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Google's auction strategy pays off

TELECOM

The Internet firm, which lost to Verizon in bidding for airwaves, stands to profit from new rules it supported.

April 05, 2008|Jim Puzzanghera | Times Staff Writer

WASHINGTON — The highest bidder in the multibillion-dollar sale of prime airwaves disclosed its plans for the wireless spectrum Friday, and the most prominent loser explained why it was still a big winner.

A day after rules prohibiting participants in the federal government's online auction from discussing their strategies lifted, Verizon Wireless said it would use the new capacity to roll out faster wireless Internet service by 2010.

Verizon outbid Google Inc., paying $4.74 billion for one of the auction's biggest prizes, a coveted nationwide block of airwaves.

For Google, a company that's obsessed with auctions, the spectrum sale turned into a high-stakes exercise in gamesmanship.

The Internet company failed to land any of the nearly 1,100 spectrum licenses auctioned off. Still, its bidding -- conducted from a small "war room" on its Mountain View, Calif., campus -- helped push the swath bought by Verizon above the $4.6-billion minimum price set by the Federal Communications Commission.

Surpassing that threshold triggered new rules that forced the winning company to allow consumers to use any device or application on those airwaves.

One big beneficiary of those provisions: Google. The company lobbied hard for them to ensure that people could access Google's maps and other advertising-supported applications in the growing mobile market.

Google kept bidding until it hit that minimum price and said it had been prepared to buy the airwaves. If it had won, Google probably would have joined with another company to build the transmission towers and run the network.

But it never expected to succeed against large wireless companies such as Verizon, said Larry Adler, a product manager who helped run Google's wireless auction team of about half a dozen people.

"Given their position in spectrum, the towers they have, the customers they have, they're going to put a premium on that spectrum," he said. "We knew in a head-on bidding war, it was going to be very difficult to outbid them."

The auction of airwaves being given up by TV broadcasters in February as they convert to digital signals raised a record $19.6 billion for federal coffers.

Although the 54-day auction was completed last month, FCC rules prohibited participants from talking about their bidding strategies or plans for the spectrum to prevent collusion.

Qualcomm Inc., based in San Diego, announced Thursday that the $558 million in spectrum licenses it won would double the capacity of the mobile TV service it offers from Orange County to Northern California and on the East Coast.

Verizon Communications Inc. Chief Executive Ivan Seidenberg said Friday that the $9.36 billion in total spectrum licenses won by the company's wireless unit, jointly owned with Vodafone Group, was "nothing short of a transformative opportunity for our company."

He downplayed the FCC's open-access conditions on a major portion of the spectrum it won, saying the industry was headed in that direction anyway. Verizon Wireless has pledged to let customers use any device or software program on its entire network by the end of the year.

But the regulations scared AT&T Inc. away from bidding on the open-access chunk of airwaves.

AT&T was second to Verizon, winning $6 billion in spectrum licenses, which it also plans to use for high-speed Internet service. But its executives said they didn't bid for the portion subject to the open-access rules. The parts it did land cost AT&T nearly three times as much per unit of spectrum than the portion Verizon bought.

With concerns that the open-access rules would lead large wireless companies to ignore that portion of spectrum, Google had promised to bid at least the minimum. Bidding was anonymous and, following the auction rules, started below the $4.6-billion minimum price. Google was the only bidder for several days at the auction's start, and it stopped after a $4.71-billion bid on Jan. 31. Verizon topped that three days later.

Having met its primary goal for the auction, Google never submitted another bid, Adler said.

But making a play for the wireless spectrum became more than just a business proposition. It also was "a new sort of puzzle to figure," said Minnie Ingersoll, a product manager on the auction team.

Google uses its own auctions to sell ads linked to search results. And the FCC's complex online auction appealed to the geeky side of the company's founders, Larry Page and Sergey Brin.

"Larry and Sergey really dove into understanding the details of the auction," Adler said.

In addition to frequently stopping by Google's auction "war room," Page and Brin each submitted one of Google's bids.

"They wanted to be the one that pressed the button," Adler said.

The half-a-dozen members of the auction team also were fascinated, Ingersoll said, amusing themselves with straw polls about the unknowns such as how many bidders would emerge.

"I was impressed that nobody was successfully able to predict the outcome," she said.

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jim.puzzanghera @latimes.com

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