Google Plays 700 UP

July 12, 2007

There is a new game being played that I call 700 UP. The move to digital television in the U.S. has freed up wireless spectrum in the 700 MHz range that will be auctioned off this year. The major wireless carriers will be bidding as expected but what is interesting is that Google is lobbying to influence the rules of the auction. On the Google Public Policy blog they have a post promoting a set of open platform rules.

What would happen if one or some of the existing national wireless carriers win this valuable spectrum at auction? They would probably use it to protect their existing business models and thwart the entry of new competitors — both understandable actions from a rational business perspective. Beyond the loss of a valuable public resource, however, that outcome would not bring us any closer to fostering much-needed competition in the broadband market, or providing innovative new web applications and service offerings.

Too much is at stake for the federal government to let that happen. Late yesterday, we filed a letter urging the FCC to take concrete steps to make sure that regardless of who wins the spectrum at auction, consumers’ interests are best served. We believe that the winning bidders should be required to adhere to enforceable rules that require the adoption of four types of “open” platforms:

  • Open applications: consumers should be able to download and utilize any software applications, content, or services they desire;
  • Open devices: consumers should be able to utilize a handheld communications device with whatever wireless network they prefer;
  • Open services: third parties (resellers) should be able to acquire wireless services from a 700 MHz licensee on a wholesale basis, based on reasonably nondiscriminatory commercial terms; and
  • Open networks: third parties (like internet service providers) should be able to interconnect at a technically feasible point in a 700 MHz licensee’s wireless network.

The post sounds like Google’s “Tear Down This Wall(ed Garden)” speech. An article in The Washington Post takes what the authors call a pro-market stance but really amounts to an old school (but proven) carrier stance.

The Federal Communications Commission is poised to auction another big chunk of electromagnetic spectrum. This is one of Uncle Sam’s most valuable assets — the airwave equivalent of a square mile of prime Manhattan real estate. And an army of lobbyists is combining hardball influence-peddling with appeals to ideology in search of a way to gain the turf for less than market value.

The idea of auctioning spectrum (rather than giving it away to the “worthiest” applicant) was a stroke of genius. Open auctions make it likely that the spectrum will end up with the users who value it most — and in the process maximize the cash flowing into the U.S. Treasury.

See, 700 UP is a fun game, no?

I find this game fascinating because it demonstrates how hard shared resource problems really are.

Wireless spectrum is very different from other well understood shared resources like oil or precious metals. Oil is more like a fixed asset that you choose to sell off bit by bit over time. Leaving oil in the ground is equivalent to keeping gold bullion in a safety deposit box. It may not be earning interest but it is not a terrible strategy to keep an appreciating asset safely stored/buried until you can use it effectively. Wireless spectrum is more like a road right-of-way. It is wasteful to let that kind of resource sit idle.

From a citizen’s perspective, the goal of a wireless spectrum auction (or equivalent system) should be to get the most bang-for-the-buck out of the resource. Uncle Sam (i.e. the government) is acting as an agent on behalf of “the people” who are the true owners of the wireless spectrum. The “Free Market” side is appealing to Uncle Sam’s desire to increase government coffers with what amounts to an indirect tax (the customers of the auction winner will ultimately pay the government). The Google “Open Platform” side is appealing to Uncle Sam’s desire to provide earmarks for a perceived (but unproven) public good.

700 UP is a complicated game and the only thing I’m convinced of is that no one really knows how to structure the rules to maximize the bang-for-the-buck for the true stake holders, the people. It makes for a great spectator sport though.

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