Google's Wireless Plan
Underscores Threat to Telecom

Free Internet Access Proposal
In San Francisco Lets Users
Bypass Phone, Cable Links

Internet companies are making an aggressive and unprecedented push into services traditionally offered by phone and cable companies -- threatening to upend the business of transmitting voice and data.

Google Inc. unveiled the latest such effort Friday with a proposal to provide free, wireless high-speed Internet access in the city of San Francisco. The service would allow users to bypass fee-based connections of cable and local phone companies in favor of wireless links.

Users could log on through computers and email, surf the Web, download music or do anything else they can do with a traditional Internet connection -- including, potentially, make phone calls with voice-over IP, or VOIP, technology.

Google's bid followed the recent $2.6 billion purchase by Internet auctioneer eBay Inc. of Skype Technologies SA, which provides free peer-to-peer telephone services. Microsoft Corp. recently acquired a small Internet calling technology company. All are among the many Internet companies exploring ways to expand into the business -- and woo customers -- traditionally dominated by telecoms.

Google brings several especially formidable assets to the task, including a popular search engine, piles of cash and a market capitalization of more than $88 billion, which is only slightly below the $90 billion market value of the largest U.S. telecom company, Verizon Communications Inc. In other areas in which Google has launched offerings free to consumers -- such as its Gmail email service -- it has heavily pressured fee-based rival offerings.

More troubling for telecoms, it would bring their industry an entirely different business model. Google generates nearly all its revenue, which totaled $3.2 billion last year, from the small advertisements it shows alongside search results and other Web content.

By offering consumers free service, Google could pressure traditional providers to slash fees for Internet access, a growing source of telecom revenue -- when they don't have Google's advertising revenue to make up the difference, and have large, extensive networks for transmitting voice and data to maintain.

Google's proposal to use wireless fidelity, or Wi-Fi, technology would cost far less than a traditional network. It also would give Google a direct pipeline into consumers' homes -- long the big edge for telephone and cable companies.

Wi-Fi enables very fast wireless Internet access by essentially spraying an existing connection out for several hundred feet with wireless antennas. It can bypass the valuable last-mile connections of local telephone and cable companies to homes and businesses and instead allow users to connect to the alternative network of a fiber or long-distance provider.

To be sure, Google's proposal to offer free wireless across San Francisco could fall short. It was one of an unknown number of companies to submit offers to the city, including EarthLink Inc., which proposed a largely fee-based wireless service. Google, of Mountain View, Calif., said it has no plans to provide such services outside of the San Francisco area, despite rampant speculation that it aims to do so nationally.

Still, the Web-search giant's bid underscores how the economics of the telecommunications industry are being radically restructured, as communications -- including voice calls -- move to the Web. The entry of aggressive Internet companies with strong consumer brands and alternative revenue streams such as online advertising should hasten the shift.

Ironically, most of the newer, bigger Internet entrants see telecom services almost as an afterthought, not a key product. Companies like Google, Yahoo Inc., Microsoft and eBay consider free voice just an add-on service they can provide consumers to win their business loyalty and make their main businesses more attractive. For example, eBay customers could buy and sell more if they can talk to each other. EBay and Google have even said explicitly they are not seeking to compete with telecoms.

But whether it's deliberate or not, some industry executives and analysts think their plans potentially could steamroll the telecom model.

"I believe that free voice is going to be ubiquitous not in 10 years; within two or three years," News Corp.'s Rupert Murdoch told a Goldman Sachs investor conference last month.

It's too early to write the obituary for telecom and cable companies. Companies like Verizon, SBC Communications Inc., BellSouth Corp. and Comcast Corp. -- major employers in their regions -- have long gotten regulatory help in fending off challenges to their business. Over the past year, phone companies have successfully lobbied several state legislatures to prevent plans like the one being pursued by San Francisco to deploy citywide wireless networks.

In Pennsylvania, for instance, Verizon and others successfully lobbied the Legislature to prevent cities from using public funds to offer paid telecom services without first asking local phone companies for permission. A last-minute compromise between the governor and Verizon allowed an exception for Philadelphia, which already had begun work on a citywide Wi-Fi network. Officials could announce as soon as today what company will receive a contract to run the network.

While phone and cable carriers have faced Wi-Fi threats from start-ups and others for several years, those offering free voice communications have seen limited revenue. For all that eBay spent in buying Skype, the company had revenue of just $7 million in 2004. Mr. Murdoch also considered buying Skype but didn't want to pay the high price tag.

Meanwhile, phone companies also are expanding into new services to keep and woo customers, including video and wireless music. Most major telecom operators already offer some Wi-Fi services of their own -- though their services often are free only when tacked onto a broadband subscription. SBC has a joint venture with Yahoo, which it so far has used to attract more broadband subscribers.

Representatives of both Comcast and SBC -- San Francisco's largest cable and phone providers, respectively -- said yesterday that they offer tiers of service that are faster than what Google proposes to provide for free. They said their companies also offer unique content and safety and security features such as parental controls and anti-spyware services. "Consumers have long recognized the trade-offs with free Internet access services," said Michael Coe, a spokesman for SBC.

The emerging battle is being shaped by the rapidly changing behavior of U.S. households. About one-third of U.S. households now have broadband connections, and more than 50% of homes with Internet connectivity have high-speed connections.

A number of cities besides San Francisco and Philadelphia have taken steps toward wireless in their cities. The U.S. market for municipal broadband is expected to grow to $400 million by 2007, according to Esme Vos, founder of muniwireless.com, a portal that tracks municipal wireless projects.

The rollout is even further along in other countries, most notably South Korea, where the government has helped deploy high-speed Internet connections throughout large parts of the country.

In Europe, KPN NV of the Netherlands recently said that the number of minutes the Dutch spend on free Internet chatting now exceeds the roughly 12 billion minutes the country's inhabitants annually spend on the traditional phone. The threat of the Internet is one of several factors forcing the European telecom sector there to consider consolidation. (See related article.)

Google's proposal highlights the potential savings of offering a wireless, citywide link. The company proposes establishing just 20 to 30 access points per square mile in San Francisco. Each is essentially a small inexpensive box, similar to the Wi-Fi gear many consumers have in their homes, which would be mounted on the top of a city lamp post. Installation of one box takes about six minutes, Google said.

The access points connect to each other wirelessly. The whole citywide network would need just a few wired connections to the Internet, Google said. All consumers would need would be Wi-Fi cards, such as those many currently use to access wireless networks, or computers with the capabilities already built in. Under city guidelines, the service would have to be accessible from outdoors in 95% of the city and from indoor locations in at least 90% of the city.

Google declined to say how much its proposed network, which it would build and operate with partners, would cost. Analysts estimated such a service could be up and running for $20 million or less. Ron Sege, chief executive of Wi-Fi company Tropos Networks -- which is joining up with other bidders on the San Francisco project -- estimated the cost at $10 million to $20 million.

Google executives said they view a free San Francisco wireless service as a way to contribute to the community -- but also as a way to test other services. With a wireless network in place, Google's free mapping service, for instance, could automatically provide users directions based on where they are a given moment, for example.

Potentially, the company also could transmit ads to consumers from businesses near their locations, charging advertisers premium rates for reaching possible customers who are just steps away. Google declined to say how it would finance a free wireless service, but said that advertisements were one possible source of revenue.

Google executives played down any competition with existing Internet access providers. "We do not think this form of access is mutually exclusive to any other form of access," said Chris Sacca, a principal for new business development at Google. He said Google is "taking a very partner-friendly approach" and has consulted with access providers about its proposal to the city.

Among other things, Google is proposing to let other companies resell wireless Internet access at speeds higher than the 300 kilobits-per-second it would offer for free. Individuals might pay for higher speeds as they consume more video and other data-intensive applications over the Web.

The San Francisco Mayor's Office declined to provide details on the submissions it received by Friday's deadline for responses to a request for information. Chris Vein, senior technology advisor to Mayor Gavin Newsom, said the city was still working out the next step for selecting how a wireless network would be built and run. But he said Mr. Newsom wants to have a service operating next year. Mr. Newsom has pushed for a free or low-cost wireless high-speed Internet offering in San Francisco partly as a way to extend access to low-income residents.

Write to Jesse Drucker at jesse.drucker@wsj.com, Kevin J. Delaney at kevin.delaney@wsj.com and Peter Grant at peter.grant@wsj.com

Googling Copyrights
October 3, 2005; Page A16

Google is different. Or so the company's founders and employees like to say. But the Authors Guild and three individual authors last week filed a class action arguing that, when it comes to copyright law at least, Google should have to play by the same rules as everyone else.

The named plaintiffs are seeking certification as a class that would include virtually any copyright holder whose book is subject to scanning by Google. They are also seeking an injunction against Google's scanning the works of those who have not given Google permission to do so as well as damages for any harm already done.

The suit comes in response to Google's plan to scan and digitize the libraries of Harvard, Oxford, the University of Michigan and Stanford, as well as of the New York Public Library. The resulting database is supposed to allow users to search the full text of millions of books, although Google has said that only "snippets" of copyrighted works would be shown to searchers. Thus, the company argues, Google Print falls squarely under the "fair use" doctrine of copyright law.

This is a wide-open legal question, simply because Google's project is so unprecedented in its scope. But it's hardly the first effort to digitize books on a large scale. The Gutenberg Project is also an attempt to digitize huge numbers of books and make them available online, but it is restricted to books out of copyright and so raises no significant legal questions.

Since 2003, Amazon.com has allowed shoppers to search the full text of certain books and to view several scanned pages of some books. But Amazon secures the agreement of the copyright-holder before adding it to its database; it is an opt-in program. Many publishers have proved willing to participate because Amazon sells books, and the publishers clearly see it as good publicity. On the other hand, many books are not searchable on Amazon because the rights holders have withheld permission.

By contrast, Google doesn't sell any books, at least not directly, and it is proposing instead an opt-out model, in which copyright-holders would have to request exclusion from Google's database. Google has argued that the exposure books would get from inclusion would be good for many books that might otherwise never come to prospective readers' attention, and some authors clearly agree with that.

But weighing the advantages or disadvantages of inclusion in Google Print is ultimately a matter for the copyright holders themselves; neither Google nor its fans should presume to tell them what's best for their own property. Placing the burden on authors to opt out turns copyright on its head, as Paul Aiken, the executive director of the Authors Guild, has argued. Getting permission from all the rights-holders for such an ambitious undertaking would undoubtedly be time-consuming and bothersome, but no one said that storing and making money off someone else's copyrighted material was or should be easy.

There is a happy-go-lucky vibe around Google that the founders have worked hard to cultivate, from its homespun initial public offering prospectus to the everyday language it uses on its Web sites. One section of its prospectus was titled "Don't Be Evil." Its mission of making information available free on the Internet also has a basic democratic appeal to it. Taken together, this image lends a spin of respectability and beneficence to projects such as Google Print. And no doubt it launched Google Print without any intention to do harm.

But the mere activity of digitizing and storing millions of books -- many thousands of them under copyright -- without buying any of them raises a serious legal question, regardless of how much of that content Google later makes available at any one time or to any one user. Note that Google Print is fundamentally different from Google's core activity of indexing the Web, where the Web sites it helps users find are already freely available. It also searches and links to paid content, it is true, but it does this only with the prior permission of the sites in question. Digitizing nondigital content and storing that data to make it available on the Web is an undertaking of a whole different order of magnitude.

Google may be "different," but neither the advent of the Internet nor of the digital age has changed anything fundamental about the U.S. copyright laws, as the Supreme Court resoundingly affirmed in its unanimous decision against online file-sharing services in MGM Studios v. Grokster last June. Intellectual property was important enough to the Founding Fathers for them to mention it explicitly in the Constitution. We assume that when Google says "Don't Be Evil" this includes "Thou Shalt Not Steal."