Friday, November 16, 2007

Google, mobile phones, wireless spectrum

The WSJ speculates that Google could run its own mobile network and points to Google's apparent plans to bid on part of the wireless spectrum. But can it compete with established players etc. etc.?

Sure. Take a look at how MCI competed with Bell. They set up microwave towers in certain markets and provided long-distance service between those markets. They caught Bell flat-footed because Bell was committed to serving all markets and built up a huge cross-subsidy burden, funneling money from profitable markets to subsidize less profitable ones. It was also committed to maintain the same high transmission quality across all lines, exacerbating the cross-subsidy. That was the deal Bell cut to run a monopoly, and since MCI didn't have that cross-subsidy burden, it could dramatically undersell Bell.

That cross-subsidy was a big deal in low-density markets. When you're committed to 100% market penetration, like Bell was, you have to erect telephone poles and run miles of lines to anywhere people are.  And you have to maintain them. When you're MCI, you put up a couple of microwave towers in high-density areas and you're done.

The cross-subsidy still exists in another form: every telecomm provider pays into the Universal Service Fund, which then goes to subsidize the service and maintenance in low-density and disadvantaged areas. Take a look at your phone bill and you'll see that cost broken out, as well as many other costs, such as the Federal Excise Tax that was originally instituted as a luxury tax to fund the Spanish-American War. One reason Skype is so cheap is that you don't have to pay those taxes to use Internet lines.

So here's the question: is Google going to pull an MCI? Can it set up a mobile communication network that falls outside the jurisdiction occupied by telecomms? Can it avoid the USF and the other regulatory taxes that make telecommunications so expensive in the US? If it can, look for Google to crank up lobbying efforts in Congress as well.

Google Has Even Bigger Plans for Mobile Phones -

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