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Google Rules: FCC Endorses Its Stance on Net

Some winners in a pending federal spectrum auction would need to comply with network-neutrality mandates and other open-network conditions, according to controversial rules endorsed by Federal Communications Commission chairman Kevin Martin last Monday.

As a Republican appointee of President Bush, Martin has strongly resisted net-neutrality mandates favored by Silicon Valley giants Google, Yahoo, eBay and Amazon.com. But he evidently decided to shift gears, upsetting free-market advocates that say regulation is unnecessary unless the commission can demonstrate market failure.

Angered by Martin’s Google-centric concessions, AT&T warned in a July 12 letter that Martin’s rules would invite “a serious legal challenge” that could upset the congressionally mandated auction timetable.

Stifel Nicolaus wireless policy analyst Rebecca Arbogast said in a July 12 client note that she didn’t see “a strong basis for challenging the conditions but they have some smart lawyers and could create some cloud over the auction.”

Congress is expecting the 700-Megahertz auction — which has to begin by Jan. 28, 2008 — to bring in at least $10 billion when it is conducted. But Martin’s rules run the risk of depressing the value of the airwaves, one analyst said.

“Any rules that require a portion of the spectrum to be used only on an open-access/net-neutrality basis will diminish the value of the spectrum to be auctioned. Because the license holder will be restrained in putting the spectrum to its highest-value use, it will be worth less at auction than it would be in an unrestricted auction,” said Randolph May, president of The Free State Foundation, a free-market think tank based in Potomac, Md.

According to an FCC official, auction winners of a 22-MHz block would be required to allow customers to run any application and attach any device that wouldn’t harm the network — proposals designed to give consumers more choices than wireless carriers currently offer.

If the 22 MHz fails to generate about $4.6 billion, the auction would be called off and a second conducted with the open access condition eliminated, an FCC official said. The FCC is auctioning 60 MHz in all.

An FCC official insisted that calling these conditions net neutrality was a misnomer. However, both were derived almost verbatim from the FCC’s August 2005 broadband principles to ensure that networks are operated “in a neutral manner.” The conditions, however they are labeled, would not apply to the remaining 38 MHz being put up for sale.

Some reports billed Martin’s proposals as a victory for Google. But in a filing last Monday, Google told the FCC it wanted Martin’s rules to cover all 700-MHz licensees, in addition to requiring them to provide wholesale access to their spectrum and to interconnect with third-party Internet-service providers. Martin’s rules don’t appear to meet Google even halfway.

In the filing, Google said that if the FCC failed to endorse all of its policy prescriptions, AT&T and Verizon Communications would dominate the auction.

“Without the introduction of open broadband platform, Google’s auction analysis strongly suggests that incumbents almost invariably will succeed in procuring the larger commercial-spectrum blocks,” Google Washington telecommunications and media counsel Richard Whitt said.

Whitt added that although Google hadn’t decided whether to bid in the auction, the company was weighing post-auction business arrangements, including “joint partnerships and anchor tenancy.”