16-Nov-07 05:47 ET
Google has even bigger plans for mobile phones - WSJ (629.65)

The Wall Street Journal reports Google (GOOG) is gearing up to make a serious run at buying wireless spectrum, a chunk of the airwaves that can be used to provide mobile phone and Internet services, in a FCC auction in January. Google is prepared to bid on its own without any partners, say people familiar with the matter.

GOOG's ongoing interest in acquiring 700mhz spectrum air waves could provide the platform for a national WiMax footprint, bypassing competing carriers for VOIP telephony (aka g-phone) and broadband (fixed and mobile) Internet access. Also, Mr. Brin, what about speaking with Mr. McCaw about his new WiMax venture Clearwire (CLWR) now that he is struggling with Sprint/Nextel? Someone's going to dismantle our costly, usage-fee based, cell phone telephony model with a flat fee rate model, perhaps using VOIP/WiMax over time, much like the creative destruction that the Internet brought to the legacy long distance carriers.

Stefan Jovanovich explains:

Dick TracyI realize that arguing against the ultimate wisdom of GOOG's corporate decision-making is, in terms of current elite opinion, as mulishly contrarian as questioning the severity of man-made global warming, but what the heck. The "Internet" had very little to do with the "creative destruction" of the legacy long distance carriers' retail market. That was almost entirely a product of the cell phone carriers' offering free long distance as part of their service and thereby making a successful end-run of the line of tariffs that remained from the AT&T break-up. The wire-line carriers had no choice but to adopt the same pricing.There is an underlying economic rationale for usage-based fees for cell-phones. It is the only way the carriers can attempt to limit the loads on their cells. It is not as effective as congestion pricing but it is the closest they can get.

Currently, wireless transmissions (unlike those over fiber-optic) have congestion effects: at a certain point, the traffic load degrades the local node and you have gridlock. GOOG will be faced with the same problem with its 700 mhz network that Comcast is now having to confront with its internet service over coax: the customers sending and receiving video can easily overload the system's capacity. What GOOG will also have to contend with is that wireless can't have the same through-put as wired transmissions.  It physically can't, and it won't. That may be the ultimate "legacy" myth. I blame Dick Tracy and his wristwatch phone. 


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