As Google bids, along with Verizon and a host of other companies, in the FCC’s 700 MHz wireless spectrum auction, AT&T has managed to bypass the fray by purchasing $2.5 Billion in 700 MHz wireless spectrum from Aloha Partners. Why is the wireless spectrum so important? And why are industry giants fighting for it?
Free Internet Access
Google has the idea that if they can blanket the country in wireless fidelity (Wi-Fi), then more people will be able to use the Web and ultimately Google. Which means more profit for Google.
Approximately 1/6th of people on earth have Internet access. Among the 1.2 billion users that do have Internet access, only about 1/4th of them have high-speed Internet access. (Here are some facts and statistics about Broadband Internet Access).
In the United States, it is almost unfathomable that someone could be without Internet access, but there are vast expanses of land in the Mid-West that do not have easy, high-speed Internet access. By creating a nation-wide wireless network, and specifically, targeting regions that have, until now, depended on dial-up Internet access, Google can get consumers to use their services and give users free Internet access. Some might be inclined to call this the GoogleNet. This would seem to be a win-win situation for Google and the consumer.
Google also must protect themselves from the Internet Service Providers (ISPs) and the battle over net neutrality. ISPs want to charge consumers different fees for different tiers of Internet access.
Google argues that the ISPs should be neutral and serve any content to the consumer as long as the consumer has paid for Internet access — they are free to go anywhere they want to. The ISPs believe it is their right to charge whatever they want and allow whoever they want, because the Internet pipes are theirs. Google’s Wi-Fi play would make this point mute. It would also insulate them from a lockout from ISPs. At the same time, ISPs profits would suffer due to Google giving away “free” Internet access.
Verizon and other telephone and Internet Service Providers (ISPs) are also bidding for the wireless spectrum. Why? They don’t want Google to give Internet access away for free. They want to continue to be able to have users pay-for-access in the phone and Internet market. There is also the fear that Google may launch a Voice over IP (VoIP) telephone service on top of Wi-Fi and cut into their lucrative cell phone plans.
Other competitors include companies, such as Clearwire, which use WiMAX in the 2.5-2.6 GHz spectrum. WiMAX is a competing Wi-Fi technology, but all-in-all it works practically the same. It often provides the “last mile” wireless connection between consumers and ISPs.
Whether Google launches a VoIP service or not, all major cell phone providers will eventually provide VoIP options, anyway. Google can accelerate VoIP adoption on cell phones by giving away free Wi-Fi.
GPhone is Google’s VoIP cell phone move. In addition, this is their mobile Internet access play. Like the Apple iPhone, consumers should be able to access the Web easily with their mobile phones. While, it seems, Google will not manufacture phones themselves, they may provide reference designs and specifications to third-parties. In addition, they can provide their applications for their cell phone business partners’, such as cell phone giants Samsung, Nokia, Motorola, and Sony-Ericsson. Google profits from the GPhone because of increased Internet usage when users are on-the-go. (I suspect that when people are out on the town, shopping, or traveling that the ability to browse the Web will be increasingly useful).
In my estimation, the GPhone will not compete with the iPhone. Google is not in the market to make money off handsets. They are in the market to make money off the Internet. An Internet-enabled phone gives them this opportunity. In fact, the iPhone already does that, and already makes profit for Google. Meanwhile, Apple profits from the iPhone handset, itself, as well as service charges from its partnership with AT&T. Apple’s CEO, Steve Jobs, and Google’s CEO, Eric Schmidt, sit on each other’s company boards, respectively. So, at this point, direct competition seems unlikely.
Google is planning to lay a trans-Pacific cable across the Pacific Ocean. This can provide extremely, high-speed network connections between data centers, as well as facilitating communication with other players between North America and Asia. Furthermore, this would extend Google’s wired reach, in addition to their wireless play.
Google has bought up a large supply of dark fiber, especially after the dot-com bubble burst, and has begun to light up the supply. These fiber optic lines connect Google’s data centers together. However, Google has more dark fiber than necessary for their data centers. Why the extra supply? I suspect something big is about to happen.
Google has also invested in companies that provide broadband over powerlines (BPL). If successful, BPL would be able to provide remote regions high-speed Internet access, where installing fiber-optic cables would be cost-prohibitive.
Organizations, such as Folding@Home, have already used distributed and grid computing to help solve large problems, such as finding cures for diseases. While Folding@Home is a large-scale project, it has not reached its full potential as a global grid.
By blanketing the United States (and later the world) in Wi-Fi, Google can begin their foray into cloud computing (and become a global grid). I have mentioned before that Google Gears, which can be utilized as a data grid, could conceivably become a compute grid. If Google blankets the world in Wi-Fi, then every personal computer has the possibility of becoming part of their network of computing and storage. In essence, one massive, global, computing and data grid.
The power of such a network would quickly dwarf the computational and storage capabilities of Google, itself. (It is estimated that Google has 450,000 servers world-wide in 2006, while 100 million consumer PCs shipped world-wide in 2007 alone. There are 1.2 billion Internet users world-wide). If Google was able to get 1% of Internet users to use Google Gears as part of their global grid that would be 27x as large as their existing infrastructure. While, this does not taking into account the capabilities of each computer, that is significant power that Google could utilize for nearly no cost.
Additionally, Wi-Fi capable mobile devices, such as the GPhone, could conceivably be Google Gear enabled. The current estimated cell phone subscriber count is 2.7 billion world-wide at the end of 2006. As cell phones increase in computing power and storage capabilities their usefulness will start to rival that of low-end computers — after all, they are small, mobile computers. This could be a future play that Google may consider as an extension to their global grid.
Regardless of whether or not Google wins the 700 MHz spectrum auction, they will begin acquiring small, second and third-tier cable companies. A loss in the auction will mean investments, partnerships, and acquisititions of existing ISPs. It makes sense for Google to begin partnering with smaller ISPs, as they are always looking for more business and will, most likely, remain network neutral.
Larger companies, such as Clearwire, Level3, Limelight, and Akami, are also possible candidates for partnership or acquisition. These are relatively, easy moves for Google because they can use these existing infrastructures immediately.
In conclusion, Google will be able to recoup their investment, in the long-term, if they win the spectrum auction. By some estimates, the bid will exceed $10 Billion. Google has stated they plan to bid a minimum of $4.6 Billion. Building a nation-wide, wireless network may cost them an additional $2 Billion, according to some estimates. By extending high-speed Internet access nation-wide, Google has an opportunity to gain more customers and more profits. In addition, Google can compete with telecom and cable companies, using Wi-Fi, to broadcast phone calls and video over the airwaves. Thus, bringing in additional revenue from these lucrative markets.
By becoming an ISP, Google will have more control of the pipes and ensure that users always can access their services. Currently, if major ISPs locked Google out, there would be some serious, financial consequences for Google. Google’s plan is to ensure their survival and to keep themselves fully unencumbered from net neutrality issues. This means that they need to cover themselves in both the wired and wireless arenas. Which they will do.