Google and the spectrum wars

As you’ve probably heard, the 700MHz auction is over in the U.S., netting a record US$19 billion. And the winners are (surprise, surprise) Verizon and AT&T, which cleaned up the C-block, spending $16 billion between them.

Other results? The D-block, which had been designated for commercial emergency services, netted a $472-million bid from Qualcomm — well below the government’s $1.3 billion asking price. And Google, which supposedly was planning to scoop up spectrum to launch services of its own, failed to pick up anything — though the company’s claiming victory for having pushed through the open-access requirements.

More on Google in a bit, but first … if anyone’s surprised by these results, it’s time for a short review of network economics. Networks aren’t about technology. They’re about two things: scale and service. In other words, the biggest player, with the broadest geographic reach, will win. Deep pockets are what matter, not innovative technology. And the primary offering that carriers deliver to their customers is service — meaning that most of a carrier’s cost is in the back-office infrastructure that enables it to support customers.

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Given that, the auction results were pretty much foreordained: the biggest carriers would spend whatever it took to continue to gain scale. And nobody was going to pay for spectrum that came with constraints that might make it commercially nonviable. Finally, there was never even a remote question that Google would outbid the communications companies.

Google’s business model is altogether different: It’s about converting eyeballs to dollars. In other words, locking in a viewer base against which it can sell adds. All of Google’s infrastructure and technology is focused on enabling this. What’s more, the company has never delivered a product or service to paying customers. That means Google lacks the massive back-office infrastructure, processes and focus that enable it to deliver services to paying customers.

Which brings us to Google’s next scheme: asking the FCC for the use of “white spaces” (unused and unlicensed portions of the spectrum within TV ranges) as an alternative way to offer services. Will the company succeed? Nope. Aside from the fact that the FCC is lukewarm towards the proposal, the reality is that even if Google somehow gained access to the white spaces, it’s highly unlikely the company could deliver meaningful services across them — something it’s never done before, and lacks the infrastructure and mindset for doing now.

One last thing: Apparently, the FCC is planning to investigate potential corruption charges around the D-block (commercial emergency services) offering. That’s a laugh. Chairman Kevin Martin should start by looking in the mirror. He carved out the D-block specifically to appeal to former FCC Chair Reed Hundt’s new company, which dropped out of the bidding at the last minute. With cronyism like this, who needs real corruption?

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