Google’s Role in Spectrum Auction Questioned

Published June 1, 2008

Google, Inc. has announced details of its involvement in the Federal Communications Commission’s (FCC) auction of the C block of the 700 MHz spectrum. The auction, which took place between January 24 and March 18, 2008, was ultimately won by Verizon.

The announcement came in an April 3 news release on Google’s official blog, which said Google participated in the auction not with the intent of winning the C block but “to make sure that bidding … reached the $4.6 billion reserve price that would trigger the important ‘open applications’ and ‘open handsets’ license conditions.”

The statement, made by Google counsels Richard Whitt and Joseph Faber after the FCC’s anti-collusion quiet period rules ended late in the day on April 3, raised questions that Google “gamed” the auction.

Valuable Property

The C block covers two 11 MHz blocks of spectrum–from 746 MHz to 757 MHz and from 776 MHz to 787 MHz. The winner would thus acquire a coveted swatch of useful spectrum for national use.

FCC Chairman Kevin J. Martin described the auction as the opportunity “for an additional wireless ‘third pipe’ in every market across the nation … 99 bidders, other than the nationwide wireless incumbents, won 754 licenses, representing approximately 69 percent of the 1,090 licenses sold in the 700 MHz auction.”

Verizon President and CEO Lowell McAdam described the firm’s successful bid as an opportunity “to preserve our current advantage and reputation as the nation’s most reliable wireless network and the leader in data services. This is a wise investment in future data growth opportunities.”

Gaming System

In July 2007 Google CEO Eric Schmidt wrote to Martin and pledged a minimum bid of $4.6 billion if FCC would commit to four “openness” guarantees mandating unrestricted access to the spectrum regardless of the auction’s winner.

Though FCC acceded to two of the four demands–for forcing “open applications” and “open devices” access to the spectrum upon successful bidding–Google said it believed “it was important to demonstrate through action our commitment to a more open wireless world” by bidding in the auction.

CNET TV Executive Director Tom Merritt noted, “There was a lot of speculation over whether Google would actually grab the spectrum and start their own network, possibly in partnership or by acquiring. The general feeling, though, was that Google merely wanted to get the open access provisions in place.”

Rules Applied to All

Google noted on the blog post that while the firm was the highest bidder “for many days during the early course of the auction … it was clear, then and now, that Verizon Wireless ultimately was motivated to bid higher (and had far more financial incentive to gain the licenses).”

According to Robert C. Kenny, media relations and public outreach specialist for FCC, “Google was subject to the same rules and conditions as all other qualified bidders who were eligible to bid on the C Block of spectrum in the 700 MHz auction and would have been responsible for ensuring the build-out of the open platform network for commercial wireless services had they won.”

This latest FCC spectrum auction showcased new spectrum allocation processes. Kenny stated, “much of the success of the auction can be attributed to the stringent build-out requirements and conditions placed on much of the spectrum.”

Free Market

Merritt said FCC shouldn’t have attached provisions to the auction. “With no open-access provisions there’s no motivation to bid for anyone who doesn’t actually want the spectrum.

“Google’s only move that might bear scrutiny would be getting open access provisions agreed to in the first place,” Merritt continued.

FCC described the auction as a “movement toward a more open platform” that “will help transform the wireless industry in America, create greater competition, and provide consumers with more flexibility and choice in services.”

However, Merritt said, “anyone, mostly telcos, who opposes open access is going to see [Google’s ploy] as ‘gaming’ the system and getting an unfair advantage,” while “anyone for open access on the spectrum is going to see this as a clever way of using the system to ensure access.”

Joshua Hill ([email protected]) writes from Melbourne, Australia.