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Google Talks Principles But Strides To Disrupt Wireless Market
July 20, 2007: 03:53 PM EST
NEW YORK -(Dow Jones)- Google Inc. (GOOG) on Friday portrayed itself as a
champion of consumers' unfettered access to the Internet, but demonstrated
with a $4.6 billion promise that it sees profit in disrupting the
telecommunications companies' hold on the wireless market.
The Mountain View, Calif., Internet giant stepped up its effort to persuade
federal regulators to bust open competition in wireless services by
promising to be a multibillion-dollar bidder in an important upcoming
auction of wireless spectrum. But Google said it will participate only if
the Federal Communications Commission embraces the network-openness
principles it has advocated - and that incumbent U.S. wireless carriers
like AT&T Inc. (T) and Verizon Communications Inc. (VZ) have fought.
In Washington and to the public, Google couched its move as part of its
longtime effort to find and remove "obstacles that prevent the Internet
from being available to everyone on the planet," as Chris Sacca, head of
special initiatives at Google, put it in an official blog post early
Friday. In the case of mobile access, he identified the problem as control
of the airwaves by a handful of wireless carriers, resulting in limited
consumer choice.
"Today, we're putting consumers' interests first, and putting our money
where our principles are - to the tune of $4.6 billion," Sacca said. The
sum is equal to the reserve price the FCC has proposed for the auction.
Google said it thinks the auction under the terms it hopes for "will likely
produce much higher bids."
What Sacca didn't say is that wireless carriers have steadfastly resisted
efforts by Google, Yahoo Inc. (YHOO) and other Internet companies to offer
consumers services on mobile phones. Internet companies see big growth
opportunities in mobile advertising and have developed applications like
Web search and email tailored for cellphones and their smaller screens.
But wireless carriers have maintained an iron grip over their customers,
essentially dictating what content they can view, services they can enjoy
and mobile handsets they can use. The model has kept carriers in control,
stymied Internet companies' expansion plans and made handset makers
beholden.
"Companies like Google may be frustrated by their inability to replicate
the openness of the broadband environment in the wireless environment,"
says Rory Altman, a partner at consulting firm Altman Vilandrie & Co.
Google's answer has been to enlist Washington to help it circumvent the
carriers' "Walled Gardens." The Web giant wants regulators to stipulate
that the winner of the new spectrum give consumers the freedom to use
whatever mobile applications they desire on any handset they want. It also
wants the winner to sell wireless services to resellers on a wholesale
basis and let Internet- service providers interconnect with the network.
Without device and application restrictions, Google would be able to push
its products directly to customers without any interference and serve up
lucrative advertising, a potentially significant future revenue stream
that's also coveted by the carriers. The other two provisions "would ensure
that entrepreneurs starting new networks and services will have a fair shot
at success," Sacca said.
Verizon on Thursday said in a statement that "to rig the auction in any way
.. would be a huge disservice to the nation. Corporate welfare for Google
is bad public policy."
On a conference call with Wall Street analysts late Thursday, Google Chief
Executive Eric Schmidt indicated that distributing Google products and
getting advertising revenue in return is foremost in the company's mind.
"From a Google perspective, the most important thing is that there be an
open network," Schmidt said. "There's really a direct connection between
the open, interoperable network that we are now arguing for in [Securities
and Exchange Commission] filings and so forth and the ultimate usage of
Google services and applications, and of course, advertiser satisfaction."
Google Phone?
Google may also be interested in bringing its own handset to market, a
subject of much rumor recently. The company is reportedly developing
software for mobile phones that goes well beyond the applications it
already offers in areas like search and maps. Schmidt on Thursday declined
to comment on the rumors and said only, "We have looked pretty carefully at
wireless, and we are sort of thinking about what we want to do there."
It isn't clear whether Google would be willing to run a network itself, a
move that would be a huge departure from its business strategy to date. It
could, of course, form a joint venture with one or more other companies,
perhaps including an independent network operator, to ease its entrance
into the carrier business.
If Google wants to offer its own wireless service, it will have to be
patient. Even if it wins the auction, it wouldn't receive the spectrum
until 2009, when the cable television providers have to give it up. It will
likely take another two years to build a reliable enough network with
enough geographic coverage to start running a service.
"There's nothing fast about this," Altman said, predicting Google wouldn't
be able to launch a service until perhaps 2011.
Google would be aided, however, by the fact that the 700 megahertz spectrum
being auctioned travels long distances. That would cut down on the number
of cellular towers and radios that would have to be strung up and, thus,
the time needed to build a network.
Mature Market
Though Google would presumably hit the ground running with innovative
services for its mobile customers, it would enter a crowded, maturing
market. The wireless industry is already experiencing slowing customer
growth as cellphones have become a near-ubiquitous sight on the streets.
And even as saturation nears, niche players like Walt Disney Co.'s (DIS)
Disney Mobile and SK Telecom Co. (SKM) and EarthLink Inc.'s (ELNK) Helio
have jumped into the fray.
"It is a very mature market," Altman said. "The wireless penetration growth
is starting to slow, which is causing concern everywhere. It's hitting the
weakest carriers the hardest."
Google's entry would most certainly spur action on the part of incumbents,
forcing the telecom companies to better utilize their assets and innovate
in ways Google couldn't. For instance, AT&T and Verizon could better
integrate their wireless services with their fixed-line telephone and even
television services.
Rival Yahoo, which has been mum about the spectrum auction, might also have
a role to play. Google might be resistant to letting Yahoo on its network,
even though that would run contrary to Google's openness "principles."
However, Yahoo has strong partnerships with AT&T and Verizon, and could
find ways to deepen those alliances, or even become an attractive
acquisition for one of them.
For now anyway, "Yahoo benefits by drafting behind Google without upsetting
any of its network partners," Altman says.
- Riva Richmond, Dow Jones Newswires; 201-938-5670;
riva.richmond@dowjones.com
-By Roger Cheng, Dow Jones Newswires; 201-938-2020;
roger.cheng@dowjones.com 
Google Talks Principles But Strides To Disrupt Wireless Market 
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