Google Shrewdly Plays Wireless Bid

To make sure the spectrum stays open, says Jamie Townsend, head of strategy at research boutique JRPG, Google must bid a minimum of $4.6 billion in accordance with FCC guidelines.

Over the summer, Google had successfully lobbied the FCC to include provisions in the auction that would force the winner to open access to applications and devices. But if those stipulations deterred bidders from putting in a bid of at least $4.6 billion, the spectrum would go back on sale 30 days later without the provisions.

With that floor in place, the two elements most crucial to Google aren't removed from the process.

Above that level, Google can simply drop out of the bidding process. Townsend expects the spectrum to go for close to $6 billion and says it's highly unlikely that its $4.6 billion bid will mean its left holding the bag. Given how vital Verizon(VZ - Cramer's Take - Stockpickr) and AT&T(T - Cramer's Take - Stockpickr) believe the spectrum is to the future of their businesses, it's easy to imagine the bidding going into the double-digit billions.

Owning and operating a network, on the other hand, could make for a costly and distracting scenario. "The cost of building a network could reach more than $10 billion, significantly reducing our estimated 2008 cash balance [from] nearly $20 billion to [about] $5 billion," Goldman Sachs analyst Anthony Noto wrote in a research note on Google last week. It could also end up "diverting management's attention from its core search product and foray into display advertising," Noto wrote. Goldman Sachs makes a market in Google shares.