Tales of the Sausage Factory

I Go Delphic, Snort Oak Leaves, And Give Four Reasons Why Google Will Bid To Win in the 700 MHz Auction (despite what the smart money says)

Analysts who watch Google and watch the wireless world really, really, really don’t want to think of Google as getting into the wireless biz. This spring, I heard an awful lot of “Google won’t bid” or “Google can’t win” or, my personal favorite, “you think Google is going to bid? Are you on crack?”

As regular readers know, while I have occasionally been a shade grumpy about how Google worshipers have attributed all things in the auction to our Great Google Overlords, I have been surprised at the reluctance of most analysts to accept that Google really does want to win licenses. For example, when Verizon announced it would open its network to third party devices, analysts suggested this would take the pressure off Google to win licenses itself. When Google announced it definitely would participate in the auction, a number of analysts again questioned whether Google was really serious about winning or whether it just wanted to insure the $4.6 billion C Block reserve got met. Although as shown in this article here, some analysts expect Google to press hard to win, the conventional wisdom among analysts has jelled into “Google is only bidding to make sure the C Block conditions stay in place.”

These analysts have sound reasons for thinking Google would be mad to bid. Google never wanted to be a network provider. Sure, they’ve dabbled a bit by investing in broadband over power line (BPL) and dipping a toe in muniwireless (neither of which has amounted to very much). But Google never took the potentially ruinous plunge from being an applications provider (its realm of dominance) to becoming a network provider. Worse, the estimated $5-$6 billion price tag for the C Block licenses is only the beginning of the cost to actually build a network. According to one widely reported estimate by Google itself, it would cost another $12 billion to build the network once Google has the licenses.

Nor is the wireless industry considered ripe for expansion. If anything, analysts expect further consolidation as smaller carriers find it tough sledding against the vertically integrated giants AT&T and Verizon (which jointly control the bulk of residential subscribers, can offer a nice set of wireless and wireline bundles, and enjoy other advantages that make them tough to beat). Even with Google’s genius for creating new capital opportunities, the conventional wisdom goes, how on Earth can Google ever recoup this mammoth investment as yet-another-wireless carrier in the highly-commoditized world of wireless telephony. And the one thing that might have worked, creating its own compelling “walled garden” that encourages users to go with Google wireless to enjoy access to features they routinely access in the wireline world, is the one thing Google has sworn up and down it won’t do. To put icing on the cake, the formation of Android and the inclusion of national carriers T-Mobile and Sprint make it impossible for Google to create its own walled garden if it changes its mind after winning.

With all this to consider, small wonder analysts by and large don’t see much chance of Google making a serious run to win. They believe that Google wants someone else to win, but offer an open network Google can ride on. So while bidding to make sure the spectrum gets bought makes sense, actually wanting to win the licenses doesn’t. Hence the convergence of the conventional wisdom that Google will leave it to Verizon or someone else rather than tie a multi-billion dollar albatros around its neck and potentially crash its stock valuation (especially if you hold Google stock).

For the reasons given below, I will play the contrarian. I think Google will bid and fight hard to win licenses. Indeed, while I expect Google to target C Block, it may well go after D Block or some of the other licenses as well, if that’s what it takes to build a national footprint. Google might still get outb id by Verizon and other carriers, but I don’t think that’s Google’s plan. I think they are in to win.

Why? See below . . . . .

Read More »

Posted in Spectrum, Tales of the Sausage Factory | Also tagged , , , , , , | 11 Comments (Comments closed)

Tales of the Sausage Factory

Comcast/TW/Adelphia Deal In Trouble — Update

Back in December 2005, I wrote this piece suggesting that it might not be smooth sailing for the proposed deal between Comcast and Time Warner to split the bankrupt Adelphia systems between them and achieve total cable dominance. At the time, I was a lone voice suggesting that the split at the FCC might force the companies to chose between accepting conditions or walking away, especially as Adelphia creditors demand that the parties close the deal and come up with the money.

Apparently according to this article in Variety, I am no longer a lone nut or in denial. The endless delay and the likelihood that the FCC will impose conditions (despite the party-line green light the Federal Trade Commission gave at the end of January) has a number of analysts suggesting the deal may crumble in the face of creditor concerns and possible “deal breaker” conditions on access to regional sports networks and net neutrality.

Meanwhile, Robert McDowell’s nomination as fifth FCC Commissioner, on whom Time Warner and Comcast pin their hopes to break the tie and prevent real coditions on the merger, remains stuck in the Senate. McDowell is non-controversial, but scheduling a vote remains hostage to the vagaries of Senate politics. Senators can place a hold on any nominee for any reason. McDowell has been caught up in various controversies and thus remains in limbo. Given the short legislative calendar this session, because folks want to rush back home and campaign, it is possible that McDowell will remain in limbo until the fall. Or he may get cleared by a Senate vote when they come back this week.

If you were an Adelphia creditor, would you want to bet on the timing? Or would you rather see the deal close? And that gets you fighting with TW and Comcast.

Hmmmm….. maybe the other bids weren’t so bad after all. Anything would clear more easily than this mess. And wouldn’t it be nice to get paid?

Stay tuned . . . .

Posted in Tales of the Sausage Factory | Also tagged , , , , , | Comments closed

Tales of the Sausage Factory

Is the Comcast/Time Warner/Adelphia Deal In Trouble?

Back some months ago, I wrote about fighting further consoldiation in cable. In particular, I talked about fighting the proposed division of the Adelphia cable systems by Comcast and Time Warner and system swaps between Comcast and Time Warner which would give Comcast and Time Warner dominance in many regions of the country. As usual, back when the parties filed their applications with the FCC in May, the parties predicted a cake walk and the industry analysts agreed.

The smart money is still betting on no major conditions, with the possible exception of requiring Comcast and Time Warner to provide access to their regional sports programming. But a number of recent developments have raised questions. Between that and the political situation, I suggest that, like that remaining piece of Christmas cake at New Year’s, things have gotten a little stiffer and a little stickier than expected. Warning: a lot longer and not nearly as fun as my last cable post, but worth it get a picture of events you won’t get from trade journalists and industry analysts…..

Read More »

Posted in General, Tales of the Sausage Factory | Also tagged , , , , , , , , | Comments closed

Tales of the Sausage Factory

Tales of the Sausage Factory: Will the Last Powell Out Please Turn Off the Lights?

Michael Powell has announced his resignation as Chair of the FCC. Hardcore libertarian fiscal conservatives — such as the Wall St. J. and the CATO Institute — mourn his departure. By contrast, most public interest folks celebrate and condemn his legacies. Industry people, always wary of burning any bridges, give carefully guarded statements. And, of course, everyone speculates on who will be next chair.

As for my views? See below of course!

Read More »

Posted in Tales of the Sausage Factory | Also tagged , , , , | 1 Comment (Comments closed)
  • Connect With Us

    Follow Wetmachine on Twitter!


If you do not have an account: Register