April 18 - Fred Upton (Mi.-R) and other members of the House telecommunications subcommittee have publicly alleged that Google “duped” the Federal Communications Commission into adopting various open network and open access requirements for spectrum licensees in the 700-megahertz auction. Google requested the FCC to mandate certain requirements for cell phone companies. In exchange Google would commit bid a certain number of billion dollars to the auction. The subcommittee essentially claims that Google never intended to win the spectrum, and instead used capital as leverage to force the FCC to comply with its requests. The FCC did comply, and Verizon now won the largest block of the spectrum auction and must comply with FCC open network requirements.

The Breakdown: Traditionally, cellular companies use spectrum space to initiate and transmit cellular calls. The cell companies must have a spectrum use license, which the FCC issues for a period of time (which is usually renewed). Recently, Federal legislation freed up portions of spectrum space. The FCC decided to auction of certain portions in various blocks to regional and national cellular companies. The C-Block was the most sought after portion for, among other reasons, the ability to build next-generation wireless internet.

Often times, the FCC requires licensees to comply with certain regulations to maintain their status and operate under that spectrum space legally. For example, cell phones now must comply with what is called “E-911″ (short for enhanced 911). This means that, for a cellular company to use spectrum and operate legally, all phones must have the technology for 911 operators to locate a caller within approximately six meters should they call 911. This is a public policy decision that the FCC implemented for faster response from emergency service personnel.

Also important for background is understanding how cellular phone companies control applications and software on their network phones. In the United States, cell companies generally have phones “locked” so as to only work on their networks. This keeps customers using their networks when purchasing specific phones. Cellular companies also lock out certain programs and applications from being installed. For example, many Verizon Wireless phones have “Get it Now,” a mock Internet data transfer platform developed by Verizon Wireless. Companies do this to ensure revenue on programs and applications they create. It also allows for companies to create exclusive contracts with developers. Verizon has since agreed voluntarily to move to an open-network business model.

When Google learned that the FCC planned to auction new spectrum space, Google wanted the FCC to take one step further in the license requirements. Google asked for several things:

• 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 any technically feasible point in a 700 MHz licensee’s wireless network

In exchange, Google offered a pledge of $4.6 billion to the auction. Google justified this action as improvements for the consumer. More options and better choice in the cell phone market would improve innovation and consumer choice.

The FCC appreciated this gesture because it guaranteed, or at least made a strong promise that the auction would raise the reserve price amount for at least one portion of the auction licenses (the C-Block). Though the Commission did not adopt all of Google’s requests, it did agree (.pdf format) to most:

• The licensees must provide a platform that is more open to devices and applications. This would allow consumers to use the handset of their choice and download and use the applications of their choice in this spectrum block, subject to certain reasonable network management conditions that allow the licensee to protect the network from harm.
• C Block licensee have to publish device standards as soon as they are made to preferred vendors.
• They must provide potential customers notice of customers right to request attachment of device to network and notice of licensee’s process to make such request including network criteria.
• They must provide reasonable process for expeditiously reviewing request to put devices, consumers and applications to be on the network.

Also important: Within the last nine months, Google has announced the development of “Android,” an “open-network” operating system for cell phones. Google basically has created an open platform for software engineers to put on phones and then create programs of infinite varieties for customers to download and install. There is speculation as to what Google intends. There is certainty, however, that Google needed companies to have open-networks so people could freely take advantage of Android.

Enter the auction: Google bid the pledged $4.6 billion for the spectrum, but did not end up winning the C-Block license. The House telecommunications subcommittee is accusing the Internet giant of “playing fast and loose” with the FCC in asking for the Commission to mandate these open-access requirements. The comments fall short of saying that the request was self-serving, rather than for the public benefit as Google has contended all along. They further claim that Google’s “did a horrible thing by bidding” and cost the taxpayers billions in lost revenue that the auction would have yielded absent these requirements. (Less restrictions on a license makes it more desirable because companies have less with which to comply and more freedom to develop the spectrum under their own business model.) The FCC testified before the subcommittee this week. FCC Commissioner Kevin J. Martin stated that he had not “been duped” and that his goal “was to make sure that whoever won the C-Block had an open platform.”

First, Congressman Upton and other critics seem to have a warped sense of how much the auction would yield absent these open-access requirements. The FCC set the reserve price before Google requested open-access requirements. Google bid at or above the reserve price as per its agreement. Any guess that auction participants would have gone exponentially above the reserve is speculation at best. If the price had gone up much higher, there is nothing to suggest it would have reigned in statistically significant amounts more. The total auction went for around $20 billion; the C-Block went for $4.7 billion. Even if it went for $1 billion more, that is less than 5 percent increase in the total cost of the entire auction.

Second, Google’s track record, as a general matter, does not support these allegations. Google has worked to promote the public interest in innovation, access to information, and supporting revolutions in the Internet software-developing world. To suggest that they did a horrible thing or even imply that their efforts were self-serving is absurd.

Congress is playing the hindsight game and failing miserably. After several pieces of the auction failed (though many were unrelated to the C-Block), Congress is looking for someone to blame. They refuse to make the bed they slept in when they gave the FCC the authority to create the rules for this auction with such liberal constraints.

In the interest of transparency, portfolio.com reports that AT&T is the top career campaign contributor for each of the lawmakers on the telecommunications subcommittee. It has donated more than $200,000 to the candidates during their tenures in office. Verizon, BellSouth, and the National Cable and Telecommunications Association were other major campaign contributors. Information is available at www.openssecrets.org. Chairman Upton states that these contributions are not influencing his criticism of Google. Though the intent of this post is not to suggest any improper influence, it is always interesting to see who bankrolls the policy makers.

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Verizon Wireless, AT&T Wireless, and T-Mobile recently waged a price war for unlimited use calling plans on their respective networks. The three cellular companies have unlimited calling plans starting at $99 a month. Verizon customers can upgrade to unlimited messaging an extra $20; that same customer can have unlimited messaging, email, and video to anywhere in the country for $40. AT&T’s customers can upgrade to unlimited data usage for $35 a month. T-Mobile left out any word of data plan add-ons. Sprint admitted they will not join the $99 unlimited calling plan bandwagon.

Putting aside Sprint’s decision to remain uncompetitive, this move signals a positive development for the cellular telephone market. Wireless carriers are beginning to realize that as technologies converge, price plans for services should follow suit. People are tired with the nickel and dime-ing that has taken place over the last few years based on varying usage of multiple features. The piecemeal approach of charging per text, per email, per web launch forces the customer to think more about if the can say something rather than what they can say. Bravo to unlimited calling and data plans for the everyday users on everyday phones.

As much of an epiphany as this business model shift ends up being, it may be a lateral shift in terms of price for now. For example, prior to the announcement, Verizon had 1350 minutes for $99 with $45 added on for unlimited data (on a blackberry). Unlimited calling plans started at $119, totaling $165 for unlimited usage. Is a $25 price drop earth-shattering? Maybe not when the user is willing to spend well over a hundred dollars each month for the service in the first place.

Overall, this is good news for the consumer and for the cellular usage market. Cheaper access to broadband wireless could spur higher demand and faster innovation in wireless devices.

Palm recently announced the release of a low-priced smart phone on the AT&T network (available for purchase here).

Specs:

Device Technology: Quad-band, GSM
Network: AT&T
Operating System: Palm OS 5.4.9
Height: 4.2 in.
Width: 2.1 in.
Depth: 0.7 in.
Weight: 4.4 oz.
Screen Dimensions: 320 x 320 pixels, 2.2 in. diagonally
Keyboard: QWERTY
Other features: Xpress mail, AOL Instant Messenger, Yahoo messenger, Calendar Sync (Outlook and iCal), Bluetooth GPS, Push-to-Talk, Camera, XM Radio.

Overall rating: (Three of Five Bars)

Pros:

1. Cost – Starting at $99 signing after a two-year agreement with AT&T, this smart phone is much more accessible than the iPhone, Blackberry, Blackjack, or the like.

2. XM Radio – A satellite-ready communication device allows more music options for the user, which many smart phones lack. This is a solid compromise for its small storage capacity (up to 4 gb with expansion card) and a unique feature that makes the product more appealing.

3. Infrared & Wireless Transfer – This feature is a strong anticipatory innovation to the wireless generation of technology devices. Though many people will not be able to use this service until infrared and wireless transfer becomes universal, it shows that Palm is thinking ahead. On the other hand, the infrared may just be reminiscent of the Palm devices from the late 1990s. Microsoft’s embracing of infrared, Bluetooth, and wireless transfer may be a signal that this technology has a future.

Cons:

1. 1.3 Mega-pixel Camera: This low-end camera seems to be where Palm decided to sacrifice technology for the price. Most new smartphones start at 2.0 mexa-pixels. Such a disparity looks like this phone is behind right out of the starting gate.

2. Battery Life/Talk Time – “Up to 3 hours”: People using smart phones need the maximum allowable talk time and use of portable devices. Even the iphone, which includes other multimedia features and was highly criticized for its battery life, has a longer battery life at full use than three hours (8 hours of talk time, 6 hours of internet).

3. Lack of wireless connectivity: Being on the EDGE (2.5 G) wireless network, Palm should have anticipated buildings where wireless area network connectivity is common and could compensate for weak cellular network signal strength.

4. No touch screen: Granted, this would make the device much more expensive. Future smart phone technology, however, seems inevitably to be moving in this direction. When sacrificing quality for price, it may not be worth it to sacrifice thinking ahead.

Overall:

Palm has had a rough history for the last several years as innovative smart phones quickly dated the Palm Pilot series. This launch seems to be a self-recognized second-tier phone for the frugal smart phone shopper. This product seems to beg the question: If the smart phone is designed for the better-off business person (mobile email, web browsing, etc.), what strength is there in a lower end phone with features a non-business person likely will not use? Perhaps the less-than average music and media functions will be the saving grace of the Palm Centro for AT&T.

Feb. 6 – AT&T officially announced plans to implement a nationwide 3G
wireless network in an effort to “cast a wider net for mobile customers this year.” This announcement comes on the heels of the FCC approving AT&T’s purchase 12 mhz of the 700-mhz nationwide spectrum for a cost of $2.5 billion. This portion is not part of the FCC auction currently in progress.

This news seems to be marginal in light of current events at the FCC. While this announcement paves the way for AT&T to establish the infrastructure for the eagerly-anticipated 3G iphone, the 700-mhz auction currently in progress deserves strict attention with respect to the future of 3G wireless networks (click here for the auctions current status). It is important not to lose sight of the 3G’s big-picture development.

The 3G iphone will help undoubtedly help AT&T’s push into the third-generation wireless market. There are many players, however, on the verge of entering the lucrative and innovative field. New market entrants hope to shake up traditional business models, including that of AT&T. For example, Google’s commitment of $4+ billion to a portion of the open-network portion of the C-Block, coupled with commitments to an open-platform cellular operating system, could quickly drive the direction of 3G wireless services.

This is not to ignore the partnership between Apple and AT&T and its effect on the smart phone/wireless broadband market. They have contributed substantial improvement and awareness to future wireless capabilities. This is not to say, however, that this partnership will swallow the 3G wireless movement whole. We have yet to see what companies, such as Verizon and Sprint, have planned to attempt dominance in the wireless market. Stay tuned.