Seeks Corporate Welfare from the Federal Communications Commission Against Any Obvious Consumer Interest


The FCC appears to have been swayed by Google that open network rules should be applied to the upcoming broadband spectrum auction.  However, as this ConsumerGram explores, imposing these rules will reduce potential bidders and permit Google to buy scarce spectrum more cheaply.  That result would increase the Federal deficit by reducing the U.S. Treasury’s expected revenues from these auctions and it would rig the bid to favor Google over other potential bidders. 



A “Wired Deal” for Wireless Spectrum

Indications are that the FCC agrees with Google and their argument for imposing open network rules on the winning bidders of the upcoming broadband spectrum auction, effectively requiring spectrum winners to permit different devises and applications on their network.  However, a number of analysts, including Dr. Crandall of the Brookings Institute and Dr. Singer of Criterion Economics, argue that imposing these rules would reduce the value of the spectrum, thereby reducing the U.S. Treasury’s revenues from these auctions.  Some analysts contend that adding these spectrum rules would rig the bidding process in favor of Google’s business model, in what analyst Scott Cleland referred to as corporate welfare.


The simple fact is that without any open network rules in place, Google could still bid and win spectrum and provide broadband services using its own business model of openness.  So why doesn’t Google simply bid for the spectrum without receiving preferential terms and conditions?  The answer is Money! 


Google has threatened to skip the auction unless the FCC adopts an open network requirement on the broadband spectrum up for sale.  Specifically, in filing with the FCC, Google said that it would participate in the upcoming spectrum auction if open network rules were in place.  Google writes:


“… should the Commission expressly adopt the four license conditions requested in our July 9th letter – with specific, enforceable, and enduring rules – Google intends to commit a minimum of $4.6 billion to bidding in the upcoming auction.”


In other words, Google’s “deal or no deal” ultimatum proves that these regulatory rules would reduce the market’s interest in investing in Internet infrastructure, including the value of scarce spectrum capable of providing wireless broadband services to consumers.  The FCC’s plan to incorporate Google’s rules is already had a chilling effect on bidders.  Last week, Sprint announced it was dropping out of a bidding consortium and others are likely to follow suit.  With fewer bidders, spectrum values will fall and Google stands to receive a windfall subsidy at the expense of taxpayers as it gobbles up cheap spectrum.  Google has made its point and it speaks volumes – namely, that regulatory rules harm network investment.  It means that current broadband and wireless providers have paid too much for their networks, and Google can now pay less.  In short, Google has proven that Internet regulations would reduce incentives to invest in broadband networks, a point that proponents of net neutrality regulations have made all along. 


In Summary

Nothing prevents Google from winning its spectrum without bid-rigging rules and then imposing its own terms for openness on the spectrum it wins.  Based on this simple analysis, it appears that Google is influencing the FCC and reducing the value of the spectrum it pays at a cost to taxpayers.  Equally astounding is that, as Google presses for its corporate subsidy, so-called consumer groups that support net neutrality remain mum.  This behooves us to ask – who is really looking our for the public’s interest here?