasted Martin’s open access plan.

“Crafting special rules for a company with a market cap of $170 billion to
address problems that don’t exist in our competitive market makes absolutely
no sense whatsoever,” said Largent.

But AT&T surprised many in the industry earlier this week when Senior
Executive Vice President Jim Cicconi told the Associated Press, “If our
understandings are accurate, we believe Chairman Martin has struck an
interesting and creative balance between the competing interests.”

The auction may be one of the most lucrative in U.S. history with speculation
that it will bring in as much as $20 billion. The spectrum will come from
airwaves deserted by television broadcasters as part of the digital TV

When Congress finally set a Feb. 17,
2009, hard deadline for the broadcasters to vacate their analog spectrum,
lawmakers envisioned auctioning the abandoned spectrum to the highest bidders
with the proceeds underwriting digital converter boxes for consumers and a
national public safety wireless network. Excess proceeds will go to the
federal treasury to reduce the national deficit.

Critics of the open access model complain that the proposed requirements will
reduce the bids for the spectrum.

“There are some who have claimed that embracing these principles and putting
American consumers first might somehow devalue this spectrum,” Sacca wrote on
the Google blog.

Sacca said Google does not believe the open access requirements would reduce
the value of the spectrum, but the company is willing to commit $4.6 billion
since “actions speak louder than words.”

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