Reuters - Google's wireless-auction loss called possible win

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Google's wireless-auction loss called possible win

Friday, Mar 21, 2008 12:45AM UTC

By Eric Auchard

SAN FRANCISCO (Reuters) - Google Inc's losing bid for coveted wireless airwaves may prove a victory for the Web search leader as it still stands to get access to mobile networks without spending tens of billions of dollars to build one, analysts said on Thursday.

Wall Street analysts said the Silicon Valley Internet search and advertising giant has succeeded in forcing open network requirements upon winning bidder Verizon Communications via Google's apparent strategy of "bidding to lose."

Verizon will control the open network but will be required to allow devices and applications from other companies to use it.

"Google was never in this game to actually build out a telecom network. Their key goal was to open up closed networks," Cowen & Co analyst Jim Friedland said of the control that carriers hold over handsets and services on their networks.

Google's participation in the U.S. government's auction of wireless licenses is credited with helping to drive up the price Verizon paid to win a nationwide wireless license, giving it control of a major piece of the airwaves being vacated by TV broadcasters as they move to digital signals early next year.

Verizon Wireless, a joint venture of Verizon Communications and Vodafone Group Plc, AT&T Inc and Frontier Wireless, a partner of U.S. satellite TV company DISH Network Corp, took the lion's share of new airwaves.

The auctions raised a record $19.12 billion for government coffers.

"By creating a system that is completely open, Google may prevent carriers from using their monopoly position to drive users in a particular way to their services," Friedland said.

Google and rivals Yahoo Inc and Microsoft Corp have stepped up moves over the past year to help ensure that consumers will one day be able to use the Internet services on mobile phones in the way they now use computers.

Google believes making the Internet easier to use for billions of mobile phone users will translate into increased demand for its Web search and advertising services.

"Consumers soon should begin enjoying new, Internet-like freedom to get the most out of their mobile phones and other wireless devices," Google attorneys Richard Whitt and Joseph Faber said in a brief statement following the FCC auctions.

Earlier this year, investors had begun dismissing the idea that Google was seriously aiming to win licenses to build a nationwide U.S. wireless network as a way to expand its Web services business from computers to phones.

"Glad they didn't win it. Glad Google isn't going to be a wireless network operator," Global Crown Capital Martin Pyykkonen said. "Look at the margins of wireless operators!"

Google's extremely profitable business involves selling online advertisements alongside its Web search services. Building out and operating mobile networks could have slashed operating margins now in the high 30 percent range to network operator levels in the mid-teens or low-20s, Pyykkonen said.

What remains up for debate is the degree to which Google can make Verizon live up to auction rules that protect independent Internet services such as Google from being kept off phones and other devices by network owner Verizon.

"Whether or not Google can be charged for access to the devices or if customers can be surcharged for using Google applications remains unclear for now," Sanford C. Bernstein analyst Jeffrey Lindsay said in a research note.

(Editing by Gary Hill)