Google's Already Won the FCC Auction

Includes: GOOG, T, VZ
by: Stephanie Grimmett

The licenses have yet to be handed out, but Google (NASDAQ:GOOG) already won the FCC auction.

In case you haven’t heard, television is going all-digital in 2009, and the Federal Communication Commission is selling off the bandwidth dropped by the TV industry to cellphone companies.

Yep, I’m afraid the FCC has officially declared rabbit ears an extinct species, and the cellphone carriers are going to use the airwaves of the old “broadcast networks” (all those stations you can currently bring in without cable) to provide faster downloads and more content to their subscribers.

Like any good American government body, the FCC is giving all U.S. cellphone carriers a fair chance to buy segments of the 62-megahertz band of spectrum, which is why the contenders for the most delectable chunk (six licenses on a 20-MHz swath that can be combined into one continuous band) were quickly confined by price to the two largest carriers, Verizon (NYSE:VZ) and AT&T (NYSE:T), and, interestingly enough, Google itself.

Technology Investment: Google turns activist

Google, and a large and varied group of friends, spent most of last summer petitioning the FCC to require the new spectrum be open access. And when the rules for the auction came out in September, it turned out Google, a gaggle of VOIP companies and the odd assortment of consumer advocates had won. The FCC put a clause in the sale of that scrumptious 20-MHz piece requiring it be kept open access by whoever bought it.

Forget for a moment the rumors of a Google Phone in the future and the fact that Google is bidding on spectrum itself, and ask yourself why the god of search engines cares what cellphone companies do. It all comes down to money. And if you own Google stock, you’re an open-access network proponent, too… unless you also own Verizon stock (and if you own VZ, I’m really sorry. The last two weeks have not been kind to you, not that they’ve been much kinder to GOOG shareholders.).

Google wants to put more ads and run more searches on cellphones. But the individual carriers currently control what devices connect to their networks and what those devices access. There’s more to the Internet than what you’re getting on your cellphone. Google wants you to have access to the entire Internet on your phone, and the company wants you to use it to navigate that access.

Technology Investment: Real open access

Verizon already declared itself open access a few months ago, but the company’s version of open access is to the real thing what a clown car is to a Cadillac. Verizon still controls what devices operate on its network through a “test laboratory” that determines which phones are harmful or not. And harmful could very well be defined as “it won’t make us as much money as the phones we sell you.” Yeah, that’s open access, just like my HMO.

Google (and Skype (NASDAQ:EBAY) and a few consumer advocacy groups who just want to play World of Warcraft on their phones, no matter which phone company they have) says that, just like the old-fashioned landline phone industry, cellphone companies shouldn’t be able to dictate which phones use their services or where those phones go using that service. And the FCC listened to Google’s petition.

The FCC clause will force Verizon, or any other cellphone carrier who wins the licenses, to really be open access, like the old days when you picked up a landline phone that appealed to you down at the local Wal-Mart (NYSE:WMT) and didn’t have to discuss it with your phone company beforehand.

Technology Investment: $4.6 billion

But the thing the FCC failed to highlight when it released the rules was that the open access clause wouldn’t be triggered until the auction price went over $4.6 billion (assuming, possibly, that at that point, the FCC would definitely be dealing strictly with the behemoth companies that have the power, influence and broad coverage to keep their networks closed ad infinitum).

The credit collapse had Google & Friends worried. They, and the rest of us, feared that, with the mood decidedly sour and debt no longer easy to procure, Verizon and AT&T would be less likely to drive the price up as high or as fast as they would have otherwise. And the $4.6 billion barrier that had looked like a picket fence suddenly had the strength and the menace of a prison wall to the merry band of open-access lobbyists.

But the FCC just confirmed a $4.71 billion bid. That offer shot the spectrum into the open access requirement. And Google celebrated.

The auction still has further rounds before a winner is announced, but when the FCC determines a winner, we’ll let you know how the results affect your investments.