Visit Your Local PBS Station PBS Home PBS Home Programs A-Z TV Schedules Watch Video Donate Shop PBS Search PBS
I, Cringely - The Survival of the Nerdiest with Robert X. Cringely
Search I,Cringely:

The Pulpit
The Pulpit

<< [ When Elephants Dance ]   |  Is Google on Crack?  |   [ Game Over ] >>

Weekly Column

Is Google on Crack?: Eric Schmidt bets the ranch on wireless spectrum

Status: [CLOSED] comments (105)
By Robert X. Cringely
bob@cringely.com

This week I was supposed to explain why U.S. broadband prices are so much higher and U.S. broadband speeds are so much lower than in most other developed countries, but then Google made an unexpected reckless move in the wireless bandwidth market and here I am trying to explain it. We'll get back to broadband prices shortly, but for now let's turn to Google, whose stock may very well have already peaked.

What has me all worked up is Google's announcement this week that it intends to bid at least $4.6 billion in the Federal Communication Commission's auction of bandwidth in the 700-MHz band being reclaimed in 2009 from analog television. The auction price can and probably will go a lot higher than that, but $4.6 billion is the reserve price, so Google is saying it will unilaterally make sure the auction is successful and the spectrum is reallocated... IF certain conditions are met.

Google "requested that the Commission should extend to all CMRS-type spectrum licensees clearly delineated, explicitly enforceable, and unwavering obligations to provide (1) open applications, (2) open devices, (3) open wholesale services, and (4) open network access." For those of us who don't regularly hang with the FCC these proposed conditions mean: 1) users should be able to download software from anywhere and use it on their communication devices without restriction; 2) users should be able to use any communication device that meets the technical requirements for connecting to the network no matter who made the device; 3) third-party resellers should be able to buy wholesale bandwidth from auction winners, and; 4) other networks should be able to connect to the 700-MHz network.

These are Internet rules Schmidt is asking for, Internet Engineering Task Force-like rules, that Google wants to apply to this fresh patch of wireless connectivity, turning what would have been yet another mobile phone system into a mobile Internet. The ideas aren't unique to Google and have been pushed for some time by folks including former Netscape CEO Jim Barksdale and former FCC commissioner Reed Hundt. They represent a bold idea that would change forever the way phones are used in the U.S., especially with landline connections in decline.

But this isn't the only proposal for auction rules that will supposedly "open up" the new spectrum. FCC Chairman Kevin Martin has proposed his own rules -- leaked to USA Today and the Wall Street Journal -- rules that would mandate opening up the network to a certain extent to third-party devices, though with limits on which frequencies could be accessed and without most of the other requests made by Google and others. AT&T at first opposed Martin's proposed rules then came around to supporting them, and Verizon appears to have done the same.

This is all the highest of theater. Chairman Martin's proposed auction rules won't actually go very far toward opening up the network. And the opposition then grudging acceptance of first AT&T and then Verizon to Martin's proposal is playacting that has more to do with Google than with the FCC chairman. The major wireless carriers have no desire at all to open up this network or any other. The bogeyman here is Voice over Internet Protocol (VoIP), which is currently restricted from most U.S. mobile networks because, well, nobody can really figure out why. Since most mobile users aren't paying separately for long-distance anyway and most U.S. mobile users can't even make international calls because of high toll fraud, VoIP just burns up minutes and would seem to threaten nobody. Still, the carriers hate and fear VoIP, so they put together this drama of supposed openness in order to make sure that true openness can't happen.

By this time it should be clear that I generally support what Google has proposed and think it is a very good idea for us all. So why, then, does the headline on this column suggest that Google is on crack to have even made such a proposal?

Because they don't know who they are messing with, that's why.

I am 100 percent behind Google's four conditions, but I see very little likelihood that they will be accepted by the full commission. I also see that they have slightly moved the wireless incumbents, who are mean and spiteful companies and WILL HAVE THEIR REVENGE.

I don't think it is clear to a lot of observers just how much Google has at stake in this issue. It goes far beyond the $4.6 billion. Remember that's just the reserve price, and by pledging that amount Google is making sure the auction goes forward at a price that will probably be north of $10 billion. IT IS VERY DOUBTFUL THAT GOOGLE WILL BE THE WINNER OF THAT $10 BILLION AUCTION. The wireless carriers will spend whatever it takes to win, not just because of the prime spectral real estate involved (700 MHz goes through concrete walls like butter), but because they don't want to change operational rules that have been very profitable for them over the years.

You see if Google actually bid and won the 700-MHz auction, they could operate the band exactly as they have proposed the FCC require. They could open the spectrum to devices and networks and services with impunity because winning the auction and paying those big bucks would entitle them to do so. It is only because Google doesn't expect to win, or possibly even to bid, that they are trying to force rules on the eventual winners, the mobile telcos.

I'm all for tilting at windmills -- heck I do it enough myself -- but Google has a lot at risk here and I think they are being foolish, even stupid.

Look who Google is up against -- all the largest Internet service providers in the U.S. Google will not win this even if they win the auction, because the telcos and cable companies are far more skilled and cunning when it comes to lobbying and controlling politicians than Google can ever hope to be. The telcos have spent more than a century at this game and Google hasn't even been in it for a decade. And Google's pockets are no deeper than those of the other potential bidders.

Frankly, I see Google heading for a big loss on this one.

And what they have to lose is more than you might guess. Google is risking its cash crop, leadership in web search.

Bill Gates likes to talk about how fragile is Microsoft's supposed monopoly and how it could disappear in a very short period of time. Well Microsoft is a Pyramid of Giza compared to Google, whose success is dependent on us not changing our favorite search engine.

But what if it is changed for us? What if Verizon, and AT&T, and Comcast, and half a dozen other huge broadband ISPs suddenly cut deals with some search company other than Google and your ISP-supplied browser and homepage no longer give such prominence to Google? The G-folk have rabid competitors who would very much like to take over that top spot. Would we even notice? How different are the search results these days from one engine to another? Not very different.

Yahoo, a company in crisis, fully supports Google's bold move, but you notice they didn't make it. Microsoft has been totally silent. Certainly Microsoft smells blood in the water and will be approaching all the outfits Google may have offended, trying to do exclusive search and ad deals with them.

So what Google has done is a bold and foolish act in which it is hard to find an upside for the company. If they intended to actually win the auction, which I wish they would, then they wouldn't have tried setting these conditions. They would just bid a truckload of money and walk away with the spectrum. But this thing they did do, what is it? It makes no sense at all, and one could argue, in fact, that is fiduciary suicide.

I have thought long and hard and I can see only two ways this could have come about. The first possibility is that Google has begun believing its own press releases, which is not a good idea for any company. Google is an arrogant and geeky company with leaders who have isolated themselves to the extent that they may no longer be in touch with reality. So much success so quick may have convinced them they are smarter than they actually are. It happens a lot. It could be happening here.

That's the most likely and saddest possibility, but it also means that if Google blows it, well then Google deserved to blow it. There is, however, an alternative motivation here beyond simple megalomania and corporate self-delusion: Google may actually be playing a game of poker.

This could be a fake, a head feint on Google's part. By attempting to set these conditions on any eventual auction winner, Google is tacitly telling the mobile carriers that it really doesn't intend to bid or doesn't intend to bid above the $4.6 billion threshold. Emboldened by this the telcos, who are also arrogant and have a kind of reptilian craftiness, may decide to save their resources and only bid, say, $10 billion. But what if Google bids $20 billion? Well then it's a whole new ballgame.

I hope that is Google's plan, but I fear that it isn't.

Comments from the Tribe

Status: [CLOSED] read all comments (105)

yeh must be to many expats working for google getting fed up with the USA's third world bag of shite telecoms system.

just do LLU FFS and break the local monopoly

maurice | Aug 03, 2007 | 8:52AM

I take it from your description of the "poker" scenario that this is a sealed bid auction - each interested party delivers their bid by a certain time, the bids are opened and the highest wins.

It seems that the most likely outcome is that the FCC will ignore Google's proposed rules. In which case I don't think the telcos will perceive Google as a significant threat and the status quo will remain the same.

I do believe that the FCC should accept Google's rules. The rules Google proposes seem to me to be the most inline with the public interest in the spectrum which the FCC is supposed to protect. If Google's rules are adopted, the game is quite interesting. Either a company that embraces an open network moves in and changes the mobile game or the telcos buy it and build out a low performance network so consumers see an advantage to their proprietary networks. Either way the telcos are mad at Google for getting the rules changed and damaging their business model.

The telcos will probably try to convince the FCC that an open network would cause performance issues that are not in the public's best interest for this spectrum. If they lose the lobby, but win the auction, they will likely build out the network in a way that lets them turn around to the FCC saying 'told you so' and ask the FCC to change the rules.

David Robarts | Aug 03, 2007 | 12:13PM

I recently was told this story regarding spectrum space. A muckety Muck at Orbital Sciences / Space data bought a band a long time ago. Now he sells of spectrum space from time to time to rase capital at a price much higher than when he bought. Is it possible that Google can buy this sprectrum space and then resell with the stipulation that the networks placed on it will be open ones ? Thus becoming a spectral HOA ( home owners association )

Fred :)

Fred | Aug 06, 2007 | 12:51PM