Google Ends Silence On C Block Auction

Phurge found a post on the Google Policy Blog in which they lift the cone of silence that had been imposed by regulation over the recently concluded FCC spectrum auction. As some had speculated, Google was in it mainly to force some openness into the wireless industry. "Based on the way that the bidding played out, our participation in the auction helped ensure that the C Block met the reserve price. In fact, in ten of the bidding rounds we actually raised our own bid — even though no one was bidding against us — to ensure aggressive bidding on the C Block. In turn, that helped increase the revenues raised for the US Treasury, while making sure that the openness conditions would be applied to the ultimate licensee."

Comments

Smart Move?

[Anonymous Coward]

So they artificially bumped up the price to make AT&T and Verizon have to pay more?

Very nice!

Re:Smart Move?

[_KiTA_]

So they artificially bumped up the price to make AT&T and Verizon have to pay more?

Very nice! Yup. "Do no Evil" does not mean "Don't screw your opponents".

Brilliant!

Re:Smart Move?

[Bill_the_Engineer]

Not to slam Google, but would an "evil" corporation actually admit to doing evil?

Shouldn't we take a closer look at corporations that specifically say, "we do no evil"?

Sorta like when paper companies create commercials on how earth friendly they are right before a new paper mill is built or when they are under investigation for discharging too much pollution.

Re:Smart Move?

[hey!]

Well, I don't know a lot about the details, but it sounds like the idea is to make the wireless companies bid for the spectrum under the current conditions of sale.

I'm guessing (without reading TFA of course) that the scenario went like this. If the reserve price hadn't been met, then the carriers could say, "obviously this spectrum has no market value unless it is for creating a closed network." Then the FCC would declare the auction void and conduct a new auction under conditions more favorable to the carriers and less favorable to the public.

Is stopping that scenario evil? Well, if Google had won, they'd have to put their money where their mouth was and become a wireless carrier themselves. They were hoping the industry would rather let their customers choose the hardware they wanted to use in this spectrum rather than to invite Google in as a competitor.

So it's a win all around. Google keeps the spectrum open for its servies and for its android partners; users get more choice in hardware and services, and the current providers don't have to worry about Google doing to them what they'd planned to do to Google. It's not as lucrative for the carriers as they hoped, but that's what competition is for. They'll make at least a normal profit, but not as much more as they'd have liked, and the public gets better services.

Re:Smart Move?

[morgan_greywolf]

Haven't you figured out by now that corporations do not pay for things like that, their customers do? Sort of. That would be 100% correct if corporations could always price their products and services however they wanted. The reality is that they can't really build everything into their pricing structure. In a free market economy, there are other factors such as competition and the law of supply and demand. Some costs do come out of a company's bottom line.

Re:Smart Move?

[osu-neko]

Shouldn't we take a closer look at corporations that specifically say, "we do no evil"?

Yes. However, it should be noted that Google doesn't say that. They say they have a goal of "Do no evil", they have never, to the best of my knowledge, claimed that they never do.

Of course, that's a point in there favor. It's easier to trust a person who says they try not to sin than one who says they've never sinned. The first assertion is much more believable. The second one is probably lying.

Re:Smart Move?

[PetiePooo]

Well unless we are talking about the devil, shouldn't "try not to do evil" be assumed?

I'd say that's true of individuals (people), but we're talking about corporations here. Corporations are legal entities, but they don't have a conscience. Many corporate boards (dare I say most) use only the law to determine if they should or shouldn't do something. If its not illegal, its fair game. Morals and ethics usually don't factor into their decisions, unless its specifically stated in their bylaws or policies.

Am I wrong?

Re:Smart Move?

[jdmetz]

Verizon didn't need to keep bidding - they could have let Google have it at their last bid price.

Re:Smart Move?

[Ambidisastrous]

This is getting a little out of context. When Google started saying "Don't be Evil (TM)" internally, it was pretty obvious to anyone in Silicon Valley what that meant. Don't Be Microsoft. More specifically, don't create artificial lock-in for their platform. And so, they don't. It was probably part of the original corporate philosophy that openness and trustworthiness* would allow them to create a product that (1) would succeed, and (2) a lock-in-obsessed competitor would be inherently unable to match.

Yahoo never really thought the same way; their philosophy was more like "Don't get crushed by Evil (with all due respect to Evil)". It didn't quite occur to them that doing the Internet the same way software was always done could be a weakness. They made/bought some good products, whored their brand out, and occasionally stumbled across openness and compatibility. It didn't have the same focus as explicitly stating that Microsoft's approach was the wrong way to do the Web.

[* "If I commit to your platform, how do I know you won't screw me later on?" If you're not locked into a system, you don't have to trust the provider nearly as much.]

Re:Smart Move?

[OpenGLFan]

Haven't you figured out by now that corporations do not pay for things like that, their customers do?

This sort of statement always puzzles me -- why do people assume that the price of goods is strongly dependent on the cost to produce them when there's ample evidence that this is false? Shoes cost $2 to make and are sold for $80, etc.

A company does not think "Oh, we just need to make $x million in profit, and we'll stop there." If a company can produce a widget X at $2, then develops a way to produce it at $1, what will it charge for the widget? AS MUCH AS POSSIBLE WITHOUT KILLING DEMAND. In absence of competition, it will not reduce price -- and this is more true as demand elasticity falls.

Now, a drastic supply cost drop may allow the company to support price structures unavailable before (100 people will buy a Ferrari that costs $50k to make for $75k, but 1000X will buy a Ferrari that costs $5k to make for $50k, etc.) But since they're negotiating over a one-time cost for licensing, that's not likely to happen.

In short, if the largest profit comes from people buying a NiftyPhone for $300, that's what it'll get sold for. If you start at the beginning and make the company pay $1 million for licensing, they'll STILL get the most profit by selling NiftyPhones for $300. And if you waived that licensing cost -- or even gave them $1 million outright -- would they sell the NiftyPhone for less, out of the goodness of their heart? Nope.

(This is simplified, but not as heavily simplified as the Joe's Bait Shack "We Pass The Savings On To You" model, and it's generally more accurate.)

Re:Smart Move?

[Atario]

Am I wrong?

Sadly, you are wrong. Though probably not how you meant.

Watch The Corporation . Corporations are legally required to act solely to increase their shareholders' value. You can act morally, but such action must always be overridden by the shareholders' purely monetary interests, in the case of a conflict. This is, of course, technically, almost always the case.

So, why are you wrong? Because it's not true that morals and ethics usually don't factor in -- they almost never can factor in.

Whatever morals and ethics Google has managed to slip in post-IPO have been allowed because their stock keeps rising and no one complains. Let the situation turn sour, though, and I guarantee you'll see the subset of their shareholders who are asshats suing for the company to pursue immoral/unethical courses of action to increase profit/stock value.

Android phones coming this year

[BadAnalogyGuy]

The real take away from this press release is that Google is expecting that the first phones based on Android will be released later this year. That is good news for those who are interested in open platforms and enjoy hacking. link

I wonder how happy Verizon's stockholders are going to be when they find out that Google was bidding up the price for essentially no reason at all and Verizon jumped in on top of that. not too bad, it seems

Re:Android phones coming this year

[boethius78]

Depends on your definitions of hacking and cracking. An open design would allow for lots of hacking, but the cracking potential would be a tad stunted.

Re:Android phones coming this year

[badboy_tw2002]

What about gaining unauthorized access for a non-malicious intent? i.e. jailbreaking the iPhone, making backups of DVDs, disarming a bomb, etc. Seems like in this case you're "fixing" the problem which is the design of the thing itself, so that's a hack. In the case of Android there's nothing to "fix" to open it up, so you're pretty much just developing instead of hacking. (And in software development, that's a good thing. No one likes a hack unless its necessary).

Re:Android phones coming this year

[Anonymous Coward]

How can you hack his mom? She's an open system!

Re:Android phones coming this year

[Z34107]

"Hack" in the common parlance is pretty much "to break (into) something." People who insist on other definitions of hack generally push the word "crack/cracker" to refer to this type of black-hat activity.

"Hack" in the classic MIT parlance was a nifty programming trick, or maybe just something really clever. Some people refer to awesome pranks as "hacks" (a compliment to the prankster), although normally it refers to some particularly elegant algorithm or code block.

"Hack" as referring to bad code, as in "hack-job" or "I hacked it together in three hours" is generally called a "kludge" (KLOOJ) by these people.

Maybe someone who actually went-slash-goes there could help out my amateur etymology.

So how does this work?

[Van Cutter Romney]

From TFA:
"As you probably know by now, Google didn't pick up any spectrum licenses in the auction. Nonetheless, partly as a result of our bidding, consumers soon should have new freedom to get the most out of their mobile phones and other wireless devices."

also,

"But it was clear, then and now, that Verizon Wireless ultimately was motivated to bid higher (and had far more financial incentive to gain the licenses)."

Now, if they pushed Verizon to bid higher to win the contract won't they just charge the end users more?

Re:So how does this work?

[Rayonic]

Now, if they pushed Verizon to bid higher to win the contract won't they just charge the end users more?

I think spectrum price and end-user price are way too many steps removed to really have a direct effect. Especially since the wireless market has actual, fierce competition

Re:So how does this work?

[pavon]

Now, if they pushed Verizon to bid higher to win the contract won't they just charge the end users more? That was my first thought reading the summary - bidding-up just to raise the final price is not a cool thing to do, and does not benifit citizens/tax-payers/consumers, as it will increase the cost of anything deployed in the C Block, and delay uptake. However ...

Google's top priority heading into the auction was to make sure that bidding on the so-called "C Block" reached the $4.6 billion reserve price that would trigger the important "open applications" and "open handsets" license conditions. We were also prepared to gain the nationwide C Block licenses at a price somewhat higher than the reserve price ....

We're glad that we did. Based on the way that the bidding played out, our participation in the auction helped ensure that the C Block met the reserve price. In fact, in ten of the bidding rounds we actually raised our own bid -- even though no one was bidding against us -- to ensure aggressive bidding on the C Block. It does sound like they were only bidding up against themselves when the price was below the reserve - but I don't know why they would bid below the reserve to begin with if they were genuinely determined to see the reserve met, and genuinely willing to purchase the spectrum at that price.

In turn, that helped increase the revenues raised for the U.S. Treasury. I still find it extremely odd that they would mention this as a "good thing" at all. Seeing as how the number of rounds were not fixed (bidding continued until a round occurred with no increases in bids), the bidding strategy they described was not the best way to obtain their stated goals - they should have placed their first bid at the reserve price and then not bid higher until/unless someone else outbid them. Unless they were bidding themselves up above the reserve because had an unstated goal of running up the price for their competitors.

Re:So how does this work?

[Incoherent07]

Step 1: Google gets FCC to adopt "openness conditions". These conditions will be dropped if the auction fails to meet the reserve price, so it's in Google's interest to make sure the reserve price is met.

Step 2: Google bids on the auction, but only until the reserve price is met. This ensures that the openness conditions stick, whether they end up winning the auction or not.

Step 3: Google stops bidding, and Verizon outbids them. From Google's perspective, they have what they came for, and actually buying the spectrum isn't relevant.

The confusion is that apparently the auction is sufficiently arcane that Google had to keep the bidding up themselves to get the price above the reserve price (the auction didn't start at the reserve price), but that once it got there Verizon did in fact outbid them.

Re:So how does this work?

[edwdig]

The price that Verizon can charge consumers in the marketplace is not related to the price that they paid for the spectrum. It's a competitive consumer marketplace.

Most services Verizon offers aren't really in competitive markets. If they were, their costs would be the largest factor in the prices they charge.

Monopolies and oligopolies are when the price charged for something is independent of the actual cost.

Re:So how does this work?

[Raineer]

Now, if they pushed Verizon to bid higher to win the contract won't they just charge the end users more? Myself, I am happy they did it, even if it drives prices up. I'd rather pay more for an open solution than have just another closed one, even if it is C-block. Openness in this space can transform the country.

Re:So how does this work?

[Kadin2048]

How is $80+/month for 2 phones and 500 minute competitive? They pay next to zero for each marginal phone.

Now if it was $10/phone unlimited, then I could see how you may say it is competitive. It's competitive with other carriers.

Basically the marginal price is more connected to what people will pay for a service, and less what it actually costs to provide that service.

There isn't enough competition in the wireless market to drive the price down to the marginal cost of delivery, unfortunately.

Implicitly

[Rydia]

Slashdot believes whatever google says; all other corporations lying scum.

Film at 11.

Re:Implicitly

[lilomar]

Well, this is kinda what everyone thought Google was doing, so it's more of a "Google admits to what had been expected." Than a "Big announcement from Google: they do no evil."

Re:Implicitly

[Reality Master 201]

Google says your mom does donkey shows in Tijuana.

Wow... is there no good that Google can't do?

[strangeattraction]

Helping pay off the National Debt. What will they take credit for next?

Open in theory

[markov_chain]

It seems logical the telcos will try to hamper the unwanted participants on their network, just like they did with the DSL resellers. Nothing like being the operator.

Re:Interesting

[gladish]

What it sounds like they are saying is that they had no real interest in purchasing anything, just manipulating the pricing.

eBay

[HaeMaker]

Don't you get banned from eBay for doing that?

Re:eBay

[N1ck0]

Don't you get banned from eBay for doing that? Government Auction vs eBay. On eBay lying, cheating , and manipulation of the system are banned to protect the consumer. In government auctions they don't give a damn about the consumer; so lying, cheating, and manipulation are the norm.

Re:eBay

[morgan_greywolf]

OTOH, in government auctions you can't sniped...oh, wait ...

Re:A little too altruistic

[Hadlock]

Didn't they specifically make it blindingly clear that by buying google stock you're agreeing that you're in it for the long run? I thought that was the whole point behind the google stock value was that they're looking at the long term and not worrying about short term gains.

Google you just did evil

[troll -1]

In fact, in ten of the bidding rounds we actually raised our own bid -- even though no one was bidding against us -- to ensure aggressive bidding on the C Block. In turn, that helped increase the revenues raised for the US Treasury ...

But ultimately the winners are going to have to make their money back by sticking it to the consumer. The bidding system is basically a government tax on something that's free, the airways. So the revenues Google so kindly helped raise for the Feds are ultimately gonna be paid for by the end user.

Re:Google you just did evil

[wcbarksdale]

The bidding system is basically a government tax on something that's free, the airways. The airways are "free" only in the same sense that natural resources like oil, gold, and lumber are: the government may not have paid anything for them, but they are still in limited supply. Should the government not charge for mining rights on public land?

Re:Google you just did evil

[Bill_the_Engineer]

It will be interesting to how this admission of gaming the auction system plays out.

Verizon could file a complaint.

-- and/or --

Google may find itself in hot water, if this admission means that Google violated any federal bidding rules...

Re:Google you just did evil

[Shishak]

But ultimately the winners are going to have to make their money back by sticking it to the consumer. The bidding system is basically a government tax on something that's free, the airways. So the revenues Google so kindly helped raise for the Feds are ultimately gonna be paid for by the end user. Are you naive enough to believe that if Verizon Wireless paid less for the license they would drop the price to the consumer? The consumer will be charged, and will pay what the market will bear based on competition. This is not related to the license cost. If Verizon paid too much for the license and they can't make a return on their investment while still being competitive in the market then that is their problem. What Google did was feint competition to keep everyone honest with their bids.

Re:Google you just did evil

[nine-times]

That's somewhat true, but not entirely. Pricing is often more complicated than people think. When you buy something, you aren't necessarily being charged cost plus some fixed percentage.

So to avoid getting theoretical, my point is that Verizon has probably done a calculation already of what price will maximize their profits. So let's say (hypothetically) they can provide service for $10/month and make no profit, or they can charge $200/month and make $190 profit. Why wouldn't they just charge $200/month (or more)? Because they wouldn't have as many customers, so they'll make less profit overall.

That's just how these calculations work. So if I can sell a product and make $10,000 profit, but can only sell 2 units-- or I can sell it cheaply enough that I can sell 2 million units, but only make $2 per sale, I'm better off selling it cheaply. So companies try to figure out what the optimal pricing of a product is, where raising the price will lower your overall profits by diminishing the volume of sales, and lowering the price will lower your overall profits because you won't be making enough more sales to make up for the loss of profit per unit.

So my point is, there is probably an optimal price Verizon expects to charge on wireless internet access, regardless of how much it actually costs them to provide this service. If they could somehow provide this service for free, they wouldn't pass those savings on to consumers. Likewise, if providing the service becomes more expensive, there's still no sense in raising your prices beyond the optimal level, because you'll only end up making less money.

Re:Google you just did evil

[howdoesth]

Exactly. It also forces out any type of small players for the wireless spectrums and decreases competition so that only the very rich can compete. It totally goes against capitalism to do this, it's really stupid. I would have expected more savvy behavior from Google. So your preferred model would be to have absolutely no spectrum regulation, interference be damned? Yes, only the rich were able to compete for the C block, but I don't think anyone who can't afford to put down a few billion dollars on a spectrum license is in any position to build out a nationwide wireless network. There were hundreds of local spectrum licenses in this auction which the smaller players were able to bid on and obtain. Those smaller players are still pretty rich compared to you or I, granted, but you can't build a radio tower with happy thoughts and bubblegum.

Re:Google you just did evil

[CodeBuster]

This is not related to the license cost. Exactly. The only way to determine a price that actually works in the marketplace is supply and demand. That is why communism was and is always doomed to fail because it has no functioning price system to direct efficient market activities. The labor theory of value, or the notion that the price of a good or service is proportional to the amount of labor or capital that went into producing it, is wrong and the parent is right. Verizon will charge the maximum price that the market is willing to bear no matter how little or how much they paid for the spectrum licensing.

Re:Google you just did evil

[Qzukk]

but you can't build a radio tower with happy thoughts and bubblegum.

Throw in a few dozen metal coathangers and we can get started on construction.

Re:Google you just did evil

[howdoesth]

That's exactly what was done with the A, B, and E blocks. The fact is that there exist nationwide players interested in buying up nationwide licenses, and so rather than forcing them to do so by stitching together a bunch of regional licenses, the C & D blocks were set up especially for them. Of course, the D block was made a bit too specifically for a single bidder so when Frontline couldn't get any money the block didn't sell, but the C block went over so well that it was all anyone could talk about and people like yourself were left thinking that it was all that was auctioned off.

Re:Google you just did evil

[Kuma-chang]

Are you naive enough to believe that if Verizon Wireless paid less for the license they would drop the price to the consumer?

Precisely. In fact, Verizon's bid was calculated something like this:

(Predicted revenue from service on the spectrum) - (cost of providing service) - (reasonable return on investment) == maximum spectrum bid.

They already figured on what consumers were willing to pay for the services they'll sell on this spectrum. If the price of the spectrum went too high for those pricing expectations to be able to fund the bid, they wouldn't go ahead and buy the spectrum and jack up prices to compensate, they just wouldn't make the bid. Similarly, if they got the spectrum for cheap, they wouldn't just give away the services. They still sell them at the market rate and pocket the increased margin. With Google pushing up the price, that money goes into the treasury and reduces the deficit instead of lining the pockets of Verizon investors. I'd call that a win for the rest of us.

Re:Interesting

[truthsearch]

They manipulated the pricing to reach a certain threshold. Once it's bought for a certain price the owner of the license must conform to certain rules of "openness" for what can used on that spectrum.

I'll believe it when...

[icejai]

... the winning company actually *implements* the "intended" level of openness and has it in their terms-of-use section in their contracts.

A popular thing for telecoms to do these days seems to be re-interpreting words in contracts. "Unlimited access" is re-interpreted to mean "Unlimited connection time", even though there are at most 744 hours per month. "Unlimited internet service" is re-interpreted to mean "unlimited, as long as you don't transfer more than XXGB a month". I don't even want to get into what Comcast redefined to get their computer-impersonating policies to fly. Companies are redefining words like it's going out of fashion.

Google may be cheering and patting each other on back for a job well done, but to be honest, I don't think they've achieved anything they've set out to do. All they've done is get the FCC to say "Oh yeah, and the network must be open to other devices", while everyone nods "M-hm, oh yes of course" while looking at their toes.

Going so far as telling everyone how clever they were the first opportunity allowed seems a bit premature. The network's not up, the company's services aren't for sale, the consumer-end terms-of-use contracts aren't drafted, so what exactly are they cheering about when they got a telecom company to say "Okay, we'll 'allow' 'open' 'devices' and 'open' 'applications'"?

Why underbid?

[huckamania]

Because if they won the nationwide C block, they could enact "open applications" and "open handsets" rules themselves. The government wasn't going to stop them from using their shiny new nationwide C block if their lower bid was the final bid.

Re:A little too altruistic

[daveo0331]

All companies are theoretically like that, since stock prices are based on the net present value of future dividends. CEOs only started being short sighted when stock options encouraged them to fool the market into overvaluing the shares in the short run, at the expense of the long run value of the company -- but the long run didn't matter since the options would be cashed in long before then. So companies would do things like cut back too far on R&D -- hurting the company in the long run, but boosting short term profits and, because traders were assuming the increased profitability was permanent, boosting the stock price as well. Basically it was a way for CEOs to use their options to scam the shareholders.

Re:Interesting

[gladish]

Yes, suprisingly, I read the blog post. I'm just a little ambivalent with the strategy that they used. It seems by the wording of the article that they really didn't care whether they won or not, actually suggesting they didn't even want to win. They simply wanted to "manipulate" a market. Let's say you and I are at the Toyota dealer and you want the last car on the lot. Instead of letting you get it for the fair value (whatever that is), I decide to bid over the fair value just so you have to pay more. Why? Well maybe I think the Toyota salesman will look favorable at me the next time I'm shopping for a Toyota. Or maybe I just have so much money that I don't care if I have to pay over fair value. I just want the chance to make you pay more for it.

Re:A little too altruistic

[eean]

They aren't trying to play this off as altruistic. It's obviously in Google's interests to have wireless be more open, so that they can sell their devices to anyone regardless of their phone company. The entry says this.

Re:eBay Yeah, you do, but in this case,

[amRadioHed]

Is that treasury vault where the government keeps the paperwork from their debts to China?

Re:Interesting

[Snowmit]

But they DID want something. There were certain openness requirements that would only happen if the bidding moved past the $4.6 billion threshold.

In effect Google was saying "we want the block to pass the $4.6 billion mark so badly that we'll pay it ourselves if we need to"

Once bidding had passed that mark, they didn't really care if they or someone else footed the final bill. The thing they wanted had come true.

Re:A little too altruistic

[LordKaT]

What I want to know is: why can't you "do no evil" AND turn a profit? It seems to be a very hard concept for a lot of people to wrap their heads around.

You and I do not share axioms

[jdavidb]

In turn, that helped increase the revenues raised for the US Treasury

I don't consider that a good thing. It won't cause the US government to take less of anybody's money, and it will make it easier for the US government to take actions which I consider wrong.

Spin Cycle?

[ImpactedColon]

This is exactly how I sound when I lose an eBay auction that I really wanted to win. "Ha! I really didn't want that rare comic after all. I was just sticking it to those other suckers that beat me." *whimper*