Congress Faults Google for Spectrum Auction Problems

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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All Out Media War? Yahoo! and AOL vs. Microsoft and News Corp.

April 9 – Despite many impressions that Microsoft’s offer to buy Yahoo! for $31 a share was dying down and potentially would go away, all sides of the transaction are shifting strategies. On April 5, Microsoft gave the Yahoo! board until April 26th to make a deal or face a hostile takeover, which would include offers directly to shareholders with the potential for a lower bid. The Yahoo! board continues to formally reject Microsoft’s offer. With Yahoo! stock generally stagnant over the last 52 weeks (about $6 in either direction of the current close of $27.77 on 4/9/08), shareholders are much more likely to let money talk than are rich, ego-driven board members that want Yahoo! to remain independent.

New developments are in the air: The New York Times reports that Microsoft is in talks with News Corporation, the media acquisition leviathan, to make a joint bid for Yahoo! (Yahoo! Finance acknowledges this possibility here). Additionally, Yahoo! and AOL are said to be close to a deal themselves: Time Warner will agree to fold AOL into Yahoo!, while Time Warner would invest cash into 20 percent of the combined entity (giving AOL a $10 billion value). Should these be true, it could pin two very highly-bankrolled operations against each other with no room for error. So, what is all the fighting about?

It is likely that Yahoo! is fighting for its independent life, or at least wants to choose its own destiny, to prove it still has what a website needs to remain in the environment of Internet companies that matter. In the last several weeks, Yahoo! has had several major announcements in the last few weeks in an attempt to prove just that. Yahoo! launched “Buzz,” a news and Internet traffic aggregating website similar to Digg, Del.icio.us, Newsvine, and Stumbleupon. Yahoo!’s Flickr recently launched a video service, hoping to be the first realistic competition for Google’s Youtube. Yahoo! announced the acquisition of IndexTools’ Analytics Business in an effort to expand online marketing efforts. It also recently disclosed plans to use Google’s ad search engine, a revolutionary team-up between rival search engine companies. Essentially, the two companies agreed that Yahoo! could test Google’s search-based advertising in an effort to fend off Microsoft (think: enemy of my enemy is my friend).

Absent these recent efforts, Yahoo! would have little reason to give shareholder that it is in their best interest to wait this process out and have faith in the Yahoo! board. Though the leadership of the company cruised in neutral while companies such as Google flew by, they have woken up and realize they have work to do in re-establishing Yahoo!’s name. These three developments may just be enough to show shareholders that the company is working overtime and handing over the reigns to another company would thwart any efforts in keeping Yahoo! competitive.

If this is the board’s strategy, they too should make sure they are moving full speed ahead. If these recent developments at Yahoo! do not prove to shareholders that selling is a bad idea, the victor of this acquisition war will enjoy quite the spoils.

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Rescue Me. What Microsoft Can do for Yahoo! (Updated)

Feb. 8 – Assuming that Microsoft jumps through the infinite regulatory hurdles and pleases the masses of Yahoo! shareholders, Microsoft has a lot of work to do with the nearly-outdated search engine. The New York Times discuss here whether or not it is too late for Yahoo! to remain an independent viable competitor with Google. I have faith that with the right innovation, several things can be done to turn around Yahoo!. Microsoft’s acquisition is not a necessary condition for this to take place; it does, however, present an excellent opportunity for a comprehensive overhaul Yahoo.com needs to remain competitive.

Here are five things that Yahoo! did wrong or is still doing wrong that need to change in order to re-invent itself:

1. Give the homepage a face lift – I know that Yahoo!’s classic look is the infinite links, the ads, the current event’s box, weather, and on and on. The numerous boxes and superfluous colors, however, are reminiscent of websites from 1999 (see the 1995 page here that demonstrates few changes and a general lack of the site’s evolution). People are no longer impressed with so much information in one spot. In fact, it begins to look obtrusive and busy. Yahoo! tried a face lift a few months back, but it was in the wrong direction (click here for the site before the most recent update). They need to simplify, rather than have more of the same.

Even with the majority of the Internet community moving towards broadband download speeds, all of that information takes time to process and is distracting. MSNBC and CNN recognized this within the last 12 months and grossly simplified their homepages (click to compare old and new sites for MSNBC and CNN). Google’s minimalist approach may be an over-swing of the pendulum, but something in the middle must be employed.

2. Update the logo – Normally, I would not advise changing a company’s logo, but this is a drastic case. People associate the current logo with a feeling of being outdated and behind the times. A lot has happened since the mid-1990’s when that logo came out. The internet has had waves of ideological change in terms how companies portray themselves. Even AOL updated it’s logo post-Time Warner acquisition (from this to this – same concept, modern look). Even if Yahoo offers the best services, people will continue to associate the company as a second-place player behind newer, more innovative companies. Yahoo! doesn’t have to drop the “!” or its name entirely, just modify and modernize the look. A company should never be afraid to re-invent itself.

3. Limit the number of obtrusive ads – Ads from Yahoo! are often bright, animated, and very distracting. This includes ads on the homepage, as well as within the email system. If I am writing an email, or reading one for that matter, the ads with high colors and complex animation are so distracting I find it hard to concentrate. Additionally, remove the “signature line” ads from its users’ emails when they send messages. When I see an email, and at the very end it says, “Check out the new Yahoo! Cars,” it looks like a cheap shameless plug to get me to look at the website. A company with the prestige of Yahoo! doesn’t need to resort to start-up company tactics. Moreover, young professionals hesitate to use Yahoo! mail as their primary email if their communications with employers and other professionals include this type of advertising.

3a. On the subject of email, Microsoft and Yahoo might even want to collapse their two email services into one and create a new product. Yourname “@hotmail.com” is no longer “hot” and “@yahoo.com” is no longer exciting. Combine all users into one email system and create a new domain name that represents an innovative email system.

4. Don’t be afraid to be innovative – Yahoo! came out with “Answers” a while back, which I find both informative as well as entertaining. Since then, I have heard little of new services (there may be some, I just haven’t heard of any). Yahoo! should place more emphasis on products such as these that make its site more interactive with its users. I am not sure of taking it to the extreme of creating a social networking site like Facebook within Yahoo!, but something that draws in a crowd. Don’t create copycat services to sites already in existence. Create new ideas. Once Yahoo! comes up with more products and services like this, press hard to market to people the new feature and make it known to people all over the internet.

5. Integrate the user with all of Yahoo! products – The growing trend for new websites is how successfully they can serve as a dashboard for people’s lives. Keeping email together with calendars, pictures, and favorite websites is critical. Making a one-stop shop for people’s lives makes sure they don’t have to go anywhere else. Services like “My Yahoo!” are a step in the right direction, but what I am talking about goes beyond that. I mean creating programs that sync calendars on your Outlook, iCal, and other organization programs all in one place. This includes being able to share calendars and other vital information with other users.

There are many more ideas that may contribute to Yahoo!’s overhaul that would modernize its appeal and success with current Internet users. The five mentioned above only serve as a starting point.