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SAN FRANCISCO - Google will bid on coveted airwaves to launch a US wireless network, pitting it against established telecommunications players AT&T and Verizon.
The internet leader said in a statement that it was ready to go it alone rather than rely on partners in bidding in the Federal Communications Commission-run auction of 700-megahertz wireless spectrum due to begin on January 24.
The Silicon Valley-based company said it would make its filing ahead of the FCC deadline on Monday (US time) for companies to declare their interest in joining the airwaves bidding.
"We believe it's important to put our money where our principles are," Chief Executive Eric Schmidt said. "Consumers deserve more competition and innovation than they have in today's wireless world."
Wall Street investors have reacted cautiously to Google's latest move to expand beyond its core web search and online advertising franchises, worried the potential upfront costs and eventual network build-out could exceed $10 billion.
But some analysts have speculated that Google was more interested in ensuring certain requirements for network openness and that it was bidding just to preserve those rules.
"The real question here is whether Google's intent is to bid up to the reserve price and assure that the openness condition stays in place," Stifel Nicolaus analyst Blair Levin wrote to investors. "Or is the real purpose to actually win?"
And despite the excitement surrounding a Google bid, Stifel Nicolaus said in a research note that it suspects Verizon will probably end up winning the auction for the C block spectrum.
Bidding separately instead of assembling a coalition does not rule out Google later signing up partners if it wins the bidding, said a source familiar with the company's strategy. But the FCC has "anti-collusion" rules that prevent deal-making between potential bidders during the auction period.
The source said Google was eyeing the biggest chunk of spectrum up for auction - the "C block" - but also was considering bidding on separate spectrum reserved for public safety agencies but which will allow some commercial uses.
A Google spokesman declined to comment on the company's bidding strategy.
Last chance for new player
The auction is expected to take several weeks, or even months, of daily, back-and-forth bidding, with the identities of the bidders kept secret. Big spectrum bidders typically draw up elaborate strategies, often with input from game-theory experts.
Expected bidders include AT&T Inc and Verizon Wireless, the No. 1 and No 2. US wireless network operators. Verizon Wireless is a joint venture of Verizon Communications and Vodafone Group Plc.
Less certain are the strategies of satellite broadcasters DirectTV and EchoStar Communications and cable networks Comcast Corp and Time Warner Inc as well as other wireless players Sprint, T- and Clearwire, according to Levin.
AT&T is in merger talks with EchoStar that could lead them to join forces in the bidding, but with the deadline looming the time to strike such a deal is short, the Stifel Nicolaus analyst said.
These radio waves are being returned by broadcasters as they move from analog to digital signals early in 2009. The signals can go long distances and penetrate thick walls. The auction is seen as a last chance for a new wireless player.
Google and other Silicon Valley leaders see the wireless spectrum as a way to create more open competition for mobile services and devices than existing networks - putting the industry on a footing similar to the free-wheeling internet.
The company won some changes in rules governing use of the spectrum several months ago, but was denied other requests, including a rule that would have required winning bidders to resell access to their spectrum on an open wholesale basis.
The winning bidder must provide open access to any device consumers choose to use on the network if the reserve price of $US4.6 billion for the "C Block" is met at auction, Google said.
If the reserve price is not met, the auction would be rerun without the so-called "open-platform" conditions.
On Tuesday, Verizon Wireless announced it had acceded to Google's open-platform demands and would open its network to any phone or software application by the end of 2008.
But Levin said Google may still want to bid high enough to lock in a government-enforced open-platform condition on the 700-megahertz spectrum.
If its bid proves successful, Google could operate a wireless network itself or seek partners to help it build out the network and to potentially resell wireless services.
Google's announcement was greeted as good news at the FCC, said a source at the agency. "It means that they're willing to go a little bit further into the water," the source said. "They're not just dipping their toe anymore."
FCC officials hope the company's participation will mean a possible new player in the wireless business and boost the amount of money the government can bring in from the auction.
"We know we're going to have somebody in the mix who has a lot of money and who is showing signs in being interested in winning," said the source
- REUTERS
