Google to bid for U.S. airwaves if condition added

By Peter Kaplan and Sinead Carew

WASHINGTON/NEW YORK (Reuters) - Google Inc said on Friday it would take part in a major auction of wireless spectrum airwaves, meeting a minimum required bid of $4.6 billion, if U.S. regulators added a sale condition that Google said would promote an open wireless market.

The prospect of Google's participation in the auction escalates the debate over how the valuable airwaves should be used.

Ten days after Federal Communications Commission Chairman Kevin Martin floated a proposed set of rules for the auction, Google said it wants the FCC to require the winning bidder to offer to resell access to some of the airwaves to competitors on a wholesale basis.

"When Americans can use the software and handsets of their choice, over open and competitive networks, they win," Google Chief Executive Eric Schmidt said in a letter to Martin.

Martin's plan would require support for any wireless device or software application, but it did not include the so-called "wholesale" requirement.

"While these all are positive steps, unfortunately the current draft order falls short of including (all of the) tailored and enforceable conditions, with meaningful implementation deadlines, that consumer groups, other companies, and Google have sought," Schmidt wrote.

Google also called for another provision which would require other companies to be allowed to interconnect "at any technically feasible point" with the winning bidder's network.

Schmidt has said an open telecommunications network drives Internet usage and directly benefits Google's business strategy of selling advertising over the Internet. Some analysts have also speculated that Google could have plans to develop and sell mobile devices.

Google's position is at odds with existing major wireless carriers that say a requirement to resell the airwaves would reduce the value of the airwaves.

Google's offer was denounced by most existing wireless carriers, who accused the company of trying to rig the auction in its favor.

"This is an attempt to pressure the U.S. government to turn the auction process on its head by ensuring only a few, if any, bidders will compete with Google," AT&T Senior Executive Vice President Jim Cicconi said in a statement.

AT&T is supporting Martin's proposed auction rules, while the No. 2 wireless service provider, Verizon Wireless, has staunchly opposed any conditions on the auction as "corporate welfare" for Google. Verizon Wireless is owned by Verizon Communications Inc and Vodafone Group Plc.

Currently, wireless carriers restrict the models of cell phones that can be used on their networks and the software that can be downloaded onto them, such as ring tones, music or Web browser software.

Martin and the other four FCC commissioners are mulling different scenarios for how the auction should be conducted amid intense lobbying by existing wireless carriers, consumer groups and potential new bidders such as Google.

The airwaves to be sold in the 700-megahertz band are considered valuable because they can travel long distances and penetrate thick walls. The auction, to be held later this year, is seen as the last opportunity for a new player to enter the wireless market.

Later on Friday, a key House committee announced it had asked all five FCC commissioners to testify at an oversight hearing on Tuesday.

In a letter to the FCC, House Energy and Commerce Committee Chairman John Dingell asked a series of questions about how Martin's proposed open-access rules would be enforced and whether they would increase costs to wireless carriers and consumers.

Google and some consumer advocates have pushed for a list of open-access conditions for a large piece of the airwaves and argue that the wholesale requirement should be among them to promote more competition for wireless service.

A source familiar with Martin's auction plan said the minimum bid requirement was set at $4.6 billion. If no bidders met the minimum amount, the auction would be run without the open-access conditions.

Blair Levin, an analyst with Stifel Nicolaus, said Google's offer "is a way to take that (money) issue off the table."

"It certainly helps those who are supportive of Google's position to be able to say the treasury is going to make at least as much as the treasury thought it was going to make," Levin said.

Levin said he did not think there was enough support currently among the five FCC commissioners to pass the wholesale requirement sought by Google. But, he said, "The odds have gone up."

The 700-mHZ airwaves are being returned by broadcasters as they move from analog to digital signals early in 2009.

The move to bid on the wireless airwaves was overshadowed on Wall Street by disappointment over Google's second quarter results, issued Thursday, which were hurt by a costly hiring spree that saw its shares close Friday down 5.2 percent to $520.12.