11 January 2008

Google and the spectrum auctions

I found this article in Forbes interesting. Quoting the article:

A Google win could also spark a hiring spree in the mobile sector. The company has zero experience building and operating a network, and would need to bring on folks who do.

Investments in wireless technologies could rise as well. "You'll see a flood of investment capital come back to the wireless market," Ellison says. "The mobile operators are a barrier to innovation. They move really, really slowly."


Still, analysts say there are good reasons for Google not to win. The costs involved in acquiring the spectrum, and building and operating a wireless network, are sky-high. The starting bid for the spectrum is $4.6 billion, and analysts predict it will sell for more than that. All told, the entire cost of a new network could reach $15 billion--and take a few years to build.

Plus, profit margins for wireless service are extremely low. "As a Google shareholder, you'd have to question a wireless network, which doesn't have the same margins as [online] advertising," says Forrester Research analyst Charles Golvin.

Mathias speculated that Google can lose and still win. For instance, the company might drive up the spectrum price and then drop out of the auction. Another company could win it and possibly take on enormous debt, which could give Google great bargaining power later on. "This is a game; make no mistake," Mathias say. "There are all kinds [of ways] of getting what you want without winning anything and spending money."

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