I had a dream that Google took over the world. I was drinking Google soda, brushing my teeth with Google toothpaste, glancing at my Google-branded watch and of course talking on my Google phone. Needless to say, I woke up in a cold sweat. Google sure made the most of its incredible market capitalization. (BTW, I usually dream that I'm in high school again and forget to wear shoes or some item of clothing, forget where my locker is or realize I forgot to go to one of my classes all semester long. Do you think I need a vacation?)
But my silly dream isn't any crazier than what Google apparently is contemplating today: going it alone to secure spectrum in the 700 MHz auction. According to the WSJ, Google is prepared to bid on its own without any partners, and it is developing a plan to finance its bid, which could run $4.6 billion or higher, that would rely on its own cash and likely some borrowed money. The news comes just after Google made headlines by teaming up with 34 different partners to create an open operating system.
For sure, Google has a history of branching out into many diverse businesses, such as WiFi and online bill pay. Oftentimes over the years there doesn't seem to be a method to the business strategy madness for Google. But as long as Google's earnings are positive and its market capitalization remains phenomenal (The company's stock is trading at over $600 a share.), why should investors be alarmed?
Bidding on spectrum and building a network, however, are entirely different animals. Google has spent $3.9 billion in the last eight quarters on capital expenditures. It could easily spend some $8 billion on spectrum and network construction. That's a big step away from its core competency. And you can bet that incredible market cap isn't going to stick around forever. What goes up must come down, especially as other online search companies close in on the company.
Meanwhile, we haven't seen any Internet companies reaping the benefits from their aggressive moves outside of their core businesses. Earthlink is contemplating a sale of its muni-WiFi business and won't put any more money into its MVNO joint venture with SK Telecom. The initiatives have turned into unwieldy mega-million dollar investments for the company. eBay overpaid for Skype and isn't seeing a healthy return on that investment.
It seems like Google could benefit more if it simply stayed out of the auction altogether. There have to be plenty of companies that are salivating for the prospect of teaming with Google in some bigger form or another--T-Mobile, Clearwire and Sprint, to name a few. Plus, why would Google want to risk alienating other operators when it wants to get its search interface on as many devices as possible? Does it believe its business strategy will succeed better in the open access environment it is championing? Open access is going to come, from FCC mandates and market forces, regardless of whether Google instigates it or not. -Lynnette