Apple is considering bidding on the government's upcoming wireless spectrum auction in January, according to a Business Week story.
The story, which cites two unnamed sources, said that "Steve Jobs & Co. have studied the implications of joining the auction, which will be held Jan. 16." But at this point at least one of Business Week's sources says that Apple is leaning away from participating in the auction, the story said.
The spectrum auction scheduled to take place in January 2008 will allocate wireless licenses for spectrum in the 700MHz band that is being vacated as a result of the switch to digital TV. The spectrum, which is considered the last band of "beach front" airwaves available, is highly valuable because it can transmit signals over long distances and through objects. Internet giant Google has already said it will likely be bidding on the spectrum.
Apple has already begun dabbling in wireless, so it's not too surprising the company would at least consider bidding in the 700MHz spectrum auction. Earlier this summer, it introduced the iPhone, which works over AT&T's cellular network and also uses Wi-Fi. Last week, it upped the ante with the new Wi-Fi-enabled iPod Touch, an iPhone without the cellular connectivity. Apple also launched a new version of iTunes that will allow iPhone and iPod Touch users to download songs over a Wi-Fi connection.
But as the Business Week story points out, the wireless communications business is risky. And at this point "Apple is leaning against participating in the auction." While Apple can certainly afford the minimum $4.6 billion necessary to bid in the auction, strategically it makes little sense for Apple to get into the low-margin wireless phone business.
"My first reaction to this is why would Apple do that to their margins," said Mike McGuire, a vice president of research at Gartner.
McGuire also said that even getting into the auction would require Apple to dedicate a lot of resources and time to an effort that is not part of the company's core business.
"There is a lot more to this than buying spectrum licenses," he said. "They'll need people to manage the bidding. Then once they get the spectrum, they'll have to acquire the expertise to do something with it. And there are regulatory issues that will have to be dealt with. So the question becomes, how much of its resources does Apple really want to devote to this?"
But the Business Week story makes the argument that Apple may be moving toward a service model. The story suggests that if Apple had its own network that it could allow users to access content from a "cloud of computing" instead of first downloading it onto a PC. So music, movies, email and all kinds of other content would be stored on the network and streamed instead of being stored on devices like the iPod.
In this scenario Apple would eventually make money on its applications, instead of selling devices. The article goes on to say that Apple may even consider offering the basic wireless access service for free, subsidizing the cost through advertising. And then it could charge for the content that it sells over this network.
This could be great for consumers, who would likely get cheaper wireless access and possibly simpler access to applications, but the Business Week article seems to assume that building a wireless network is cheap. Yes, it's true that building a wireless network is less expensive than laying new fiber in the ground, a strategy Verizon Communications has taken in building its next generation broadband network. But whether you're laying fiber or installing wireless bay stations, there are real capital and operational costs associated with building and operating a network.
Just ask EarthLink, which has been forced to scale back its municipal Wi-Fi deployments because it can't find a business model to sustain the strategy. The networks have turned out to be more expensive to build than EarthLink first anticipated.
I have little doubt that Steve Jobs has thought about the 700MHz auction. How could he not, with companies like Google making so much noise about the auction? But to actually commit money and resources into such a project seems like a long shot to me at this point.
Perhaps there will be some way for Apple to partner with a potential bidder. For instance, it's conceivable for Apple to work with Google, especially considering that Google's CEO Eric Schmidt is on Apple's board of directors.