Google’s wireless venture running into political obstacles

Aug.26, 2008 in Market Outlook

Google’s wireless efforts drawing political fire

AT&T lobbies against WiMax network primed for forthcoming ‘Google phones’

By John Letzing, MarketWatch

Last Update: 8/26/2008 1:08:00 PM

(Corrects spelling of AT&T spokesman’s name)

SAN FRANCISCO (MarketWatch) — The ultramodern wireless network expected to
showcase Google Inc.’s operating system and applications for mobile phones is
becoming entangled in an old-fashioned political squabble.

The first devices powered by Google’s (GOOG) highly anticipated mobile
operating-system software, known as Android, are expected to become available
later this year. Phones with Android are designed let users more easily access
Internet services such as searching, and could steal some thunder from popular
devices such as Apple Inc.’s iPhone.

But the launch of a cutting-edge network primed for the advent of “Google phones”
could be marred by regulatory obstacles, as a telecommunications player well
schooled in the ways of Washington works to press its own interests.

AT&T Inc. (T) has begun lobbying the Federal Communications Commission to reject
a proposed merger of assets between Sprint Nextel Corp. (S) and Clearwire Corp.
(CLWR), which will form the “New Clearwire” network.

New Clearwire is expected to be more receptive to Android-based devices than
other, more established mobile networks — at least initially. In addition,
Google will be the new network’s “preferred” provider of search and other
applications.

While Google will rely on bigger networks for the success of Android and other
mobile initiatives, New Clearwire should be a crucial proving ground, according
to Yankee Group analyst Phil Marshall. “It will be a sort of test bed”
demonstrating what Google can do, he said, “prior to a more mainstream
environment.”

AT&T, the country’s largest wireless carrier in terms of subscribers, says that
Sprint and Clearwire haven’t honestly accounted for the amount of spectrum New
Clearwire will be able to use to transmit Internet and voice signals. The FCC
closely monitors companies’ spectrum holdings to foster competition in different
regional markets.

Analysts say AT&T’s bid stands little chance of scuttling the asset merger, but
they warn that it could delay New Clearwire’s launch or result in a paring of its
spectrum assets. Ultimately, they add, AT&T’s goal isn’t just to hinder a rival
as much as it is to create a regulatory climate where the FCC is less likely to
place limits on its own spectrum holdings in the future.

“Everyone in Washington does everything they can to use regulation to their
advantage,” said Blair Levin, a Stifel Nicolaus & Co. analyst and a former FCC
chief of staff.

“In this particular case, AT&T has some long-term concern about the way the FCC
looks at spectrum caps, and this is a sure way to force the FCC to make some
rulings that would be beneficial to AT&T down the road,” Levin said.

‘Special treatment’

Temporarily staving off the launch of New Clearwire would only be an added bonus
for AT&T, commented Tim Sanders, an analyst at research firm Maravedis Inc. “If
they can delay it a bit, every day a competitor is not in the field is a good
thing,” he said.

AT&T spokesman Michael Balmoris said a decision on the company’s petition to deny
the Sprint and Clearwire asset merger won’t necessarily affect other companies,
such as AT&T itself. “That being said, the commission would have to explain the
different, special treatment” if the merger behind New Clearwire is approved, he
elaborated.

Despite AT&T’s petition, Clearwire believes the forthcoming network is on track
to launch before the end of this year, according to Clearwire spokeswoman Susan
Johnston.

Google has invested $500 million into New Clearwire, with Intel Corp. (INTC),
Comcast Corp. (CMCSA) and others also backing the venture.

A Google spokeswoman declined to comment on the potential impact of AT&T’s
petition against New Clearwire, filed in late July. In a recent filing with the
FCC, Google deemed the effort “substantively improper and anticompetition.”

To be sure, Google has a number of partnerships with other mobile networks and
device makers to place Android and the company’s applications prominently in
front of mobile users.

T-Mobile is expected to release an Android-based phone in the fall, for example.
Sprint (S) uses Google as the default search provider on its network, while
recent reports suggest that Verizon Wireless (VZ) is nearing a similar agreement
with the Internet giant.

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