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Television broadcasters, who will be required to switch to all-digital signals in 2009, are currently using the spectrum. Google bluffed its competing bids in order to drive the price of the spectrum above the promised $4.6 billion reserve. The FCC required this minimum price in order to enforce openness standards.

Verizon paid $9.36 billion to license what it calls “the FCC-termed” C-block (Verizon and critics used to call it the Google Block after Google pushed for open standards) and 102 individual licenses in the A and B blocks. The C-block is nationwide, covering every state but Alaska. The company says the spectrum provides a speed and performance advantage to increase the capabilities of next-generation wireless devices, including wireless phones, medical devices, and gaming consoles.

“We now have sufficient spectrum to continue growing our business and data revenues well into – and possibly through – the next decade, and this is the very best spectrum with excellent propagation and in-building characteristics,” said Verizon president and CEO Lowell McAdam, in a statement.

“We also believe that the combination of the national, contiguous, same-frequency C-block footprint and our transition to LTE will make Verizon the preferred partner for developers of a new wave of consumer electronics and applications using this next generation technology.”

Google Will Bid On Spectrum

The biggest players in the industry are expected to bid aggressively for spectrum, which because of the federal requirement that television broadcasters switch to digital transmissions is becoming available. The spectrum is said to be ideal for high-speed wireless broadband, especially because of its ability to penetrate walls.

Google has promised a minimum of $4.6 billion for "the C block" of spectrum, the auction reserve price, the winner of which will be required by the FCC to allow users to download any device to their wireless devices and attach any compatible device to the network.

Verizon originally sued to stop the requirement, but eventually withdrew their suit. Earlier this week, the company enacted a similar policy on its own in advance of an announcement to use fourth generation LTE technology for its next evolution of wireless services, which will come available approximately the same time as the 700MHz spectrum.

The LTE technology will also be used by rival AT&T, meaning that future Verizon and AT&T devices will be able transferable (at least one way, unless AT&T opens up, too.) AT&T may have bailed on the 700 MHz auction with its purchase of Aloha Partners’ chunk of spectrum $2.5 billion, effectively setting the price for available spectrum in the federal auction.

Significant pressure from Google is thought to be a key reason both telecommunications companies made such aggressive moves forward. Google’s presence in the auction ensures more competition and more open networks.

"We believe it’s important to put our money where our principles are," said Eric Schmidt, Chairman and CEO, Google. "Consumers deserve more competition and innovation than they have in today’s wireless world. No matter which bidder ultimately prevails, the real winners of this auction are American consumers who likely will see more choices than ever before in how they access the Internet."

Google made the announcement this morning in advance of Monday’s application deadline, after which Google is forbidden to talk about the auction due to the FCC’s anti-collusion rules.

The spectrum will be released from use by broadcast television networks and is thought to be ideal for both wireless telephones and wireless broadband delivery. Google has said it will "probably" bid in the auction, given that certain rules are in place to ensure competition in the wireless space.

The jury is still out on whether Google will use the spectrum itself, or lease it out to a would-be telecom competitor, but the spectrum would make a nice addition to all the dark fiber Google has acquired over years, meaning that Google could become an ISP itself if the company so desired.

Some optimists have even dared hope for an advertising-supported network, courtesy of Google.

Verizon, like AT&T, wanted the spectrum to itself with no rules placed on it. AT&T has signaled it may not participate in the auction by buying up Aloha, which owned its own swathe of the spectrum already without restrictions. In order for Verizon to do the same, it would have to buyout Qualcomm, the only other company to privately own a piece of this particular spectrum.

Microsoft’s Don Dodge very elegantly describes why this band of spectrum is so valuable:

The 700MHz spectrum is more powerful than the current cell phone spectrum, can go through walls much easier, and it is cheaper to deploy. Because the spectrum is more powerful it requires fewer transmitters and towers, making it much less expensive to build out a nationwide network. We are talking 50% less, ore eveen 70% less.

Hence all the fighting. And what of Microsoft? Dodge says Microsoft isn’t interested in spectrum, as its not part of the company’s core business. Then again, search and game consoles aren’t really, either.

Well, At Least One FCC Commissioner Isn’t An Idiot

But only if the other commissioners come on board with the American people, rather than turning a blind eye to corporate manipulation.

And I don’t know if that looks likely until a new commission is in place.

Copps’ most recent tongue-lashing comes from a speech about the state of broadband in the US, and the sound bites are doozies.

Copps calls the broadband access and the net neutrality debate "the great infrastructure challenge of our time," and bemoans the FCC’s reluctance to regulate phone and cable companies to prevent them from taking advantage of a government-allowed oligopoly.

"Unfortunately our record on broadband is so poor that every citizen in this country ought to be outraged," said Copps in a speech at YearlyKos.

He also debunked arguments that the US’s 15th in the world position for broadband penetration was because the population was less dense than the rest of the world, noting that Canada, Norway, and Sweden all rank above the US with less dense populations.

It also implies that urban speeds and access in urban areas are superior, even if Washington, DC is far behind Seoul Korea.

Copps’s remarks are snowballing into an overarching theme of pulling the reins on media consolidation and corporate gatekeepers. His comments on broadband match others on the concerns regarding the wireless spectrum, and News Corp.’s buyout of Dow Jones.

In a statement issued after the rules were set, Copps said, "[W]e have seen a wave of consolidation among wireless incumbents that has substantially increased the hurdles facing potential new entrants. And now we live in a world where the two leading wireless companies are owned in whole or in part by the leading wireline telephone companies."

And these same companies want to act as gatekeepers on the Internet as well, ending the long-running Net Neutrality that has ensured an unprecedented place in the democratic process for the American people.

"What’s good for shareholders of huge media conglomerates isn’t always what’s good for the public interest or our civic dialogue," he said.

Media consolidation, too, is concern for Copps, and said people shouldn’t be too quick to think News Corp.’s acquisition of Dow Jones is a done deal.

The Hollywood Reporter quotes him as saying:

"This deal means more media consolidation and fewer independent voices, and it specifically impacts the local market in New York City. We should immediately conduct a careful factual and legal analysis of the transaction to determine how it implicates specific FCC rules and our overarching statutory obligation to protect the public interest. I hope nobody views this as a slam-dunk."

Copps’ concerns echo a growing concern in the public that too few companies have too much control of important media in their everyday lives and will diminish their voice in the democratic process.

Presumed winners: Google, consumers.

Presumed losers: Telecoms and the Congressmen they fund.

Fred Upton (R-Mich.) and Joe Barton (R-Tex.) want to see the auction go to the highest bidder with no strings attached. A report on Internet News cited the two Congressmen as opposing Google’s ideas about the future of the 700 MHz wireless spectrum:

“I think the fewer fetters you have in terms of conditions on the auction, the more open the process and the better its going to be,” (Barton) said. “I also think you’re going to get more money if you do it that way.”

“The free market works best. If Google is really right that there is market demand for their model, they should be lining up to bid in a fair auction, without these requirements,” Upton said.

Game time, folks, courtesy of the fine people behind OpenSecrets. Let’s start with the Texan. Among Barton’s top 20 contributors for the most recent election cycle, we have Comcast (#1), Verizon (tied for 10th), AT&T (14), and Sprint Nextel (tied for 15th).

The National Cable & Telecommunications Association, along with AT&T and Comcast, rates as one of Barton’s all-time biggest campaign contributors.

Now let’s take a look at Upton’s top 20 in the recent cycle. AT&T (2), Verizon (3), National Cable & Telecommunications Association (6), Comcast (tied for 7th), Qwest (tied for 7th), and Sprint Nextel (tied for 19th).

Upton’s first and second best career contributors have been AT&T and the National Cable & Telecommunications Association, respectively.

I’d like to note to our readers that I didn’t even bother checking OpenSecrets for the information when I started writing this article. When I got to the point where I wanted to include OpenSecrets data, I looked it up then.

I knew what I’d find before looking, just as with every other time I’ve written something about the tech industry and Capitol Hill’s opinions about it. As Arthur Conan Doyle wrote in the Sherlock Holmes’ classic, A Study in Scarlet, “There is nothing new under the sun. It has all been done before.”

Barton’s and Upton’s opinions sounded like they came from men whose campaigns received substantial backing from organizations sharing those thoughts. No surprise, that proved to be the case.

Google Won’t Put Up Or Shut Up

After Google CEO Eric Schmidt wrote a letter to FCC chairman Kevin Martin committing to bid on a slice of the 700 MHz wireless spectrum as long as the regulatory agency required the auction winner to ensure true competition in the marketplace, AT&T hissed back at the search engine company to "put up or shut up."

What AT&T Senior VP Jim Cicconi meant by that was that Google should be willing to bid head-to-head with incumbent telecommunications providers, no holds barred, no special considerations given.

CTIA-The Wireless Association president and CEO Steve Largent wasn’t thrilled about Google’s proposal either, accusing them of trying to rig the auction in their favor.

"The competitive wireless industry welcomes all new entrants, but no company should be able to buy a custom-fit government regulation that suits their particular business plan. Consumers should decide if they’re right, not the federal government," said Largent.

Coincidentally, Largent’s name means "money" in French, which is what is at stake for telecom incumbents. Lots and lots of it.

And while Largent’s argument is well crafted enough (at least, it’s better than Cicconi’s "put up or shut up" shove) to convince surface-level free market defenders – I say "surface level" because there’s nothing free about the market we are discussing – Google Washington Telecom and Media Counsel Richard Whitt argues that the spectrum auction is already rigged in favor of incumbents.

In essence, if so, then customers won’t be able to decide because, as only a few (or two) companies control the spectrum, then those companies will control the decisions made. Already that should make intuitive sense to you, given the telecom industry’s monopolistic or duopolistic histories. But also, if new entrants are prevented, AT&T has a clear path to ownership, and thus, to market control.

Whitt begins with the burning question: Why doesn’t Google bid in the auction outright, head-to-head with AT&T and Verizon? He argues that traditional auctions benefit from open entry, but the FCC is auction is "a different animal" where only well-capitalized corporations can afford to bid, thus barring new entrants.

"As we have seriously considered entering the 700 MHz auction," he says, "we have been consulting with auction experts and game theorists to help us better understand the dynamics of a typical spectrum auction. What they have been telling us is that in a head-to-head bidding war between an incumbent wireless carrier and a potential new entrant, the incumbent almost invariably will prevail."

Not only do new entrants not have the cash to compete with incumbents, they don’t have the infrastructure, either. In addition to whatever price they would have pay, which will be artificially driven up by incumbents willing to pay whatever necessary, new entrants would also have to build and operate a network, an expense incumbents will not have to endure.

Thus, new entrants will not (cannot) enter the spectrum auction, structured as it is currently.

But there is also incumbent incentive to block new entrants altogether. "Given their investment in all the necessary business inputs, and the relatively high prices and low bandwidth characteristics of their existing service offerings, the incumbents must prevent the entry of potential competitors to the market. In a spectrum auction, this means paying whatever it takes to block new entry."

And this is where it gets shady: once new entrants are effectively barred from the auction, prices go down as incumbents are only bidding against each other, something Google calls the "incumbent dilution discount."

Whitt doesn’t fail to note the irony of incumbents accusing Google of trying skew the auction in its favor.   

"Regardless of who wins the bidding, however, the end result is an auction that yields a fair market price, with the added bonus of a new broadband network that is open to all comers," he said. "The American people get full value for their spectrum, plus open broadband platforms — and even the possibility of a real third pipe competitor."

A quick review:

AT&T, Verizon, and others are chomping at the bit to get a hold of the 700 MHz band, soon to be returned to the federal government by broadcast television once regulation takes effect requiring them to go digital. This swath of spectrum is ideal for wireless broadband and mobile phone networks.

But to get the most of profit from it, incumbent telecom providers must pressure the FCC to not impose requirements on how the spectrum is used. Rather, incumbents would prefer a setup similar to what they have now, with little incentive to give consumers choice in wireless services.

They do this by limiting devices that can be used on their networks, what third-party applications can be installed, exclusive contracting like with the iPhone, and punitive contract termination fees.

And they want it to stay that way.

Google, though, and consumers, and pretty much everybody that’s not an incumbent, want a section of the spectrum reserved with requirements that are more consumer friendly. Though incumbents have argued that doing so would devalue the spectrum and limit competition, the intent is just the opposite, to foster new players in the arena, and by default, putting pressure on incumbents to think more about customers and less about the bottom line.

Enter Google, the white knight (yes, I’m editorializing, it’s what I do best), who last Friday sent a letter to the FCC promising to bid at least the minimum reserve the agency had in mind for that slice of spectrum, $4.6 billion, but only if the FCC enforce four principles of open access.

This does three things: ensures new, consumer-friendly competition; takes away arguments against from incumbents; and really ticks AT&T off.

Okay, that wasn’t as quick as I thought it was going to be.

What AT&T has to say about it:

Om Malik gets credit for chasing down this statement from AT&T Senior VP Jim Cicconi:

…Google has now delivered an all or nothing ultimatum to the U.S. Government, insisting that every single one of their conditions “must” be met or they will not participate in the spectrum auction. Google is demanding the Government stack the deck in its favor, limit competing bids, and effectively force wireless carriers to alter their business models to Google’s liking…

He also said something to the effect that Google should "put up or shut up," which comes across as belligerent, whiney, immature, and ultimately, threatened. He is right that Google is making demands. He is also right that Google couldn’t win the auction in a fair fight with the telecoms (nor could anyone else, save Microsoft).

But that’s why supporters of open access are concerned. With about four major providers pooling their resources, they could hoard that valuable spectrum and keep America behind other countries in wireless services indefinitely.

The irony of Cicconi’s statement is breathtaking, even painful, as one might not be able to decide which is the pot and which is the kettle. AT&T has always had the deck stacked in its favor…remember Ma Bell? … and Google’s potential entry into the market has them scared they won’t be able to manipulate the market like they are used to doing.

Cicconi’s words are nothing but saber-rattling, a tantrum, a scared kid crying foul when he knows it was fair.

UPDATE: Google responds to Cicconi and AT&T, saying that new rules are necessary to ensure competition as the spectrum auction is already rigged in favor of incumbents.

Or as Om Malik paraphrased Verizon’s viewpoint: Play fair in wireless auctions, as long as [Verizon] wins.

While Verizon had just one spokesperson making a thinly-veiled consumer-choice-is-bad-for-us argument, the OIC brought representatives of Columbia Law School, the Consumers Union, Skype and eBay, Free Press, and Public Knowledge.

Free Press’s Ben Scott called their appearance the "iPhone hearing" because AT&T’s non-subsidized two-year customer lock-in on a phone that can’t be used on any other network is a prime, recent, and resonant example of what the group aims to prevent with the opening of the wireless spectrum.

Their main point was that wireless carriers have been acting in anticompetitive ways for some time now, with all four major companies limiting which networks phones can be used, disallowing third-party applications, and implementing high fees for contract termination. Opening up spectrum to competition, they argue, would help catch the US with the rest of the world in terms of mobile phone innovation and device capability.

What they, along with Google and Frontline, are pushing for is the right for consumers to attach any device to the wireless network that doesn’t harm the network. Their argument is largely based on the FCC’s landmark 1968 Carterfone decision, that paved the way for things like answering machines, caller ID, and modems to be connected to AT&T’s network.

Back when Lily Tomlin made the satirical slogan "We don’t care. We don’t have to. We’re the Phone Company." famous, opening up AT&T’s network was a major step forward in telephone innovation.

One snag, as noted by ArsTechnica is that it may be unrealistic for consumers to believe they can transfer their iPhone, for example, from AT&T’s GSM network to Verizon’s CDMA. However, generally all that takes is replacement of the SIM card, and there are already iPhone hacks in place, even thought the iPhone was designed for one network only.  

 In the draft, FCC chairman Kevin Martin has proposed that about a third of the spectrum be set aside and that auction winners not be allowed to restrict what devices can be used to access and what third-party applications can be downloaded.

Phone companies, protecting their last bastion of price manipulation, have long decided what phones are acceptable on their networks and have restricted potentially competing software and hardware. IPhone is the latest example, which is only available on AT&T’s network. Other times, phone companies have required phone manufacturers to strip WiFi capabilities so customers cannot bypass their pay-for-play networks.

Though the "Google block" is only a  third of the spectrum available, Verizon and other wireless providers are worried that Martin’s prediction will come true: If a competitor keeps their network open, they’ll have to do so as well.

Verizon Wireless VP and general counsel Steve Zipperstein took his testimony before the House Committee on Energy and Commerce, complaining that auction restrictions were unfair and that Congress should refuse calls for open access regulation.

Zipperstein argued that the FCC should not be in the position of pre-determining or telegraphing auction winners, or set special rules that prevent the highest bidders from winning all of the spectrum.

It is assumed that Google will bid on the "Google block," but Google has not committed to that yet. Verizon would prefer that the whole 700 MHz spectrum be up for grabs, but concerned opponents fear that incumbent phone companies will buy it up and hoard it for themselves, manipulating prices and innovation the way they’ve been known to do in the past.

Zipperstein denies that is the case.

"The wireless industry has produced a steady stream of innovations — from devices, to applications, to features — that have given American consumers myriad choices about how they use their wireless service," he said, somehow with a straight face. "Consumer choice would be the casualty of policies that mandate that all companies do the same thing the same way."

He forgot to mention how the rest of the world laughs at the US’s mobile phone developments, inordinately high rates, and 7000% markup for text messaging. Consumer choice would dictate, indeed, if incumbents gave them a choice, in wireless or in broadband access.

This latest skirmish between SaveTheInternet and the telecom and cable industries is part of a larger battle for Network Neutrality, a movement to block phone and cable companies from manipulating Internet – wired or wireless – activity the way they do with telephone and cable lines.

The 700 MHz spectrum is considered ideal for wireless broadband access and is capable of penetrating walls, much like television and radio signals. Divided appropriately, the spectrum could open up broadband competition by offering another channel by which Internet access could be provided.

Kerry began his letter by reminding the FCC just where the US stands in the world in broadband penetration.

"The US is lagging behind much of the world in broadband penetration. Nearly 60% of the country does not subscribe to broadband service – in large measure because it is either unavailable or unaffordable."

Kerry and others believe that if chunks of spectrum are reserved for non-incumbent interests, and not for the highest bidder (the assumption here is that few are able or willing to outbid AT&T and the like), then doors will be open for broader competition in Internet access and reduce the price of connecting.

In the letter, Kerry complains that alternatives to DSL and cable modem technologies, which are the only options available in 96% of the US market, have not materialized as free-market advocates have promised over the past decade.

"It has not yet materialized, and today Americans pay as much as ten times more than broadband consumers in Asia and Europe. Worse still, competition has been insufficient to drive the innovation that brings faster speeds, next generation applications, and a richer, diverse and multifaceted Internet."

Though he admits expanding wireless broadband "may not be a silver bullet," Kerry believes it is a step in the right direction. He also mentions that part of the 700 MHz spectrum could be used to build a national emergency frequency.

But one of the biggest fears is that those in the telecommunications industry will buy up the spectrum with the intention of preventing others from buying it.

"This spectrum should not sit dormant in the hands of winning bidders," said Kerry. "We cannot allow this spectrum to be hoarded by large companies who don’t intend to use it."