Google's Mobile Play Looks to Win Over Carriers and Consumers

But Are Marketers the Real Winners Following Last Week's FCC Ruling?

By Abbey Klaassen and Alice Z. Cuneo

Published: August 07, 2007

NEW YORK (AdAge.com) -- Though Google got half of what it wanted from the Federal Communications Commission last week in what is the first round of a long game leading to a more open national wireless broadband network, the FCC ruling has significant implications for consumers and carriers whose interests may prove to be at odds with each other -- just as Google hopes to benefit from both.

The FCC plans to auction off a chunk of wireless spectrum. Google said it would participate in the auction if the FCC adopted four of its requests; the FCC adopted two. The first said consumers can use any mobile handset with any wireless network they prefer, meaning that certain models of cellphones won't be tied exclusively to one service provider (like the Apple iPhone and AT&T). The second ensures consumers could run any program (including, of course, Google programs) on their mobile devices.

Laying groundwork for Google phone
Already Google has been cozying up to handset makers and carriers to be sure its services would play a starring role on their networks and devices. A long-rumored Google phone could make an appearance as early as 2008, the Wall Street Journal reported last week.

Currently telecom carriers operate like AOL in the early days of the internet, creating so-called walled gardens of content and striking deals with content providers and generating revenue from ad sales in that garden. Sprint and Verizon Wireless have begun to sell ads in their gardens.

"At the end of the day, one thing is clear: Walled gardens don't tend to survive," said John Hadl, CEO of Brand In Hand and a strategic advisor on mobile to Procter & Gamble Co.

Unfortunately for carriers, they don't make money from ads sold on mobile sites outside that garden. An ad on the carrier deck of Sprint for the site Weather.com, for example, would generate revenue for Sprint. But if a Sprint customer went onto the mobile web to see a Weather.com ad, none of that revenue would go to the carrier.

The FCC ruling for the wireless spectrum to be auctioned off could ultimately mean less ad revenue for carriers, but could be a boon to marketers.

Regardless of whether Google or the carriers won this round, for marketers "it's incredibly exciting, you've got these open platforms that allow for developers and marketers to reach consumers in whole new ways," said Craig Daitch, VP-group director of interactive strategy at PHD US. "The choices aren't predetermined for them."

Consumer choice
Allowing people to use their mobile device with any networks is also, in theory, good news for consumers. Already a reality in Europe, in the U.K. consumers have benefited as carriers offer discounts on a wider variety of phones to lure customers to sign contracts. Of course, consumers not wanting to be beholden to a contract can always pay full retail for a phone. Currently, telecom service providers, such as Verizon Wireless and AT&T, spend more than $5 billion a year in measured media, compared with about $200 million from cellphone manufacturers such as Motorola and Nokia.

Naysayers suggest otherwise. The handset constraints and control of applications are what allow carriers to provide consumers with deals such as free nights and weekends and new phones every two years, John Hodulik, a UBS telecom analyst wrote in a note to investors. "We believe these incentives make it unlikely that the open access requirements as we understand them will have much of an impact on the market."

Victory for wireless
So what didn't Google get? It wanted the FCC to require any carrier buying the spectrum to sell parts of the network to third parties at wholesale rates. It also wanted to remove limits on where the network could be tapped. Many considered the FCC's decision to reject those conditions to be a major victory for the wireless industry.

Because not all of Google's requests were met, it now says it may not choose to enter the auction. Google responded to the decision on its public policy blog: "The Federal Communications Commission made real, if incomplete, progress for consumers this afternoon. Just two months ago, the notion that the FCC would take such a big step forward to give consumers meaningful choice through this auction seemed unlikely at best."

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