Google's New Terrain

With the bulk of the U.S. auction for new 700-MHz spectrum now over, some observers note that Google was a big winner, though it didn't win any spectrum. Well, that's true, but so are nearly all potential or existing application or device providers.

In fact, it might be worth noting that Google's apparent strategy--to extract regulatory concessions without winning actual spectrum--illustrates the nature of the business environment Google now is entering.

Simply, to the extent that Google's financial interests now require involvement in regulated industries, it has to play the regulatory game, as do all major media and communications industries and contestants.

In the communications and "electronic media" industries, government decisions literally can create the potential for an industry to exist at all, and then dramatically affect its profit potential.

Obviously, scarce spectrum has to be allocated, either terrestrially or in space. But "smaller" decisions also can create fertile or hostile conditions for business activity. At once point early in its history, the cable industry was barred from the practice of importing broadcast TV signals from distant metropolitan areas to cablecast them in outlying areas.

Without access to those signals, there was no foundation for even rudimentary cable services. Without orbital slots, satellite providers could not create the "cable programming" industry. Without franchises, no cable operator can offer service in a city. In the early 1980s, those franchises were monopolies, and only later became non-exclusive.

Likewise, until the Telecommunications Act of 1996, it was not legal for companies to compete with the local phone companies to offer "dial tone" and other services to consumers. AT&T once was a single national monopoly provider, until the threat of a forced breakup lead to the creation of the "long distance" company AT&T and the separate local communications companies US West, Ameritech, Southwestern Bell, BellSouth, Nynex, Pacific Telesis and Bell Atlantic.

Likewise, though people might think movie studios do not have such concerns. They do. The reason movie studios may not own theater chains is because they are barred by law from doing so. The thinking originally was to prevent excessive industry concentration and monopoly.

As Google and other application providers discover their futures lie, in great part, in mobile services, they necessarily will have to participate in efforts to sway the regulatory and legislative process.

In that sense, Google, clearly a winner in the 700-MHz auctions, is starting to pay attention to the ways in which governmental regulations and statutes create, deny, enhance or limit business prospects.

The U.S. VoIP community made just such a rude discovery over the past several years as regulators and lawmakers began to take a look at VoIP, and figure out how to regulate it. Many had hoped that, as a "data" application, VoIP would be exempt from all or most regulations that apply to standard voice services.

That remains largely true for instant messaging-based, or Web site-based forms of voice. But other forms of VoIP, such as services that ultimately will replace today's "phone" services, increasingly are subject to the same sorts of regulations that govern "phone services."

Google has been spectacularly effective in its new rule as a stakeholder in the regulatory process surrounding communications. But its actions are hardly unprecedented.