Spectrum Auction May Get Nibble From Apple

Hard on the heels of Apple's widely hyped expansion of its iPod line and slashing of iPhone prices last week, word has now leaked out that the company has evaluated the possibility of placing a bid for a portion of the wireless spectrum, according to a BusinessWeek report.

Unnamed sources say the technology giant is currently inclined not to bid, BusinessWeek reports, but a raft of potential motivations have brought the possibility to the table in Apple's boardroom. Wresting control away from AT&T (NYSE: T) for the iPhone's cellular service, to name just one, could bring powerful advantages to the Cupertino, Calif.-based firm.

Apple could not be reached for comment.

The Google Factor

The 700 MHz band of spectrum, which previously was used by TV stations, is particularly desirable for its ability to travel long distances and go through the walls of buildings. As TV broadcasters make the transition to digital distribution, the FCC plans to auction off those bands in January.

Google tried hard to affect the rules by which the auction would be run, but the FCC voted in July to adopt a scheme that represents more of a middle ground, including only two of Google's four requests. It did, however, adopt a measure that would open up a large portion of the spectrum to serving devices from many providers.

Google will likely bid anyway, CEO Eric Schmidt said last month.

Partnering Possibility?

Whether bidding would make sense for Apple, however, remains an open question.

"My gut feeling is that Apple has been looking into it -- I'm sure Apple looks into a lot of things," Bryan Chaffin, editor in chief for The Mac Observer, told MacNewsWorld. "I would be very surprised, however, if the company is willing to invest that much of its admittedly enormous cash reserves on such a project, at least without a major partner."

Working with partners is not one of Apple's strengths, however, and it's also not clear what the company would do with the spectrum if it were to buy it, Chaffin noted. "Obvious guesses range from running its own cell phone network to some kind of Internet access, but are those businesses Apple really wants to get into?" Chaffin added. "I would be flabbergasted if they ended up doing it."

Already Established

Indeed, "Building a wireless network is pretty far from Apple's core competency," agreed Paul Gallant, a telecom policy analyst with Stanford Group. "You would have to think they would have a plan to do something with this spectrum that's very different before they would decide to dramatically expand their business model this way."

Google and Apple have very different positions in the industry, Gallant told MacNewsWorld. Because of its focus on selling Internet advertising, for example, "Google sees the wireless carriers as more of an obstacle to its future than Apple does," he explained. "Wireless carriers have much more control over consumers' Internet experience than wireline Internet providers do," he said.

Apple, on the other hand, has already established a strong foothold in the wireless world with the iPhone, Gallant pointed out. "Apple has already proven that it can work with existing carriers, so I suspect it would shy away from bidding."

A Tough Industry

Entering the wireless industry isn't exactly easy, either, Bill Hughes, principal analyst for In-Stat, told MacNewsWorld.

"I find it interesting that companies without wireless experience are bidding so aggressively in this auction," he explained. "Obviously, their plans are more than just a financial interest in having business as usual."

This particular industry is so fraught with regulations and strong consumer expectations -- at least in the United States -- that in general, new entrants either learn the hard way why the industry is so difficult to compete in, or they succeed in "changing the industry on its head," Hughes said.

"Obviously Apple might think it can change the industry, but frankly, I'm skeptical," he added. "There hasn't been a new entrant that hasn't struggled for a long time -- every wireless operator really struggles with a lot of issues that just aren't the kind of things Apple has ever had to deal with."

A Strategic Threat?

While it's true owning wireless spectrum would give Apple more control over the iPhone, "there's never been a case I'm familiar with where competing directly with a wireless carrier has ultimately been constructive," Hughes asserted.

"I'm struggling to understand why this would make sense," Hughes concluded. "I just can't imagine the additional control would be worthwhile, unless it is meant as a strategic threat to carriers -- something that's never really meant to be used, because having it means it doesn't have to be used."

If Apple does get involved, it will likely be with an eye toward future capabilities rather than trying its hand as a wireless operator, Ricky Spero, contributing editor with The Mac Observer, suggested.

In Bed With Google?

"Apple has shown little interest in building and running commodity infrastructure -- even its own Web site is hosted by another company," Spero told MacNewsWorld. "If Apple gets involved in this spectrum bid, it won't be to build a network, it will be to ensure it has access to next-generation communication technologies."

While partnering hasn't historically been one of Apple's strengths, it has improved in that respect over the last decade, so teaming up with another company may its best approach, Spero concluded: "Look for signs that Apple is collaborating with other firms -- Google is the most likely bedfellow -- to ensure they can use the bandwidth, even if they don't run the network."