27 July 2007

Communications Technology 2

Because of 1 & 3 (the impending auction for the 700Mhz blocks and the FCC’s decision on how to hold the auction), Google sought to persuade the FCC into allowing some “open blocks” in order to maintain “net neutrality” and “interoperability of hardware.”

“open blocks” are regions of the bandwidth that will not be controlled by a natural monopoly. For the gov’t the cost here is that if they mandate some blocks be open, they will be foregoing auctioned resources and would make less money. Also, this may make the controllable blocks also worth less because they will, in the future, be up against more competition. So, the government might be losing some revenue, which should translate into a negative for the American citizen consumer. On the upside for the consumer, open blocks provide the opportunity for entrepreneurs to introduce new technology to compete with and challenge the products of services of the blocks controlled by Verizon or whomever wins rights to the other blocks. Are the value of the entrepreneurs future product, service and price improvements to the quality of life of American citizen consumers in how the communicate and are availed to information now and in the future worth the foregone revenue of open blocks. It depends on what economists call your individual beta, your patience in discounting the future relative to the present. Probably, but it’s up to you to decide.

“interoperability of hardware” refers to the ability for you to buy any phone or mobile communications device and to have it work regardless of who your service plan provider is. Having “interoperability of hardware” and “open blocks” might mean that entrepreneurs would only need to challenge major providers in their products or services, but not necessarily both. At this point, the trade-off in the “interoperability of hardware” decision currently is a personal decision between bulkiness of phone and being tethered to your service provider. This is not a small decision. As the phone becomes a pda-phone becomes a supped up mediaplayer-phone-pda-gps-videocamera, are you going to want to trash it every time your provider treats you poorly. I believe major service providers generate a significant amount of profit from consumers feeling tethered trough the phone and incurred service plans. With “interoperability of hardware” requirement instituted into auction guidelines, this also would most-likely decrease how much service providers and their phone-making partners would be willing to bid. Do you believe that simplifying the phone and service buying process is worth the foregone FCC gov’t revenue. This is a close call. Let me know what you think. Post a comment. Are there any factors I’m leaving out here? I’d love to know.

“net neutrality” refers to the inability of major service providers to favor certain internet users. Currently all websites can be viewed with equal access and download speeds. If major service providers were to favor certain websites and users, the service providers (currently time warner, cox, ..; but after the auction, Verizon, …) could generate higher revenues and profits through a more free open market of selling preferences. There are also pros to the consumer; you could download higher quality videos, news sites, and popular sites in higher quality. The downside to the consumer is that it will make it harder for website newcomers to crack thru. Also, you will have less access to diversity of news. Is the information held by society and its ability to network a “public good”? It’s non-rival, so I think so. Which means, that even if you are fiscal-rightwinger, you should believe that this is one of those rare instances that gov’t should at least moderately intervene. Sure TimeWarner, Cox and in the future Verizon will suffer slightly smaller short term profits, but total quality of life will improve for everyone in the long run. I think that net neutrality is a must.

Why does Google want to persuade the FCC to have “open blocks, interoperability of hardware, and net neutrality?” Are the altruistic, competition loving, or just crazy? Maybe a little bit of altruism, but I believe that they would like to maintain their strategic position in the World Wide Web. They are the premiere internet application provider, and rightfully so. Their products are excellent.

How is Google going to persuade the FCC to do these things? If you noticed, all three of those actions result in less direct revenue for the FCC. This week Google offered to provide the FCC with a guaranteed ~$4.6Billion from the auction if those items were implemented. This is a big auction and to drive policy you will need big money.

Latest speculations have the FCC splitting the auction into different geographic regions, making it harder for a nationwide open block to come about. That is, probably 3 of the 4 Google requests (see Google’s blog) will be met, under which Google is less than satisfied. It appears that their position is to have to guarantee the FCC more money if they would like all 4 objectives to be met. Hence Google’s plans to partner with Sprint/Nextel and some Canadian financing sources. Mind however, that Google’s partnering with Sprint/Nextel is about more than just financing now. It is also about preparing themselves for a nice post-auction teammate.

Take note that Google isn’t the only company trying to partner up. I believe Verizon and Vodaphone are partnering in order to get a large financial basis in order to fair well in the auction. Others will do the same in order to be in solid financial situations for auction day.

So what exactly does all this have to do with which technologies (wifi, satellite, cell phone, inground cable, inground phone and wimax) will develop to be used for mainstream communication, and in which ways?

Stay posted and you’ll see how I see this picture unfolding and how the different players (Google, Sprint, Microsoft) should best respond.

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