“Soft despotism is a term coined by Alexis de Tocqueville describing the state into which a country overrun by "a network of small complicated rules" might degrade. Soft despotism is different from despotism (also called 'hard despotism') in the sense that it is not obvious to the people."

Sunday, July 22, 2007

Time to Short Apple?

July 20, 2007 11:08 AM PDT
Could Google kill the cell phone industry?
Cnet News

Posted by Don Reisinger
In case you haven't been paying attention, the old 700MHz wireless spectrum is up for auction by the federal government. And under the veil of touting an "open" platform, Google CEO Eric Schmidt announced that the company will participate in the Federal Communications Commission auction for the bandwidth--with a few minor requests for the FCC: open applications for users; open devices that will work with whichever network provider customers choose; open services that would allow for third-party resellers to acquire wireless services on a wholesale basis; and open networks, which would allow third parties, such as Internet service providers, to interconnect at any feasible point within the 700MHz licensee's wireless network. Not bad for a reported $4.6 billion deal, huh?

And while this story has already been skillfully reported on, I couldn't help but wonder what Google has up its sleeve. So, after some deliberation, here are my thoughts (let's see yours in the discussion).

With full leasing ownership of the 700MHz spectrum, Google will try to effectively cripple the cell phone industry. Before you scoff and say this is a bunch of garbage, consider this: Google will offer the $4.6 billion only if the government agrees to the terms above. And perhaps the most compelling of those terms is that Google is requesting "open devices" that will work on the "open networks." In other words, Google wants to create the ability for companies (and most likely itself) to create devices that will seamlessly connect to the broadband spectrum. Why can't one of those devices be a phone?

Whether you realize it or not, Google's bread and butter is advertising. The company doesn't need to charge money for its services because the advertising will bring home the bacon. If you have ever used Picasa or Google 411, you know what I mean. Service plans and contracts are of no use to Google--it doesn't have the time to deal with those petty issues. But if Google is anything, it's competent and self-assured. Not only does the company know what it's doing, it does it better than any other organization.

Even more compelling is the nature of the relationship between Google and telecommunications companies. Not only do they basically hate each other, they sit on directly opposite sides in the debate for Net neutrality. Simply put, I think Google would love to significantly damage these companies.

So you heard my justification, now I'll tell you how it'll work. If the FCC agrees to the terms outlined above, Google will definitely win the auction. Once its wins, its executives will soon realize (as if they haven't already) that this spectrum can go through walls and reach just about anywhere. Even better, it'll create a speedy broadband connection.

Within no time, Google will announce that wireless will be made available to the public through its system. After all, it did it in San Francisco, why won't it do it all over the country? In effect, Google would run a "third broadband pipe."

Once the company announces the wireless broadband to the nation, it will immediately announce that Google Phone everyone has been talking about. The Google Phone will work specifically with the Google system (kind of like Skype) and will be free of charge. The only fee to the consumer is the cost of buying the phone, which can be done over the Google checkout system from online retailers or at fine brick-and-mortar retailers nationwide.

As soon as the phone is released, people will be tossing their iPhones, Razrs and every other cell phone into the nearest river. Why pay all that money for a phone when you can have the same kind of service for free?

Now we have to solve the mystery of how Google will make money. To be honest, I don't think it'll be too difficult. Google thrives on using services it doesn't charge for, and why should this be any different? I'm sure you will see advertising when you start up the phone, but most of the benefits from this system will be earned on the Internet, where people will be lauding the company for all it has done to move the industry forward. In a matter of months, Google would practically control Internet advertising. And by giving people free Internet access on the phones, guess where the default home page will be pointing?

As soon as Google starts this system, AT&T and Verizon will lead the charge against this "anticapitalist" system and lobby the government for all it's worth. But with no debt and coffers of money for rainy days, Google will remind the men and women in Congress to check their pocket and look at the name on their new do-it-all phone. That should change their minds quite quickly.

So there it is--my prediction of what Google will do with the 700MHz spectrum. Not only will I enjoy my free go-anywhere phone use, I'll love it when I walk into Verizon and AT&T to tell them I'll never go back.

Say what you will, but don't be surprised if the cell phone industry starts sweating bullets when Google wins that auction.

Now it's your turn, what do you think Google will do with the spectrum?


  1. We went to cell phones because of my daughter. I have to admit, they are handy. They have gotten me out of two auto breakdowns, and saved me some walking. But are they safe? There have been some studies---particularily in Sweden I think--that say they aren't. I'm not sure what to think. She puts in a lot of time on the cell phone, and I worry.

  2. We've been giving away product for free for thirty years, based upon the advertising revenues generated.
    Done pretty well at it.

    So nothing new there.

    That Google could scale that model, world-wide, is a thing of beauty, to be much admired.

    But not only cell-phones.
    Not if AppleTV runs YouTube on wireless, which I've read they will.

    Cell-phones and home entertaiement, as well.

    AT&T and Cox, Comcast and a host of other wired giants.

    Back to the days of free TV, but with 500 channels.
    Still won't be anything on worth watching, most of the time.

  3. Technicals indicate AAPL is way overbought. A 50% Fib retracement to the start of the quarter is in order.

  4. Eric Schmidt is on the Apple board of directors

    rcharles234 said,

    Google will bring much needed competition to the cell phone industry.

    Under current conditions, Verizon and ATT are behaving as monopolists, dictating exactly what a customer can and cannot do with their cell phones and on their networks.

    For example, if I sign up for Verizon service and buy a great 3G phone, I must PAY verizon for the privilege of downloading music or ring tones, even though all of the technology is built into the phone and Verizon adds no value. This is a rip-off equivalent to the land-line business in the '50s, when the CarterPhone decision stopped the equivalent behavior.

    Another example, it is quite simple to have a cell phone use the Wi-Fi network whereever it is available to make VoIP calls and avoid the minute charges of the cell network, but Verizon will not let any of it's phones implement VoIP service.

  5. It's A Gworld After All
    Reader post by: brosselle

    One day I will awaken from my Gbed by the sound of my Gclock going off.
    I'll shower with some Gsoap, have some Gfood, then drive to Gwork in my Gcar, where I will be paid a lot of Gmoney.
    I'll probably use some of my Gmoney to buy some new Gtoys and some nice Gclothes.
    I might even buy a Gring for my Gwife.