A coalition led by the Web search giant is scoring early wins in a tussle over $10 billion in wireless airwaves
For a company that's had an office in Washington, D.C., for less than two years, Google is wielding a surprising amount of power in the nation's capital.
Exhibit A is the influence Google is having on a closely watched government auction of $10 billion in licenses to provide wireless service. The Web search giant has hired some big guns to help it shape the rules for how the auction will be carried out, reflecting the company's growing interest in the wireless industry and the rising stakes in the battle for a crucial chunk of airwaves.
Challenging the Incumbents
Three months ago, Google (GOOG) retained Richard Whitt, former head of the regulatory department for MCI, the telco formerly known as WorldCom now owned by Verizon (VZ). Whitt, acting as Google's Washington telecom and media counsel, is lobbying the Federal Communications Commission on some of the biggest issues facing the wireless industry. These include ensuring certain wireless airwaves are made available for free public use and making sure the auction is carried out in such a way that up-and-comers get a shot at entering the market.
Google's agenda is clear. As a provider of a host of Internet services, including search, e-mail, and online video through YouTube (NWS), Google wants to ensure its content can flow unimpeded and untaxed over the world's broadband networks. One way to do that is by making sure there's plenty of competition in the market for high-speed Internet access—in particular, from providers other than behemoths like AT&T (T) and Comcast (CMCSA). "Google's key interest here is in seeing fourth and fifth [broadband access] pipes to the home to compete with cable and telecom companies," says Whitt.
The company believes that U.S. wireless service, home broadband, and TV carriers wield too much power in determining what content and services are made available to subscribers, and "[this auction] holds the key to creating [more] competition," Whitt says. "There're potentially lots of folks who could come in."
Auction Ground Rules
Then there are Google's own wireless designs. It's working with EarthLink (ELNK) to provide a free Wi-Fi wireless broadband network in San Francisco, and it's trying to spread its mobile search application far and wide. Plus, according to reports, Google is developing its own wireless handset.
All of which could explain why, on Mar. 6, Google became part of a consortium called the Coalition for 4G in America. It includes eBay's (EBAY) Skype Web-calling service, Web portal Yahoo! (YHOO), satellite TV companies DirecTV (DTV) and EchoStar (DISH), chipmaker Intel (INTC), and wireless services provider Access Spectrum.
The coalition has already fired off two letters to the FCC in hopes of shaping the airwaves auction. It wants the inclusion of policies like packaged bidding, which would let bidders acquire licenses nationwide in one fell swoop instead of on a market-by-market basis. The coalition, widely considered Google-led, also wants the FCC to offer wide swaths of spectrum, allowing for superfast wireless services.
FCC Likely to Play Ball
The FCC won't issue the rules until June, but it's apparent the coalition is bringing its wishes to bear. The FCC issued a report on Apr. 27 that seems to favor many of the coalition's proposals, referencing recommendations by Access Spectrum, EchoStar, and DirecTV throughout. Comments by FCC Chairman Kevin Martin, provided in conjunction with the report, also indicate support for the coalition. "We need a real, third broadband competitor," Martin said. "The leading technology companies—Google, Intel, Skype, Yahoo, along with DirecTV, and EchoStar—are the only parties that have promised to try to provide a national, wireless broadband alternative."
Incumbents like AT&T, Verizon, and cable companies already are fighting new entrants such as Clearwire (CLWR), which offers wireless broadband service in select areas. Cable companies have formed a joint venture with Sprint-Nextel (S) that's gearing up to offer wireless services in many U.S. markets (see BusinessWeek.com, 04/27/07, "Comcast Goes for a Grand Slam").
If the FCC approves of the coalition's proposed policy changes, as its Apr. 27 report seems to indicate, even more companies, including the coalition's own members, could jump into the fray. "They are trying to create the most favorable landscape to participate in the auction," says Craig Mathias, founder of wireless consultancy Farpoint Group. "Under the right circumstances, they could end up with some spectrum."
Google itself may bid in the 700 Mhz auction, either on its own or banding together with Wi-Fi partner EarthLink or another coalition partner. Google has the content, but it lacks a network. "Their biggest weakness is that they don't directly touch the consumer," says Michael Mahoney, managing director of investment manager EGM Capital in San Francisco.
Until the auction's rules are ironed out, Google won't confirm the extent of its involvement in 700 Mhz. "None of our involvement suggests we ourselves will roll out devices and networks," Whitt says.
Other would-be bidders include DirecTV and EchoStar, which dropped out of a bigger spectrum auction last year because they were unable to gather enough licenses to create a nationwide footprint. New rules could safeguard the companies from running into the same problems (see BusinessWeek.com, 08/25/07, "Who Needs Radio Frequency?").
Other industry insiders see Skype rolling out its own mobile network, possibly in cahoots with Yahoo. Clearwire, where Intel holds an investment, could end up taking part in the auction in order to expand its footprint.
And the coalition could see new members in coming weeks. "We are talking to more companies," says Access Spectrum's Chairman and CEO Michael Gottdenker. Cell phone maker Motorola (MOT) is rumored to be one of the possible late additions. "We do align well on a majority of issues," confirms Steve Sharkey, director of spectrum and standards strategy at Motorola. "Their filings reflect a lot of what we've said in the past. We have no plans to join now."
Toughing Out the Telecoms
The coalition is certainly fighting an uphill battle—on turf that's much more familiar to telecom and cable companies. After last year's spectrum auction, the incumbents "are flush in airwaves," says Chris Hardy, a vice-president at spectrum consultancy Comsearch. "But I would expect the large carriers to be very interested in this spectrum. Whether they need the capacity is not even an issue, they just want to acquire a valuable asset." More likely, the carriers will enter the auction to prevent future rivals from emerging and to drive up prices.
For Google, the risks are apparently worth it. Whitt says the company's interest in wireless regulations will not be fleeting, nor limited to the 700 Mhz auction. Google will also be pushing the FCC to make it easier for existing spectrum holders to resell their spectrum and to create spectrum overlays, allowing several service providers to use the same airwaves. "You may hear from us in the future," Whitt says. "We'll certainly look at other wireless opportunities out there." And if the company's early gains in Washington are a guide, Google is likely to find them.