Message to Google: Just Bid

In today's Communications Daily [subscription required], FCC Commissioner Jonathan Adelstein is quoted to the effect that we need to get a third channel to the home quickly. In my view, competitive forces in the broadband marketplace currently are quite strong, with cable and telephone companies battling for market share, and with existing and potential competitors, such as satellite, wireless and BPL operators, providing further market constraints. Nevertheless, more competition is better than less--if it is economically sustainable competition, not that sustained by regulatory mangament--so I agree it would be good if their were a third channel to the home.

But then, according to Communication Daily, Adelstein said the crucial question is how to get large companies to bid. According to Adelstein: “We do need to take very seriously what they say they need.” Now this is a problem--this taking seriously what supplicants "say they need"--that plagues regulatory agencies, including the FCC. The supplication syndrome is especially problematical when the agency is preparing to conduct an auction that, by definition, is intended to indicate which entities place the highest value on the spectrum. The whole idea of auctions is to avoid the supplication syndrome that plagues so much other FCC regulatory activity. The idea of an unrestricted auction is to avoid the temptation of regulators to think they can do a better job of managing competition than the marketplace.

I understand that Google is telling the FCC that it will not bid for the 700 MHz spectrum unless the FCC takes, in Commissioner Adelstein's words, "very seriously what they say they need." On its public policy blog Google says, after consulting with various game theorists and auction experts: "While we remain interested in the possibility of participating in the auction, it’s clear that the incumbent carriers have built-in advantages that will prove difficult to overcome (particularly the economic and operational barriers to entry for a company like ours, and the relatively greater value and usefulness that spectrum brings to existing carriers)." So, Google wants to change the rules to benefit itself.

I remain confused. Google has a market cap today of $173 billion dollars. What exactly are the economic barriers that prevent a company with a $173 billion market cap from participating in a clean auction? Obviously, an existing provider has certain advantages over a new entrant: a customer base, rights-of-way, a marketing team, a back office operation, and so forth. But for a company that tells the FCC in comments that its daunting "self-defined mission" is to "organize all of the world’s information," is it really too much to expect that Google can figure out how to address what it calls operational barriers? If necessary, some of those presently assigned to organizing the world's information can be temporarily detailed to getting a new service provider, Googlecom, with a great brand name and a loyal customer following, up and running.

I am not surprised that Commissioner Adelstein is sympathetic to jerry-rigging the auction rules by imposing net neutrality/open access/unbundling rules to give Google, Frontline, and others say they need to participate and win the auction. Frankly, I don't expect the Bush Administration-appointed FCC Chairman, Kevin Martin, or the two Republican commissioners, who ought to be free market-oriented, to succumb to the managed competition temptation.

It is striking that, also in today's Communications Daily, it is reported that John Kneuer, head of the Bush Administration's National Telecom and Information Administration, told state regulators at NARUC that the nation's relaxed broadband regulatory policy has started up "a broadband flywheel whose spinning is sustained by market forces." According to the report, Kneuer said broadband deregulation has led to investment that expanded access that fueled demand that encouraged still more investment in a cycle that shows no signs of stopping.
And this: "The United States has the world's most fertile environment for broadband innovation and competitiveness...Our role as regulators will pale before the power of the market
forces we've unleashed."

It took a overly long time before the Bush Administration developed any sort of communications policy, including a broadband policy. When it belatedly did so, at least the policy was free market-oriented with respect to broadband. John Kneuer's remarks quoted above seem to embody that market-oriented policy. There is a huge disconnect between what the Bush Administration now articulates as policy and what the FCC is proposing for the 700 MHz auction. For if net neutrality/open access/unbundling mandates are imposed in the wireless space, a market segment the FCC consistently has found to be competitive, on what principled basis is it to be argued they should not be imposed on wireline providers?

The FCC should not succumb to the supplicant's syndrome that leads to the managed competition temptation. It should send a clear message to Google: "Just bid!"