Monday, December 3, 2007

Goog-411, Part 4

The Final Piece of the Puzzle

Let’s consider the idea of Google becoming a wireless telephone provider. In recent news, the FCC rules for the upcoming sale and use of 62 megahertz of spectrum in the 700MHz band has the mobile community titillating with interest. It is a highly desirable slice of the airwaves because it can easily transport mobile-video services and applications to end-users located dozens of miles away in hard-to-reach places like basements and elevators. The 62 megahertz of spectrum is coming available due to the fact that television broadcasters are moving to a digital signal from an analog signal in early 2009, which requires much less spectrum. The sale of the spectrum will be done through an auction scheduled to happen in January 2008, so most parties will have to wait until then to find out how far Google will go towards acquiring the highly coveted 700 MHz band.

To appreciate the situation, one must first understand that purchasing the spectrum would be an incredible feat for Google, especially considering the opposition they would have to overcome from existing telephone giants, AT&T, Verizon, and Vodafone. Additionally, the auction is highly anticipated since the sale of 62 megahertz of spectrum is widely seen as the last opportunity for a new entrant to establish a presence in the wireless broadband market. On 22 megahertz of the lucrative 62 MHz airwaves being sold off by the Federal Communications Commission, two open-access conditions were attached that are aimed at introducing greater consumer choice and competition into the wireless industry.

Specifically, Google encouraged the FCC to require the adoption of four types of "open" platforms as part of the license conditions:

1. Open applications – no restrictions should be imposed on downloading and using any software applications, content, or services.

2. Open devices – consumers should be able to freely switch their handheld communications device between any wireless network available.

3. Open services – third parties (resellers) should be able to acquire wireless services from a 700 MHz licensee on a wholesale basis, based on reasonably nondiscriminatory commercial terms.

4. Open networks – third parties (resellers) should be able to acquire wireless services from a 700 MHz licensee on a wholesale basis, based on reasonably nondiscriminatory commercial terms.

In the end, the FCC approved the creation of networks that can work with any device (consumers will have the freedom to attach any device and any application to a 22-MHz section of the band), but refused to comply with the so-called "wholesale condition," (conditions No. 3 and 4 in the aforementioned list).

Consumers would greatly benefit from Google’s request to allow open devices and applications on a third of the spectrum. Traditionally phone companies have been stringent about what applications and devices could operate on their networks. With the 700 MHz band open to fresh companies, a whole new breed of mobile technology may emerge. While the FCC did not mandate the charge of wholesale prices of the 22 MHz of the spectrum, they did heed what some consider Google’s ultimatum, open devices and applications. It will be interesting to see the results of the auction. The entire band has been valued around $20 billion, which would be financial blow for any one company to bear, but Google could easily partner with any large carrier (Sprint, Alltel) or a fellow tech company (Apple, Intel) to offset the expense.

Does the evidence support the theory that their established interest in mobile technology can only peak with the introduction of a new mobile device, or are they simply setting up a network of mobile applications in order to offer mobile advertising in the future? We may not have a definitive answer, but after January 2008 and the FCC auction, we may know more about Google’s desire to become a mobile provider.

Conclusion

Could Google be poised to expand into the telecommunications and cable arena? The possibility definitely exists, and the company’s deep pockets mean they would be an instant competitor. Many believe, like TeleGeography’s Mr. Schooner, that Google will not venture into these markets because the profit margins are far too small. It is more likely that Google will use the dark-fiber they have bought cheaply and invest in their own backbone to the internet. They will effectively create their own infrastructure, and force their service providers into a lonesome corner. In contrast, Stephen Arnold has identified seventeen telephony-related patents and patent applications by Google and another dozen with a tangential link. “That means 11 to 12 percent of Google’s innovation effort since 1999 is in telephony,” he said. “Somebody at Google cares about this telephony stuff.”

Will Google offer a G-Phone? Google has been on the upward pendulum swing with their wireless and network aspirations. Google has been purchasing dark fiber in the US for many years. They will connect all their dark fiber to their new 700 MHz wireless spectrum throughout the US (if they win the auction). As subscribers utilize ‘Goog-Tel’, Google will push advertising based on their wireless activities or location further increasing revenue and margins. This national network will provide Google with unlimited bandwidth allowing them to compete with the telephone and cable monopolies for both internet and wireless customers as well as lowering their bandwidth expenses in the U.S..

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