Is Google on crack?

[David Farber <dave () farber net>]

Begin forwarded message:

From: dewayne () warpspeed com (Dewayne Hendricks)
Date: July 27, 2007 7:24:22 AM EDT
To: Dewayne-Net Technology List <xyzzy () warpspeed com>
Subject: [Dewayne-Net] Is Google on crack?

Is Google on crack?
By Robert X. Cringely
bob () cringely com
<http://www.pbs.org/cringely/pulpit/2007/pulpit_20070727_002573.html>
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.





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