Google's wireless efforts drawing political fire

John Letzing
MarketWatch (MCT)

SAN FRANCISCO - 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 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. has begun lobbying the Federal Communications Commission to reject a proposed merger of assets between Sprint Nextel Corp. and Clearwire Corp., 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.

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 Matthew 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., Comcast Corp. 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.

While other operators also have committed publicly about embracing a wider number of devices, they have a history of limiting access to their networks, analysts commented.

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

In addition, Google is a major player in the new 3G iPhone from Apple; Google's maps and YouTube video services are prominently featured on the device.

New Clearwire promises to distinguish itself in important ways, while granting Google remarkable input on the network's development, analysts say.

Unlike even the most advanced, existing cellular networks, New Clearwire will use WiMax - a beefed-up wireless technology primed to carry data equally well or better than voice signals.

With an eye to gaining a competitive advantage, New Clearwire says it will become home to a broad range of devices, including those running Android. While other operators also have committed publicly about embracing a wider number of devices, they have a history of limiting access to their networks, which may make New Clearwire's assertions more credible, analysts commented.

Google product manager Larry Alder wrote on a company Web site in May that "Clearwire intends to build and maintain a network that will embrace important openness features," adding that "the new network will provide wireless consumers with real choices for the software applications, content and handsets that they desire."

Cowen & Co. analyst Jim Friedland said that Google has done a good job of spreading its investments and initiatives across the mobile market, limiting its reliance on a particular network.

But New Clearwire's WiMax network is particularly intriguing, he added. That's because it could be able to transmit data faster than existing networks, while the WiMax standard is likely to achieve greater prominence in foreign markets where Internet users may be more likely to have access to a phone than a PC.

"The impact of that could be pretty material," according to Friedland.

Clearwire expects to launch the new network in Portland, Ore., before the end of the year, Clearwire's Johnston said. "But that's contingent on the timely close of the Sprint (merger) and if we choose to secure interim financing," the spokeswoman commented.

In the meantime, Clearwire must wait to hear what the FCC has to say about AT&T's petition to deny the asset merger underlying New Clearwire.

"It definitely seems like it's a transparent attempt to distort the public's interest to benefit its own commercial interests," Johnston said of AT&T's petition.

For Google, AT&T's move presents just one of a number of obstacles to becoming as prevalent on Internet users' cell phones as it's already become on their computers.

"Google's trying to tip over a lot of dominoes, and one way or another it's going to get there," Cowen's Friedland said.

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