Could someone explain this scenario about Google's involvement in the wireless spectrum auction?

Question

Could someone explain this:

What will that mean? If history is any guide, Page’s idealistic impulses could result in a vaster, more sprawling company. In 2008, Google participated in an FCC auction for radio spectrum to be used for mobile broadband. By the terms of the auction, if the spectrum was sold above a certain price, the winner would have to allow other companies to run devices on their networks—something Google strongly favored but that telecom companies dearly hoped to avoid. Google executives worried that the telecoms would conspire to keep bidding below that baseline price. So the company got involved in a high-stakes game of chicken. Google would bid on the spectrum, high enough to get it over the threshold, and then bow out. It left Google potentially vulnerable; if nobody else topped its bid, the company would be stuck with a multibillion-dollar piece of spectrum that it was unequipped to exploit. “Google definitely wanted to lose,” the company’s chief economist, Hal Varian, says. To Google’s great relief, Verizon did top its bid, and the company was off the hook.

Source: http://www.wired.com/magazine/2011/03/mf_larrypage/all/1

I've no experience with bidding. I don't understand what's happening at all

Answer 1

If history is any guide, Page’s idealistic impulses could result in a vaster, more sprawling company.

The following is an example of one of Page’s idealistic impulses (wanting people to share spectrum) which could result in a vaster, more sprawling company (if they hadn't been outbid, Google would have expanded by buying a business asset i.e. spectrum which they didn't need).

I've no experience with bidding. I don't understand what's happening at all

An 'auction' is a way to sell something. Instead of offering it for sale at a fixed price, you offer it 'to the highest bidder'.

Someone (e.g. Google) says, "I'll offer you [some amount: e.g. a million dollars] for it."

If no-one else exceeds that bid, then you say 'sold' and Google has bought it.

Alternatively someone else comes along with a higher bid, "I'll offer you two million dollars for it," in which case they're the new high bidder, and you'll sell it to them unless the process repeats itself with anyone counter-offering an even higher bid.

See also http://en.wikipedia.org/wiki/Auction and http://en.wikipedia.org/wiki/Spectrum_auction

The "Disadvantages" section of this article alleges (currently without a citation) that:

Despite the apparent success of spectrum auctions, an important disadvantage limiting both efficiency and revenues is demand reduction and collusive bidding. The information and flexibility in the process of auction can be used to reduce auction prices by tacit collusion. When bidder competition is weak and one bidder holds an apparent advantage to win the auction for specific licenses, other bidders will often choose not to the bid for higher prices, hence reducing the final revenue generated by the auction.[citation needed] In this case, the auction is best thought of as a negotiation among the bidders, who agree on who should win the auction for each discrete bit of spectrum.

Google's bid made that impossible (or, at least, ensured that the winning bid would be at least as high as the minimum which was set by Google's bid).

Answer 2

At the time of the auction android was just vaporware but many companies were restricting the phones that they allowed on their networks so that they could control what the phones were being used for. The big guys (AT&T, Verison, and Sprint) feared that being forced to allow phones that could do things they did not have control over would cost them money(Especially since they charged for every little feature they added). They also wanted to prevent their phones (which they subsidize to their customers in to reap long term profits) from being taken to other networks.

Goggle saw the potential for the largest chunk of bandwidth available to the telco's to be restricted to services of one company and their strangle hold over the phones and services that were allowed to use it. They manuvered the bidding to ensure that this did not happen. There are many who believe that Verison bought the spectrum more to prevent anyone from competeing with them than because they actually wanted to use it. But at least they are forced to allow other parties in to compete even if it is on their playground.