Google has requested changes in conditions for 700MHz auction with the FCC urging the Commission to adopt four types of open platform rules, as part of the license conditions for the upcoming auction of wireless spectrum in the 700 megahertz (MHz) band. In addition, Google stated it would commit the minimum bid amount of $4.6B for the auction if the following four conditions were incorporated into the final license: 1) Open Applications: Consumers should be able to download and utilize any software applications, content, or services they desire. 2) Open Devices: Consumers should be able to utilize a handheld communications device with whatever network they prefer. 3) 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. 4) Open Networks: Third parties (e.g. internet service providers) should be able to interconnect at any technically feasible point in a 700 MHz licensee’s wireless network.
FCC Chairman Kevin Martin may incorporate the first two conditions suggested by Google into the final rules of the auction. However, it is unlikely the conditions related to open services and networks would be met, although such conditions would benefit consumers and provide a significant catalyst to innovation within the mobile Internet space. Initial success of Apple’s iPhone (~2MM of the $500+ device sold in 30 days) is proof that demand for easy-to-use and fun mobile devices with open applications is quite high. It appears that Internet usage of the iPhone has surprised many, particularly the use of Apple’s Safari browser, Google Maps + YouTube videos, Yahoo! email, and perhaps, WiFi access (watch for VoIP player Skype).
Google’s willingness to commit $4.6B to the spectrum auction, which could be more if a bidding war were to emerge, is a signal that the company believes the business opportunities derived from an open wireless Internet should be significant over time. Note that Google generated an estimated $29 in annualized gross revenue per unique visitor in Q207 (up from $21 in Q206). About 99.9% of Google’s revenue is derived from the PC-based Internet and it covets the opportunity to more effectively garner clicks / revenue from an even greater number of mobile users.
If indeed conditions are met and Google bids on the auction, it is highly likely that, in spite of its $12B in cash and marketable securities and $3B in 2007E free cash flow, Google would do so in partnership with other companies and / or perhaps in the form of a new entity whereby ownership / maintenance of the network would remain operationally independent. A new network is not expected to be operational before late-2009 or into 2010. Note that the traditional telcos buy and warehouse the new spectrum, i.e. don’t make it available to consumers, which would continue to restrain the development of the mobile Internet market in the US, and widen the competitive disadvantage the US has vis-à-vis this important emerging market in Asia and Europe.
Thanks M O R G A N S T A N L E Y R E S E A R C H, July 2007
FCC Chairman Kevin Martin may incorporate the first two conditions suggested by Google into the final rules of the auction. However, it is unlikely the conditions related to open services and networks would be met, although such conditions would benefit consumers and provide a significant catalyst to innovation within the mobile Internet space. Initial success of Apple’s iPhone (~2MM of the $500+ device sold in 30 days) is proof that demand for easy-to-use and fun mobile devices with open applications is quite high. It appears that Internet usage of the iPhone has surprised many, particularly the use of Apple’s Safari browser, Google Maps + YouTube videos, Yahoo! email, and perhaps, WiFi access (watch for VoIP player Skype).
Google’s willingness to commit $4.6B to the spectrum auction, which could be more if a bidding war were to emerge, is a signal that the company believes the business opportunities derived from an open wireless Internet should be significant over time. Note that Google generated an estimated $29 in annualized gross revenue per unique visitor in Q207 (up from $21 in Q206). About 99.9% of Google’s revenue is derived from the PC-based Internet and it covets the opportunity to more effectively garner clicks / revenue from an even greater number of mobile users.
If indeed conditions are met and Google bids on the auction, it is highly likely that, in spite of its $12B in cash and marketable securities and $3B in 2007E free cash flow, Google would do so in partnership with other companies and / or perhaps in the form of a new entity whereby ownership / maintenance of the network would remain operationally independent. A new network is not expected to be operational before late-2009 or into 2010. Note that the traditional telcos buy and warehouse the new spectrum, i.e. don’t make it available to consumers, which would continue to restrain the development of the mobile Internet market in the US, and widen the competitive disadvantage the US has vis-à-vis this important emerging market in Asia and Europe.
Thanks M O R G A N S T A N L E Y R E S E A R C H, July 2007
