Will Google's Push for Open Spectrum Force Major Wireless Carriers to Rethink Their Business Models?

Last week Google's CEO Eric Schmidt wrote to the Kevin Martin, Chairman of the FCC saying that they would bid a minimum of $4.6 billion if certain open platform conditions were included in the auction award.

But there are a couple of billion other reasons why Google prefers the 700 MHz spectrum.

The 700 MHz mobile network would be inexpensive to build compared to any other alternatives - GigaOM says:

"...The spectrum, currently owned by broadcasters, has been used for analog television. But it is set to be turned over to the government in 2009. Due to its broadcast-attractive physics (like its ability to penetrate walls), this spectrum is desirable for both broadband communications in general and public-safety uses in particular.

Also, a 700 MHz mobile network would be relatively inexpensive to build compared to the alternatives:

"...According to some estimates, the cost of building a nationwide wireless network over the 700 MHz spectrum is around $2 billion versus a nationwide 1900MHz PCS that costs approximately $4 Billion. The costs are lower in rural areas, due to less interference issues and wide-open spaces. That's because each tower broadcasting at 700MHz covers twice as many square miles. Some estimates say that a single 700 MHz tower can cover 20-miles. (#)

But the threat to incumbent wireless carriers doesn't end there - the addition of open platform conditions would allow consumers to use a device of their choice on the network of their choice, creating more competition in the market. The following are the four open platform conditions Google has suggested:

• Open applications. Consumers should be able to download software applications and content, and use services without restrictions.
• Open devices. Consumers should be able to use any type of handheld communications device and not be limited to those provided by or approved by the wireless service provider.
• Open services. Third-party resellers should be able to obtain wholesale bandwidth or wireless services from any company that wins a 700 MHz license.
• Open third-party networks. Other networks should be able to interconnect at technically feasible points with a 700 MHz licensee's wireless network.

While these recommendations are strongly in Google's favor, the $4.6 billion pre-bid for the 22 MHz block may justify implementation of open platform standards like those outlined above. Less surprising than Google's pre-auction bid has been the protest from incumbent wireless competitors coming forth to oppose these ideas, as Jim Cicconi, AT&T's senior executive vice president for external and legislative affairs, notes in the excerpt below:

"Google is demanding the government stack the deck in its favor, limit competing bids and effectively force wireless carriers to alter their business models to Google's liking. We would repeat that Google should put up or shut up - they can bid and enter the wireless market with any business model they prefer, then let consumers decide which model they like best."

In response to Google's request, Chairman Martin has drafted a new plan that endorses a more conservative version of the "open access" principle. Experts, such as Media Access Project's Harold Feld, found that Martin's proposal seemed chiefly designed to satisfy the demand to make changes without actually making any changes. "Certainly it does absolutely zero for creating a 'third pipe.' But even taken on its surface as just addressing the restrictions on edge devices in the wireless world, it doesn't help."

After realizing the limited extent of Martin's plan, it doesn't come as a shock that AT&T called it an interesting and creative balance. And further stating:

"The [Martin] plan would enable the introduction of an alternative wireless business model without requiring changes in the business models of AT&T and others in what is a highly competitive wireless industry," said AT&T in a statement Thursday.

In hopes of splitting the difference between the newcomer Google and older players like AT&T, the FCC is trying to create a balance that might entice Google into bidding on a part of the spectrum while ensuring older players that their current business models are not in danger of becoming obsolete.

Whatever its preferences toward the old boy network, the FCC has a responsibility to license the 700MHz band to the highest bidder in monetizing value for American taxpayers. And that might just mean Net Neutrality was just an opening salvo in the fight between a defensive telecom industry and the new Internet titans like Google that are at odds with them.