What's a Carrier to Do?

Give the Governator credit. Whatever you may think of him, he's a forward-thinker.

Last week, a few months after announcing the nation's toughest emissions standards (a move that, paradoxically in car-crazy California, helped him win reelection), Calif. Gov. Arnold Schwarzenegger announced the formation of a 21-member "Broadband Task Force" to help speed the deployment of municipal wireless networks across the Golden State and to bridge the digital divide.

“If we want to stay No. 1 in technology, we need action. In countries like Japan and South Korea, the people have access to great technologies at lower costs than anywhere in America. We can do that,” said Governor Schwarzenegger. “Michigan has one of the largest wireless broadband networks in the country. We can do that.”

For a state with more than 34 million people, representing the world's sixth-largest economy, that's an ambitious goal. And Schwarzenegger has cash to back it up: The state's wireless broadband effort has almost half a billion dollars available, from a levy on telecom mergers by the state's Public Utilities Commission and from a $400 million education bond approved in last month's election. Most of that bond money will go to developing telemedicine applications.

It all sounds wonderful – imagine if Los Angeles were blanketed with wireless coverage in the way that, say, Singapore is. (For one thing, the news of the latest Mel Gibson outburst or Lindsey Lohan catfight could spread even faster – now there's something we can all get behind.) If you're a carrier, however, it raises all sorts of questions.

The Big Four wireless carriers fought a losing battle to keep governments out of the business of providing wireless connectivity by filing suits in several municipalities, most of which were tossed out. They are also watching new, deep-pocketed entrants, like Google (Nasdaq: GOOG), get into the muni wireless game in big cities like San Francisco. If I'm an executive for Verizon Wireless , for instance, I'm thinking, "Broadband wireless for all is a fine thing – but how do I sell services in a world of ubiquitous WiFi?"

(Verizon West Region President Tim McCallion, I should note, is a member of the task force.)

That's a question the carriers are already asking themselves. They're being pressured by cable companies offering increasingly expansive bundles of services including voice, on one hand, and rapidly spreading WiFi networks in large cities, on the other. Now they're being asked to compete with a government-funded broadband initiative with a half-billion-dollar war chest. (See Blind Faith.)

Maybe Sprint Corp. (NYSE: S) CEO Gary Forsee, who's rumored to be seeking a graceful exit early in 2007, has the right idea.

— Richard Martin, Senior Editor, Unstrung

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