Digitalwall: Great Changes in Wireless Internet Industry (1) Google's Strategy

Success or not, Google has made a smart move to bid for the license.

[+] The conflict of mindsets of two industries

Rumors about Google's introduction of GPhone have been flowing around for quite a long time, but never confirmed. Nobody had any idea about how ambitious Google's blueprint was until it announced to bid for FCC 700MHz spectrum and to launch the Android mobile platform.

Mobile operators are in a fortress that Internet players have been unable to conquer so far - largely due to the gap between the basic business modes of the two industries. In the mind of telecom operators, there's nothing to be offered free. Once launched on a telecom platform, any service would entail a cost and should generate an income.

Therefore, when the ringtone download service is released on WAP portal, telecom operators charge the users two types of fees, one for data transmission and the other for use of the content. While the former is most likely to be integrated into monthly packages, the latter is actually collected for content providers.

For a long time, telecom operators have no idea about how to deal with Yahoo! or Google search boxes at WAP portals. Unlike ringtone download, this is a service that you cannot charge users for. If the search boxes are put up by Internet players for marketing purpose, should they pay telecom operators for that?

So when the webpage you get using Google on your cell phone shows an ad, your telecom operator will share a portion from the advertising income. This cooperation model turns Internet companies into a secondary role. What else can they do since the telecom operators control the Internet access?

There are two ways to force telecom operators to recognize their status: either from the upper stream or the lower stream of the industry. One case for the former is Google's bid for wireless spectrum to assume the role of a telecom operator; and that of the latter is Apple's introduction of iPhone - bound music to reach into the pocket of consumers.

[+] Google's overall deployment

Google' s bid for FCC 700MHz wireless spectrum is far more important than its launch of Android mobile platform. Previously, Google had urged FCC to accept a yardstick that "all bidders for the spectrum should offer open access."

The request got the support of FCC. Essentially, it demands that the winner of the bid should have the ability to provide access to any terminal device connecting to networks of the spectrum. Instead of discrimination, the operators should treat all terminal devices equally.

FCC is a neutral party. Its mission is to facilitate the development and effective competition of the communication industry. To open the industry wider to more players is, obviously, in conformity with this mission. As Google stood out with the proposal, telecom operators, who had been accustomed to stand-alone business operation, were at a loss for even not knowing how to rebut it.

However, how could it be possible to allow so many different terminal devices free access to the Internet? So Google, along with the 34 founding members of Open Handset Alliance, introduced Android, a device-independent handset software development platform..

Why were the 34 companies, including heavy-weight players such as Motorola and Qualcomm, and even telecom operator T-Mobile involved from the very beginning? Had Google not announced to bid for the license and urged FCC to accept the Open Access standard, they wouldn't be there so fast!

Google made a smart move. The result of the bidding is yet to be announced, and the open handset platform would have to stand up to existing rivals such as Symbian and Windows Mobile. Nevertheless, it is a good beginning. Nobody could afford to ignore the power of Google.

[+] The license bid is critical

The next step of Google might depend on the result of the license bid. In the first place, if Google wins the bid and becomes a new telecom operator, it would be able to integrate the entire industrial chain, from the upper stream to the lower stream, with the assistance of Open Handset Alliance. The most optimistic prospect would be a performance multiplier.

Google will be able to foster the basic customers for its own handset platform, while its allies would target client groups for their handsets and services, and terminals introduce closer-knitted services with Google. With economies of scale, more investments can be made for R&D to eventually build a healthy cycle.

Of course, it will take Google a lot of money and time to learn about the trade. Telecom is a century-old industry and won't be so easy for Google to understand in a short time. Head hunting might be a good option, but conflict with Google's existing business culture would be possible.

If the learning curve is too long, Google might be mired in the new business. Telecom is a capital-intensive business that takes a lot of initial investments. Google's financial statements would not look so pretty by the time.

More troublesome, in this industry, successful business modes cannot be duplicated. Google might be able to get the wireless spectrum of the United States, but it has no way to get those of all countries in the world. Telecom is a highly localized industry, which means that Google is unlikely to duplicate or export business modes to other parts of the world.

The only viable way is M&A, or financial takeover of local telecom operators just like other transnational telecom giants have been doing. This, however, won't happen before Google's telecom business becomes profitable. How can a money-losing business sell its business mode? Where does it get the money needed?

[+] The Android platform turns out to be a headache of developers

In my view, it would be better for Google not to get the wireless spectrum license. It would be too much to raise cows just for drinking milk. Even if Google doesn't get the license, Open Handset Alliance and its Android platform would still be valuable assets.

As Open Access has been accepted by FCC as a requirement for all players, Google could use the alliance and the platform as its chips to cooperate with the telecom operators that win the license. By abandoning the quest for a telecom operator, Google would be less as a threat to other operators, which would be helpful for cooperation.

By taking the highland to show its determination for the license bid, to create a powerful pressure and facilitate the establishment of Open Handset Alliance, Google has made a really smart move, regardless of the result of the bid.

Of course, there will be challenges. For Google, the biggest is how to attract more telecom operators into the alliance and to boost the enthusiasm of handset manufacturers to develop GPhone. Its rivals will include the formidable Symbian and Windows Mobile.

Handset manufacturers and software/application developers, in the meantime, are frowning at the platform. On the open Internet, Google is undoubtedly the leader. In the field of handset development platform, however, it is just one of the options.

What the developers are concerned about is, if the Google platform is not powerful enough to take the loin's share of the handset market, it would turn out to be one more standard that the developers would have to support. For them, the existing platforms are enough to be painful about. And here comes another. (
2008/03/02 - By Digitalwall.com - Way to
China Internet/Telecom )