The spectrum allocation dance: What’s new

Two weeks ago, we talked about the debate over the FCC’s planned 700Mhz spectrum auction, scheduled for January. You’ll recall that Google had placed a preemptive bid of US$4.6 billion for a chunk of the spectrum, provided the feds adopted two constraints: open access and wholesale resale. Carriers resisted the wholesale resale provision and some also resisted open access.

The story so far: The FCC rejected the wholesale resale provision, but required Google’s open access constraint on about a third of the spectrum.

From a purely scientific standpoint, that’s an interesting compromise, because it provides the market with a controlled experiment. Offering virtually identical spectrum to the market under identical economic conditions, but under two different regulatory models, provides factual data on how regulations affect the market.

If — as the free marketeers predict, and I agree — open access leads to greater choice and a broader variety of offerings, there will be indisputable evidence. And if the contrary is true, we’ll see that as well.

Unfortunately, whichever approach proves better will be poor consolation to the folks stuck with the other one, and because the regulations are unlikely to be changed for the foreseeable future, the knowledge we’ll have gained regarding which approach is better will remain purely academic.

But the real question at this point is: What happens next?

One of the more surreal moments of the debate thus far was the point where both Google and the carriers (chiefly Verizon) threatened to take their bidding dollars and go home. This still makes me chuckle — as if there was any chance that the big telcos and tech firms would miss out on the biggest auction of the decade. Yeah, right.

The most recent indication is that Google will bid anyway, even though it didn’t get the terms it wanted. But you may be wondering why a search engine company wants wireless spectrum in the first place.

It all comes back to net neutrality, but not the way you’re probably thinking. Google’s position on ‘Net neutrality is essentially: Do as I say, not as I do. In other words, Google’s goal is to ensure that carriers will not either refuse to carry from Google’s applications (which has never happened, and is not likely to) or peg fees to the amount and type of traffic Google generates (which carriers are hoping to do in future). To avoid this, Google is looking to become its own carrier — or more accurately, to sublease spectrum and subcontract the actual infrastructure buildout to third parties.

But here’s the kicker: Google, itself, has no history of adhering to net neutrality policies. So the endgame is having Google in total control of the infrastructure, without officially being a carrier itself, and therefore not subject to ‘Net neutrality regulations. Which, of course, positions Google perfectly to cut off transport services to any future up-and-coming competitors, thereby cementing its dominance in the search market, and securing its advertising revenues.

Of course, Google would never do that. It would be evil.

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