Auctioning the Airwaves, Google Style, Ii

Michael Giberson

The tech trade press seems abuzz with speculation over Google’s interest in the FCC’s spectrum auction rules. Google phone? Google wireless? Google the spectrum monopolist? Google turning your cell phone into a mobile AdWords delivery device?

All of this wild-eyed speculation seems a bit over the top to me, perhaps because the essential idea proposed by Google seems so sensible. In the letter (link below), Google wrote: “In particular, the Commission should clarify that the service rules governing the 700 MHz bands already allow the use of dynamic auction techniques, such as real-time auctions and per-device registration fees.”

Here’s the big idea: dynamic auction techniques, such as real-time auctions. Rather than having a telecom company buy a large chunk of spectrum in the hopes of eventually being able to fill it with subscribers, a spectrum wholesaler would own and auction off spectrum usage rights in small slices. Telecom companies could buy what they needed as they needed it. Or, eventually, wireless devices would buy the spectrum bandwidth needed, when they need it.

Prices in this resell auction would naturally be dynamic — going up and down with the demands placed on the available capacity — and dynamic pricing seems to make some people nervous. But really it is just about, as Google says in the letter, devising a system under which a “particular slice of spectrum ends up in the hands of the user who values it most at any particular time and place.” If your wireless fax isn’t time sensitive, just say so and your device will bid low. Need to talk to someone right now? Go ahead and pay the current price, and less time-sensitive uses of the spectrum will get out of your way. Most retail consumers would likely continue to sign up for wireless phone services like they do now – paying fees related to the level of service demanded – and the service provider taking the price risk in the secondary spectrum market. Over time, wireless devices, and their owners, will get smarter about buying and using the kinds of service they need.

Notice that two separate auctions are involved here. The first would involve the FCC auctioning off large amounts of spectrum to interested buyers, using one of the FCC’s existing auction designs or some improvement thereof. Google is proposing that the winners in that first auction be allowed to resell some or all of the spectrum purchased in a secondary auction, using dynamic auction processes and systems they hope to manage.

Adam Kovacevich, a spokesman for Google, said, “In general, it’s the belief of a lot of people in the company that spectrum is allocated in an inefficient manner.” The letter cites one report indicating that use in “any given geographic area averages some 5 percent of total available spectrum.” They think they can do better, and in the letter to the FCC they ask whether the rules will prevent them from trying.

NOTES: The Google letter to the FCC can be found at this link. (Thanks to Computerworld.) Another somewhat related news story, concerning a lawsuit over FCC rule changes in an earlier auction, is up at MarketWatch. Yesterday I posted Auctioning the Airwaves, Google Style.