Google Heads For The Airwaves

Google cranked up the heat on U.S. phone carriers Friday, announcing that it will bid on coveted wireless spectrum in the upcoming Federal Communications Commission auction in January.

The Mountain View, Calif.-based Internet giant will compete directly against major communications players such as Verizon Communications (nyse: VZ - news - people ) and AT&T (nyse: T - news - people ), both of which are expected to bid in the Jan. 24 auction.

Google (nasdaq: GOOG - news - people ) said it plans to file its application to participate in the highly anticipated auction on Monday. "We believe it's important to put our money where our principles are," Chief Executive Eric Schmidt said in a statement. "Consumers deserve more competition and innovation than they have in today's wireless world."

Google's move opens up a series of fascinating strategic questions. Will the search engine powerhouse become a wireless operator? What does the move mean for Apple (nasdaq: AAPL - news - people ) and the iPhone, which has so far restricted itself to specific carrier networks? And the big, trillion-dollar question: How will this move continue to propel Google's earnings to match its extraordinary stock market value?

Google lobbied hard to change rules governing use of the spectrum and was able to get lawmakers to ensure an open standard for part of the spectrum. That means whoever wins the auction, be it Verizon, AT&T or another operator, must open up its network and let users download a slew of game, video and music applications. Many of those new services may be created on Google's brand-new developer platform, dubbed Android. Currently, users can't typically download the same applications on both Verizon and AT&T phones, for instance.

"Google wants the broadest possible distribution of its applications on mobile phones," Forrester Research analyst Charles Golvin said.

So far, however, Google's Android platform, which launched a few weeks ago, hasn't produced any commercially available mobile applications. Nor has the company announced any plans for how either Google or developers will cash in on the applications. But don't worry: Google has big mobile-advertising ambitions, and industry experts are certain the company will figure out how to monetize mobile content.

IDC analyst Scott Ellison said Google's pressure likely will heighten competition, which usually is a plus for consumers. "The mobile content providers and Internet-based companies are all rooting for Google to win," he said. "The four major operators are so similar in business models and policies and can be difficult to deal with. There is a sense that the existing mobile carriers are collectively holding back mobile innovation. If Google does win, it's truly a game changer."

ABI Research analyst Nadine Manjaro said mobile operators need to be on the offensive. "Everyone in this space would be foolish not to look at their own business model and say, 'How does this affect me?' " she said. "We'll see more emphasis on the strategy of operators. I bet Verizon and AT&T are scrambling right now. Cable companies are probably rethinking their strategy too. Everyone will step up their game, and we'll probably see more announcements."

Google had seesawed on going it alone or partnering with other companies in the auction. It's flying solo now but hasn't ruled out partnerships later on if it wins, spokesman Adam Kovacevich wrote in e-mail to Forbes.com.

The FCC has set a reserve price of $4.6 billion for the 700-megahertz wireless spectrum. If that price is met, the winner gets to open up its network and let Google cash in.