NEW YORK -(Dow Jones)- Google's deal to offer its mobile services over Sprint Nextel's planned WiMax network points to a possible alliance that could challenge the top wireless carriers.
Google and Sprint have been independentlychampioning the idea of an open network opposed by incumbent telecommunications companies like Verizon Communcations and AT&T, and now appear to have found in each other a common ally. On Thursday, they announced Google will provide Web-search capabilities and mobile applications like email for Sprint's WiMax service.
Beyond the current deal, WiMax - a high-speed wireless Internet-access technology that covers a greater distance than its cousin wi-fi - could become a common bond and tool for making their open-network vision a reality. Sprint is already backing the technology with a multibillion-dollar bet; Google could do the same with the spectrum licenses it has set its sights upon. AGoogle-Sprintalliance, if successful, could pressure the incumbent carriersto reconsidertheir own closed-network approach.
"I think Sprint's made it clear they intend to make WiMax more open than traditional cellular networks," said William Power, an analyst for Robert W. Baird & Co. "Google is a logical partner with their heft in the Internet space." For the record, both companies said they haven't committed to anything beyond the current agreement.
The deal struck by the two companies gives Google access to the wireless world it has struggled to enter. For Sprint, it gives an additional revenue stream - mobile advertising delivered by Google -that would help offset the costs of its WiMax buildout. The deal also hints at the opportunity fora broader partnership at time when telecommunication and Internet companies are increasingly butting heads.
As the No. 3 carrier in the U.S., Sprint has struggled against its larger peers. It sees WiMax as a way to break out of the pack, but Wall Street remains unconvinced such a risky wager will pay off. Those concerns have prompted Sprint to seek allies in an effort to alleviate concerns about its heavy investment in WiMax deployment. The company plans to spend $3 billion to get the WiMax network rolled out in 2008 - select trial markets will spring up by the end of the year.
The Reston, Va., carrier has already agreed to a roaming deal with Clearwire, which expands its footprint and fills gaps in Sprint's coverage area.
Now it has found a like-minded partner in Google, of Mountain View, Calif., which brings added credibility to any endeavor. "We see the world the same," said Barry West, president of Sprint's WiMax initiative.
"It looks like they are putting together a pretty formidable team," said Scott Wallsten, director of communications policy studies at the Progress & Freedom Foundation, a Washington, D.C., free-market think tank. The Sprint-Clearwire-Google alliance appears to be "trying to develop a new business model that hasn't been tried yet" that could enhance competition and benefit consumers.
That model would look something like the one that has thrived on the Internet, namely unfettered use of the network by content providers and device makers who profit through advertising, subscriptions or other means.
Wallsten, however, argued it is unclear their network will be truly open. "It doesn't seem consistent with Google's claims for open access and net neutrality," he said. "Clearly Google is going to benefit from this, and it will be easier to use (Google) than Yahoo" or other rival services.
The cellular industry, on the other hand, is made up of competing proprietary networks with integrated services, mostly offered by the network operators themselves.
Google is hungry to take the Internet business model to the wireless arena. It has been aggressively lobbying regulators to set rules for the use of a swath of wireless spectrum that the Federal Communications Commission will auction off soon that would impose an open network model on the winner. The company said it will bid at least $4.6 billion to obtain those licenses if the FCC adopts its "open access" proposals.
The Web titan is seeking to expand the use of its programs in the mobile arena and make money off advertising, a goal complicated by the wireless carriers' closed-network model. As such, it wants the network created from the auctioned spectrum to be an open onethat can be accessed by any application provider and device. WiMax, with a more open Internet-based architecture, is seen as a good technology fit for an open wireless network.
Google has said it doesn't intend to get into the wireless-service business. Instead, if it acquired the spectrum licenses, it would likely wholesale or lease spectrumto third parties willing to accept the open-network philosophy. Here, Sprint, with its experience in customer service and building networks, is seen as a likely partner, said Philip Solis, an analyst at ABI Research. He added that others may also be involved.
Both Google and Sprint said the recently unveiled deal and the spectrum auction aren't connected. Google said that "until the auction occurs it is premature to talk about companies that we partner with." Sprint said cooperation with Google on WiMax doesn't indicate a broader partnership is in the works, and West said there have been no discussions on that subject.
Will Bells Face Pressure?
Until recently, AT&T and Verizon Wireless had vehemently fought against the conditions on the auction Google has proposed, some of which FCC Chairman Kevin Martin has embraced. They argued the conditions were unfair to traditional wireless companies and would devalue the spectrum, depriving the government of billions in potential revenue.
AT&T and Verizon have since taken softer positions on the proposed rules, which the FCC will vote on Tuesday.
While AT&T and Verizon Wireless prefer to maintain their "Walled Garden" mentality - in which the carrier largely determines what consumers can see or what services they get - Sprint's more open approach may shake things up. If the WiMax service is popular and steals subscribers, it could force change in the way other carriers approach wireless data, said Tole Hart, an analyst for Gartner Inc.
Eventually, the drive towards a more open network will be helped along by the eventual migration by all carriers into a single technology. WiMax represents a step in that direction.
"We're moving more and more to where Google is envisioning," Solis said about the evolution of wireless networks. "The closest thing is Sprint and Clearwire's WiMax network."
-By Roger Cheng, Dow Jones Newswires; 201-938-2020; email@example.com
-By Riva Richmond, Dow Jones Newswires; 201-938-5670; firstname.lastname@example.org
(END) Dow Jones Newswires"
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