Google, AT&T Take Sides as FCC Debates Airwaves Rules (Update3)

By Molly Peterson

July 31 (Bloomberg) -- The U.S. Federal Communications Commission will decide today whether companies bidding for wireless airwaves must make them available to any mobile phone or wireless device.

The FCC's decision will set rules for an auction that may fetch as much as $15 billion. The sale could draw bids from big phone carriers including AT&T Inc. and Web companies including Google Inc. that are looking for new markets.

The rules may help create a wireless alternative to services sold by the entrenched phone and cable companies, Google says. That would build new competition for AT&T and Verizon Wireless, whose networks now work only with technologies they approve. The outcome may shape the legacy of FCC Chairman Kevin Martin, who is pushing for the so-called open-access policy.

``Ten years from now, this is what we'll remember the Martin commission for, this auction,'' said Stifel Nicolaus & Co. analyst Blair Levin in Washington, who helped write rules for airwaves auctions in the mid-1990s as chief of staff to former FCC Chairman Reed Hundt. ``It can be a tremendous stimulant to the economy; it can also be a bust.''

The airwaves in question, which the FCC must auction off by the end of January, will be freed up when television broadcasters convert to digital signals in February 2009. It's the first such auction since last year and will be the last of its kind for decades because no other airwaves of that quality are expected to be vacated in the foreseeable future, the carriers say.

AT&T, the biggest U.S. wireless carrier, and No. 2 Verizon Wireless want the airwaves so they can offer more of their own mobile Web content at faster speeds. The carriers consider these airwaves ideal for high-speed mobile Internet service because they can carry signals over long distances and penetrate walls.

New Alternatives

Shares of San Antonio-based AT&T fell 11 cents to $39.66 at 12:25 p.m. in New York Stock Exchange composite trading. Google shares gained 49 cents to $516.60 on the Nasdaq Stock Market.

Martin sparked controversy this month when he proposed rules giving Google some of what it wants, saying the buyer of one piece of the airwaves being sold should be forced to allow any device or application to work on its network. Today's meeting, scheduled to begin at 10 a.m., was postponed until 12:30 p.m.

Martin says his proposal 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.

`Robust Competition'

Google wants the FCC to go even further. It argues not only for access to all devices including laptops and mobile phones and all kinds of software such as applications that provide driving directions, but also says the owner should be forced to rent out the airwaves at wholesale, discounted rates instead of the full price a retail customer would pay.

The owner of the most popular search engine is developing new wireless Web services and looking for a new way to reach people in a bid to boost ad sales.

``If the FCC ultimately decides not to adopt `wholesale open access' license conditions, we do not see how significant new competition can emerge from this auction,'' Google lobbyist Richard Whitt in Washington wrote in a blog posting yesterday. ``The prospect for fostering robust competition in this slender but valuable slice of spectrum hangs in the balance.''

Mountain View, California-based Google has pledged to bid at least $4.6 billion for a slice of spectrum, if the FCC approves additional rules such as Google's wholesaling proposal.

`Unnecessary Restrictions'

Verizon and AT&T say they may bid less if more restrictions are placed on the winners, reducing the potential revenue the government receives.

``We have made our position clear about the FCC not putting any unnecessary restrictions on any of these blocks,'' Verizon Communications Inc. Chief Executive Officer Ivan Seidenberg said on a conference call yesterday. ``What we need to do now is see what the rules say and then develop a bidding strategy accordingly.''

Debra Lewis, a spokeswoman for Basking Ridge, New Jersey- based Verizon Wireless, co-owned by Vodafone Group Plc, declined to comment further. Christopher Libertelli, a lobbyist for San Jose, California-based EBay Inc.'s Skype Web-phone unit, couldn't immediately be reached for comment. Google spokesman Adam Kovacevich declined to expand on Whitt's blog remarks.

`Creative Balance'

AT&T, which opposes Google's proposal, endorsed Martin's plan last week. Martin's measure strikes a ``creative balance'' between competing interests, said Jim Cicconi, AT&T's senior executive vice president for external and legislative affairs. AT&T spokesman Michael Balmoris declined to expand on Cicconi's comments.

Martin, a Republican, says wholesale rules may discourage bidders from developing their networks. Republican commissioners Robert McDowell and Deborah Taylor Tate also oppose a wholesale requirement. Democratic commissioners Michael Copps and Jonathan Adelstein favor such rules.

``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 July 24 in an interview.

McDowell and Tate said last week that they hadn't decided whether to support Martin's open-device proposal.

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

Last Updated: July 31, 2007 12:35 EDT

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