Google aims to boost wireless competition

Google Inc. said yesterday it's ready to invest at least $4.6 billion in an upcoming auction of crucial radio frequencies -- but only if the Federal Communications Commission imposes new "openness" regulations on whoever wins the bidding war.

Major telecommunications companies including Verizon Communications Inc. and AT&T Inc. are expected to bid billions early next year for federal licenses to use segments of the 700-megahertz radio spectrum. The frequencies are currently used by television broadcasters, but will become available in 2009, when the nation's TV stations complete the transition to digital broadcasting.

The FCC hopes to raise billions for the federal treasury by auctioning the frequencies for use in building new high-speed wireless data networks. These networks could provide wireless phone service, as well as broadband Internet services to compete with cable and DSL Internet services.

But Google, other Internet companies, and a variety of public interest groups say that traditional wireless companies like Verizon will restrict competition on the new networks if they win the right to build them. For example, Verizon and other cell phone companies don't allow customers to use whatever phones they wish and set limits on the software that can run on these phones.

Google's wireless play was overshadowed by a 5 percent drop in the company's stock price yesterday. The company on Thursday disclosed a 28 percent increase in second-quarter earnings, to $925 million. But the increase fell short of analysts' expectations because of increased hiring and product-development expenses. Google shares fell $28.47 to close at $520.12 on the Nasdaq exchange.

The company has long worried that restrictions on high-speed data networks could damage its business by allowing network providers to freeze Google out of valuable markets. Google has lobbied for "net neutrality" laws that would force Internet providers to treat all online traffic the same. Its proposal to the FCC seeks to ensure the same kind of neutrality in the distribution of data over wireless networks.

In a letter delivered yesterday to the FCC, Google said it would participate in the wireless spectrum auction if the agency agrees to proposals to ensure open access to wireless networks. Under the Google plan, any company could make hardware and software products that would work on the network and consumers would be free to buy and use these products. In addition, Google wants the FCC to require that network owners offer wholesale access rates to smaller communications firms, which would then be able to resell access to the network. Google also wants a requirement that the network be designed so that any other communications service can easily connect to it.

Google said it is prepared to bid at least $4.6 billion for a slice of the radio spectrum. That could establish Google, now a giant of the Internet, as a major provider of telecom services.

Paul Gallant, a telecom industry analyst for the Stanford Group in Washington, said it's likely that Google would partner with telecom companies in any frequency bid. The company has an alliance with DirecTV Inc. and Echostar Communications Corp., two satellite TV providers that share Google's support for an open network.

Richard Whitt, Google's Washington telecom and media counsel, said the openness plan is vital to his company's participation in the auction. "If there is no openness requirement there, Google won't go," he said. But Gallant noted that FCC chairman Kevin Martin has already drafted a plan that adopts some of Google's ideas. Gallant thinks that Google is hoping to gain a few more concessions from Martin before deciding whether to join the auction. "In the end, they may still bid, even if they don't get everything they want," Gallant said.

The wireless industry scoffed at the Google proposal. "Google's letter certainly highlights its scheme to have the auction rigged in its favor with special conditions," said John Walls, vice president of public affairs at CTIA, a wireless industry association in Washington. Walls said that imposing Google's conditions would drive down the value of the radio spectrum, and thus the prices in the auction. He also said that Google can set up its own open network by simply winning the auction, without having the FCC impose similar conditions on the entire industry.

Hiawatha Bray can be reached at bray@globe.com.