Will Google be the next big wireless carrier?

November 16, 2007, 5:26 PM UTC

By Yi-Wyn Yen

In the past year Google (GOOG) has made a concerted effort to open up the rigidly-controlled cell phone industry. It has aggressively lobbied the Federal Communications Commission to provide open access to wireless networks, and this week the company opened its new mobile platform to allow software developers to power mobile phones. Now Google is preparing to make a solo bid for wireless spectrum in the upcoming auction in Washington, the Wall Street Journal reported today.

A serious bid prompts speculation that Google could become the next major national carrier, but some feel that the Internet search king isn’t really after owning a piece of the premium airwaves.

“It’s highly unlikely that they will put in a bid to win the spectrum,” says Lehman Bros. analyst Doug Anmuth. “Google’s trying to push for policies to open up mobile opportunity rather than trying to own and operate spectrum in the long term.”

Adds UBS analyst John Hodulik, “We remain skeptical of a new entrant with the U.S. industry supporting a customer base equal to roughly 83% of the population.”

In late January the FCC will host a hotly-anticipated auction that would give a single network provider a stronger signal over long distances and offer advanced, technological services through a virgin spectrum. This will also be the first time that the FCC, under pressure by Google and Democratic congressional members, will host a frequency auction that requires the winning bidder to have an open platform that does not disable features on handsets and allows consumers to download any software application they choose. Verizon (VZ), which believes that more control offers better quality for features and services, vigorously opposed the FCC’s move.

Though Yahoo (YHOO) and Apple (AAPL) have also been mentioned as potential mobile operators, analysts say the cost for building and operating a brand new network may not be worth it to Google. The reserve that Google must meet to bid on the premium chunk of the 700 MHz airwaves is $4.6 billion, and it will likely be competing with the nation’s top two carriers, AT&T (T) and Verizon for the winning bid. Last month Google CEO Eric Schmidt told reporters that it was considering teaming with another company to bid in the upcoming auction, and now will have to absorb all the costs.

The infrastructure to build out the airwaves, which will be abandoned by television as it moves from analog to digital, would be steep. The FCC would require that the winner build out enough cellular towers to provide 40 percent of coverage nationwide within the first four years. Based on how much Sprint Nextel (S) plans to spend in the first five years to build out WiMax towers, analysts estimate the costs for Google could skyrocket beyond $5 billion in initial costs. “This is a massive construction process,” says Jonathan Cohen, a lawyer with Wilkinson Barker Knauer and a former FCC attorney who co-wrote the new spectrum rules.

Google launched its Android mobile developer platform on Monday to help change the way the wireless industry operates. It formed an alliance with 33 manufacturers, carriers and other companies in hopes of changing the way carriers keep mobile phones locked and restrict what applications most consumers can use. “Google doesn’t need its own spectrum because the Android platform can help open those conditions,” Anmuth says. “If I’m Google, I’d still care about the openness conditions, but I’d also claim victory from the alliance.”

Google will have until Dec. 3 to submit an application to participate in the FCC auction.