Google to Bid for Wireless Spectrum

Google Inc. confirmed its plans to bid for a prized piece of the airwaves in an upcoming government auction, further underscoring the Internet search leader's determination to shake up the wireless market and plumb more profits from mobile phones.

Friday's announcement wasn't a bombshell because the Mountain View-based company previously signaled it might participate in the Federal Communications Commission auction scheduled to begin Jan. 24.

In a mild surprise, Google will enter the competition without a partner more experienced in the wireless industry.

Going it alone will be expensive and potentially risky, even for a company as rich and technologically adept as Google, which ended September with about $13 billion in cash.

The bidding for the swath of 700 megahertz spectrum that Google wants will start at $4.6 billion, with analysts predicting the final price will be substantially higher. Building out the network for national coverage might cost an additional $5 billion to $7.5 billion, based on estimates from Citigroup Global markets analyst Michael Rollins.

Lingering questions about how the possible wireless expansion might affect Google's finances and focus on its core Internet business threaten to weigh on its stock in the months ahead.

The uncertainty could last awhile since the winner of the airwaves auction might not be identified until March.

Google shares fell $4 to close at $693 in Friday trading.

The airwaves up for grabs are widely coveted because the frequencies travel long distances and easily penetrate walls -- advantages that will require fewer radio towers while still promising better connections than other wireless networks. The spectrum is being freed up as part of the switch to digital television in February 2009.

Whoever wins the rights to the spectrum being eyed by Google must accommodate all types of phones and mobile software. Google lobbied the FCC to adopt the "open access" condition, arguing consumers shouldn't be restrained by current market restrictions that limit the kinds of handsets that work on wireless networks.

"We believe it's important to put our money where our principles are," Google Chairman Eric Schmidt said. "Consumers deserve more competition and innovation than they have in today's wireless world."

Google jolted the status quo earlier this month by unveiling plans for a new mobile software system called Android, which is designed to work on "smart" phones. The first devices with the software are expected to hit the market during the second half of next year.

Verizon Wireless, the second largest U.S. wireless carrier, countered Google's move by announcing plans earlier this week to open up its own network to other devices.

Google's decision to throw its hat into the ring for the wireless auction may be part of a strategy to turn the heat up even higher on Verizon and other major carriers such as AT&T Inc., said Cantor Fitzgerald analyst Derek Brown.

"Google is taking an aggressive stance that shows it's a legitimate threat to the entrenched players," Brown said. "They are clearly trying to stir the pot and are doing a pretty good job of it so far."

Unless they publicly declare their intentions like Google did Friday, the other bidders in the auction might not be known until the FCC releases a list of participants in mid-December. The deadline to apply for acceptance into auction is Monday.

Google has a vested interest in ensuring wireless networks are more accessible to all kinds of handheld devices. The company views the mobile market as a rich vein of revenue that has been largely untapped so far because the major wireless carriers have stifled competition and innovation by tightly controlling access to their networks.

By building a more accessible platform for handheld devices and software applications, Google is betting people will use their mobile phones to connect to the Internet more frequently.

If that happens, Google conceivably could make a lot more money than it already does by serving up ads based on the requests people enter into its search engine.

Internet analyst Mark Mahaney of Citigroup Global Markets estimates that Google could be generating an additional $700 million in annual revenue by 2010 if the projected 4 billion mobile phone users worldwide at that time average just one Internet search per month on their handsets.

Google's revenue this year is expected to exceed $16 billion.

By muscling its way into the mobile market, Google could become a bigger player in several major countries where the company hasn't been able to dominate searches on personal computers, Mahaney said. He cited Japan, China and South Korea as prime targets for Google's mobile expansion.

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