Google proposes ad-like auction for US spectrum
Wednesday, May 23, 2007; 10:32 AM
The U.S. Federal Communications Commission has tried and failed to develop spectrum auctions that allow startup companies to get into the mobile service provider industry but now Google thinks it has a better idea.
In a filing made to the FCC on Monday, Google proposes a spectrum policy that allows would-be service providers to bid real time in an auction for the right to use a piece of spectrum for a given period of time in order to deliver services to phones or other devices. The auction system could be similar to AdWords, the system Google offers to companies that bid against each other to have their ads displayed online when users search for certain terms.
The proposal will "bring innovative new broadband-based applications, services, and devices to all Americans" and bridge the digital divide, Google wrote in the filing.
Google's idea essentially would open up a secondary market for wireless spectrum. Currently, in order to discourage speculators, the FCC usually sets a time frame and network build-out requirements that companies must meet before they're allowed to sell their rights to the spectrum to another company.
In Google's proposal, the large companies that win spectrum rights from the government could allow companies big or small to bid against each other in an auction in order to gain rights to use pieces of the spectrum for service delivery.
"Licensees in this case can in some sense be an intermediary between the airwaves and people who want to use it," said Richard Whitt, telecom and media counsel for Google and author of the filing.
Third parties could bid for the right to use the spectrum for a year, six months or even two seconds, Whitt said. He envisions phones that could constantly be sniffing for available spectrum and the best price to use that spectrum for a given period of time.
It is difficult to imagine, however, who might own and maintain the networks in that scenario. The licensee or an Internet service provider could build the networks, Whitt said. "What we're looking for is the FCC to give us the flexibility to explore the business and financial relationships between the licensee, those who build the infrastructure and those who want to be retailers," he said.
Some experts say that Google's plan would ultimately favor companies with deep pockets. "It's not going to help smaller companies," said Dave Farber, a professor of computer science and public policy at Carnegie Mellon and a former chief technologist at the FCC. Figuring out how to build or access a network while also bidding on spectrum sounds expensive and risky to him.
Farber also imagines opportunities for gamesmanship. Competitors could overbid in the auctions to try to keep others out, he said.
"I think this is a response from big companies like Google to be able to get some of the new spectrum and they're trying to figure out how to do it without spending the type of money" typically required, he said.
Google's proposal also raises some legal questions. For example, a third party buys the right to use a piece of spectrum from a company the FCC has given spectrum rights to. If that third party's customer uses the spectrum to interfere with another legitimate spectrum holder, it's not clear who is ultimately responsible, said Kevin Werbach, an assistant professor of legal studies at the Wharton School of the University of Pennsylvania. However, this is a question that can be relatively easily resolved, said Werbach, who is also organizer of the Supernova technology conference and former counsel for new technology policy with the FCC.
The thinking behind allowing a secondary market is to enable smaller companies to enter the wireless industry and give an incentive to spectrum owners to put their unused spectrum to use. "A lot of companies that own spectrum don't use it but they're not about to give it back," Farber said. "On the books it has value."
The FCC has historically researched ways to make it easier for companies to sell their spectrum rights to others, but legal questions about the FCC's authority over such mechanisms have slowed down the process and been the subject of debate, Werbach said.
The current spectrum licensing system favors large companies because winning the rights to spectrum from the FCC often costs exorbitant amounts of money. After a company wins those rights, the company must also have enough capital to then build costly networks.
"Spectrum policy has been a game that for a long time has been played by insiders and predominantly incumbents," Werbach said.
In the early 1990s, the FCC tried to change that by developing a program meant to encourage small, rural and minority-run businesses to win spectrum rights. The process went horribly wrong and led to years of lawsuits and bankruptcies after which very few of the small businesses involved actually began offering mobile services.
If the FCC would allow an auction process like the one Google describes, Google would be interested in talking to spectrum winners about developing a system to enable it, Whitt said.
Google's proposal is specifically regarding the upcoming auction of 700MHz licenses. The spectrum has been used by television broadcasters but with the migration to digital transmission it is becoming available for wireless or other services.