Google owning spectrum is a bad idea

Owning the premier search site or becoming the single biggest media player in the still-emerging online advertising industry is one thing; becoming a telecommunications provider, aka, a phone company, is another.

If Google enters the bidding for the 700MHz spectrum, it “[has] not ruled in or out participating in the auction as a licensee,” said Richard Whitt, Washington, D.C. telecom and media counsel for Google, as reported by IDG News Service’s Nancy Gohring. If Google enters and wins the auction, it could turn out badly for everybody, including Google.

Gohring reports that Google has requested the FCC to rule on whether or not it can buy the spectrum and then resell the right to use it at auction.

“On Monday, Google filed a letter with the FCC asking the agency to allow winners of the spectrum to create an auction system that would let third parties bid against each other for the right to use the spectrum,” she writes. “The system could be much like AdWords, Google’s offering that lets companies bid against each other in order to display online advertising tied to search terms.”

This is in direct opposition, to SpectrumCo, the consortium between Comcast, Time Warner, Cox, Advance-Newhouse, and Sprint Nextel.

According to the Telecom Law Blog, “This group recently filed an ex parte letter and white paper in the FCC’s 700 MHz auction rules proceeding advocating the importance of a mix of license sizes (both in terms of service area and in spectrum amount) for the upcoming 700 MHz auction.”

The blog further discusses why this is important, pointing out, “SpectrumCo argues that larger spectrum block and service area license plans are inefficient and may encourage spectrum warehousing, while smaller geographic and spectrum allocations facilitate increased auction participation and competition, enhanced rural coverage and ultimately create higher auction revenues,” for the government.

So the Google petition talks about an auction that would let third parties bid against each other “for the right to use the spectrum.” Nothing about reselling the spectrum, but setting up an auction, most likely among advertisers like AdWords to use the spectrum that Google, if their scenario works out, still owns.

What will that do to the wireless airwaves? Will we be flooded with ads on our cell phones and other wireless devices? How else will these third parties get a return on their investment after they pay Google?

It all sounds very suspect to me.

To top it off, as I pointed out in a story written almost 5 years ago, from a technological point of view, the 700MHz spectrum remains better suited for high-speed access to the mobile Internet than the 1.9MHz spectrum. The 700MHz spectrum passes through buildings and around objects more easily than higher-megahertz bandwidth.

If Google could afford to buy up all of the blocks of spectrum by outbidding all the other players (some estimate total bids could go as high as $50 billion), it would have far more control of its own destiny, Gohring points out, noting that “Google has complained about the difficulty of working with operators, which control the wireless networks, and faces the challenge of developing products for the very wide array of different phone software platforms. Operating its own network could allow Google to offer the types of services it wants to.”

But does it know how to operate a network? It has no real track record in telecommunications, and hiring experts at the last minute just doesn’t cut it.

Truth is Google knows very little about running a telecommunications network. The infrastructure is enormous and would probably require as many employees to run it as now work at Google.

Do you think it might get a bit distracted?

The strategy most large companies have used over the last half dozen years has been to divest themselves of everything that is not part of their core technology, outsourcing it to someone who does technologies not core to the business so it can focus instead on what the company does best.

If Google starts buying spectrum, no matter what it does with it, it seems to me that they are running counter to what the best business minds have been telling us for many years.

I have no doubt Google could afford to make the winning bids for all of the 700MHz spectrum, but bear in mind it could put a dent even in its deep pockets.

The $50 billion bid estimate may be a bit over the top but the auction for the PCS (Personal Communications Services) spectrum auctioned off a total of 422 licenses covering 195 markets and raised $16.8 billion. Sprint owns most of it. The opening bid for the 1.9MHz spectrum was $5 billion.

Perhaps Google will think better of it. Or perhaps the FCC will nix the idea of selling usage rights as Google wants to as not being in the best interests of the public.

As it stands now, there are not too many qualifying caveats on those who are allowed to bid on spectrum other than owning a fat wallet.