July 24 (Bloomberg) -- U.S. Federal Communications Commission Chairman Kevin Martin said an airwaves-leasing proposal by Google Inc. may discourage bidders in a government auction from developing their networks.

Google said last week that it will bid at least $4.6 billion for the airwaves if the winner of the auctioned spectrum is required to lease access to the airwaves at wholesale rates. That may make bidders ``less willing'' to build out that network, Martin said today.

Google, owner of the most popular search engine, has sparred with AT&T Inc. and Verizon Wireless, the two biggest U.S. mobile- phone companies, over rules for the auction. The carriers plan to use the airwaves to offer more of their own mobile Web content, while Google wants the network to be open to all devices. Google also wants the spectrum to be resold if there's excess capacity.

The auction rules should provide ``maximum incentive to invest in the underlying wireless network,'' Martin said during a U.S. House of Representatives Telecommunications subcommittee hearing. The FCC expects to vote on the rules by July 31, Martin said after the hearing.

Martin, who has proposed a minimum bid price of $4.6 billion for the spectrum Google is seeking, wants the winner to open its network to any legal mobile device or application. While his plan would allow companies to resell airwaves, it wouldn't require it.

Mobile Ads

``The proposal I put forth isn't designed to facilitate entry of any particular company'' into the wireless market, Martin said. ``It's not about any of the companies but about the consumers.''

A potential bid by Mountain View, California-based Google reflects its aim to develop new wireless services and sell more ads. Google spokesman Adam Kovacevich didn't immediately return a call seeking comment.

The FCC plans to auction the airwaves by January. The government has said the spectrum may fetch as much as $15 billion. The airwaves that Google wants to buy represent about a third of the total airwaves being sold.

Shares of Google rose $1.49 to $514 at 4 p.m. New York time on the Nasdaq Stock Market and have gained 12 percent this year.

Democratic commissioners Michael Copps and Jonathan Adelstein, who support open-device rules, said Martin's plan doesn't go far enough. They are pressing for the type of wholesale requirements sought by Google.

``No matter who wins the spectrum, it would be helpful if it was opened up for different companies to come in and buy capacity on a wholesale basis,'' Adelstein said in an interview.

`Fewer Restraints'

Martin's fellow Republican commissioners, Robert McDowell and Deborah Taylor Tate, said they haven't decided whether to support his open-device measure.

Martin's plan would give consumers more choices and spur advances in the U.S. wireless industry, which lags behind those of other industrialized countries in network speeds and device features, he told the panel.

``Currently, American consumers are too often asked to throw away their old phones and buy new ones if they want to switch cell-phone carriers,'' Martin said. ``Wireless consumers in many other countries face far fewer restraints.''

Google and EBay Inc. say open-access rules, including a wholesale requirement, would encourage the creation of a wireless alternative to entrenched broadband providers.

AT&T, based in San Antonio, says Google's proposal may invite lawsuits and reduce the number of bidders in the auction. AT&T has endorsed Martin's plan, calling it a ``creative balance'' between competing interests.

Verizon Wireless is fighting all open-access plans, including Martin's. The company says the FCC lacks the authority to force carriers to allow all devices on their network.

``Such mandated open access risks harming not only the operation of that device but the network on which the device rides,'' Verizon Wireless told the FCC today in a letter.

To contact the reporter on this story: Molly Peterson in Washington at mpeterson9@bloomberg.net

Last Updated: July 24, 2007 19:12 EDT