Google closer to mobile airwaves bid, sources say

WASHINGTON/SAN FRANCISCO — Google Inc. is considering bidding alone on coveted airwaves to launch a U.S. wireless network, as a deadline nears to declare bidding plans, sources familiar with the situation said.

One source underscored that Google had made no decision as of Friday on whether it would bid with partners or on its own in the auction of 700-megahertz spectrum due to begin Jan. 24.

Bidding could pit Google against top wireless carriers AT&T Inc. and Verizon Wireless, owned jointly by Verizon Communications Inc. and Vodafone Group Plc.

Going it alone at the government auction of airwaves would not rule out later signing up partners if Google were to win the necessary spectrum to create a network, the source said.

Google executives discussed the auction last week with Federal Communications Commission officials, including FCC Chairman Kevin Martin, sources familiar with the meeting said.

At the talks, executives for the Web search leader gave the impression of “inching more towards” a bid, one source said.

Another said it is “within the realm of possibility” that partners could be brought on later if Google wins. Google has talked to a number of prospective partners, not just carriers.

Google is “making all the necessary preparations to become an applicant to bid in the auction” ahead of a Dec. 3 deadline for applying to participate, a spokesman said in a statement.

“From the company's perspective, the overriding factor is how to foster more openness in networks. That is certainly the driving factor in our thinking about bidding on the spectrum.”

The 700-MHz band airwaves, which are being returned by broadcasters as they move from analog to digital signals early in 2009, can go long distances and penetrate thick walls. The auction is seen as a last chance for a new wireless player.

Google is considering funding a bid not only from its growing cash pile but by working with Wall Street. Outside financing would reduce its need for partners, one source said.

Google has said it would be prepared to bid at least $4.6 billion for the biggest chunk of spectrum if regulators agreed to policies to promote open use of such networks.

Google won half of what it asked: The FCC imposed a condition on a large portion of the spectrum that would require the winning bidder to open up networks to allow consumers to use any device or applications that works on those frequencies.

But the FCC did not require open access to network capacity to be resold to independent mobile service providers on a wholesale basis, another Google request.

Under the auction terms, if no one meets the $4.6 billion minimum bid, the auction for the open-access portion of the spectrum would be rerun without the open-access conditions.

One strategy Google is considering is to bid on a chunk of airwaves known as “D Block” that would be shared with public safety providers, as well as the more flexible, open-access piece of “C Block” spectrum.

One source said Google has met with Cyren Call, a company charged with managing public safety agency use of spectrum.

Google unveiled this month plans to offer software for building Internet-ready cell phones in an alliance of network operators and device and software makers. The first phones to result from it are due out in mid-2008, partners say.

Stifel Nicolaus analyst Blair Levin said Google is likely to apply to participate in the FCC auction and pay a required deposit later in December. Such moves would not guarantee it will submit a bid, but Levin thinks the company will do so.

Even if Google does bid, Levin said, it may not be designed to actually win the auction, but rather to make sure the FCC's minimum is met and the open-access provision stays in place.

John Hodulik, telecoms analyst with brokerage UBS in New York, said Google's entry into the highly competitive market will hurt the four big incumbents: AT&T, Verizon, Sprint Nextel Corp and Deutsche Telekom AG's T-Mobile USA.

But it could also prove painful for Google. He estimated it would cost an $8 billion to $10 billion more to build another nationwide wireless network, not to mention heavy capital spending to keep up with constant evolutions in the market.

Hodulik said such cost considerations could hugely depress Google's highly valued stock, which trades about 33 times what analysts, on average, expect it to earn next year. Google shares closed on Friday up $3.98, or 0.6 per cent, at $633.63.

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