What to Expect From Google and the 700-MHz Spectrum Auction

One of the biggest telecom events in 2008 is slated to occur just six weeks from now. Starting on January 24, both telcos and Internet companies will be able to place their bids on blocks of the 700-MHz spectrum, which are scheduled to be vacated by incumbent UHF television broadcasters in February 2009.

The auction has garnered a significant amount of attention because the U.S. Federal Communications Commission attached open-access rules to the so-called "C block" spectrum, a valuable chunk of spectrum whose reserve price has been set at US$4.6 billion. Under these rules, the spectrum's licensees are prohibited from blocking or slowing Internet traffic from their competitors, and must also allow any devices to connect to their network.

Already, some telcos and Web companies have announced their plans to bid on the spectrum. (See related timeline of events.) The name that's generating the most buzz so far is Google, which pledged last month to "put our money where our principles are" and bid on the spectrum to give consumers "more competition and innovation than they have in today's wireless world." Google has long been a champion of open-access networks, and the company lobbied the FCC hard to slap open-access rules on portions of the spectrum up for auction.

But while Google certainly has the money to win large chunks of spectrum in the upcoming auction, analysts and wireless entrepreneurs say that developing applications and services for the spectrum will likely be a lengthy and expensive process that won't yield marketable products for years to come.

For instance, Mike Jude, a research analyst at Nemertes Research, says that "it's possible that we won't see a huge impact for a couple of years" after the spectrum winners officially take over the 700-MHz band, since they "will have to build infrastructure that is at least an 18-to-24-month project." Deepak Mehrotra, the vice president of mobile terminal solutions at the communications software company Aricent, is optimistic about the spectrum's potential for delivering high-speed mobile Internet, but he also thinks "the time it's going to take to monetize these applications is going to be quite significant."

Mark Winther, the group vice president and general manager of Worldwide Telecommunications at IDC, shares Mehrotra's and Jude's view that building out a high-speed broadband network on the 700-MHz spectrum is going to be costly and time-consuming, and believes that this could make Google think twice before going all-out to operate a network that would compete with the traditional carriers.

"Building and operating a network requires a lot of expertise that Google doesn't have right now," he says. "They could certainly get it, because they're looking at multiple years of effort. But chances are at end of day, Google is more likely to invest money in upgrading their search engine and in selling ads."

But Harold Feld, the senior vice president of the nonprofit public interest telecom law firm Media Access Project, thinks that Google will aggressively bid to win on the spectrum, even if it doesn't plan to directly operate a network on it.

"Google is not looking at becoming a direct competitor with the major telcos," he says. "Rather, I think they want to use the spectrum to entice people who are network operators to build out the kind of open-access network that Google wants. If Verizon or AT&T buys that spectrum, then Google will have to live with whatever kind of open-access network that the carriers want to build."