Make no mistake, that surge has been massive. Says AT&T (T): “Since 2008 AT&T’s network in the San Francisco area has experienced a 3G data traffic increase of 2,000 percent.”

Wow. No wonder my calls kept dropping at that last Apple (AAPL) event in San Francisco (yes, an iPhone 3G repeatedly dropping calls at Apple’s Sept. invitation-only music gathering). In any event, the upgrade, which includes the bolstering of backbone infrastructure, should result in better coverage, 3G performance and in-building penetration.

“More than ever before, customers look to wireless communications to stay in touch with family, friends and business colleagues,” said Terry Stenzel, AT&T vice president and general manager for Northern California/Reno. “The additional spectrum helps to enhance the 3G network so that our customers have the best experience when they make a call, check an e-mail, download a video or song, access applications or surf the Internet on their AT&T device.”

According to the CTIA, there are more than 246 million wireless data-capable devices at large in the U.S. today. Of these, 40 million are smart phones or PDAs, and more than 10 million are laptops. Little wonder that wireless data service revenue rose 31 percent to more than $19.4 billion in the first six months of 2009.

Revenue will no doubt continue that trend in the months ahead as wireless devices become more ubiquitous. Wireless carriers, then, would be wise to put some of their windfall toward building out their networks to cope with future demand lest they end up the butt of a joke in a rival’s advertisement.

Consider these remarks from Federal Communications Commission Chairman Julius Genachowski, spoken Wednesday at the CTIA wireless industry convention in San Diego: “We are fast entering a world where mass-market mobile devices consume thousands of megabytes each month. So we must ask: what happens when every mobile user has an iPhone, a Palm Pre, a BlackBerry Tour, or whatever the next device is? What happens when we quadruple the number of subscribers with mobile broadband on their laptops or netbooks? The short answer: We will need a lot more spectrum. The biggest threat to the future of mobile in America is the looming spectrum crisis.”

The deal will put AT&T (T) that much closer to parity with Verizon (VZ), which surpassed AT&T to become the largest wireless carrier after its January acquisition of Alltell. Together, the two account for about 60 percent of all U.S. cellular subscribers. 

[Image Credit: IntoMobile]

The U.S. Senate voted unanimously Monday to delay the nation’s transition to all-digital television. Arguing that a major economic crisis might not be the best time for a congressionally-mandated switch, legislators pushed the mandatory conversion date from Feb. 17 to June 12.

But the U.S. House of Representatives didn’t buy that argument. Today, it torpedoed the legislation, saying a delay like the one proposed would confuse consumers and be a burden to wireless companies and public safety agencies waiting to use the spectrum the transition will free up. “In my opinion, we could do nothing worse than to delay this transition date,” said Joe Barton of Texas, the top Republican on the House Commerce Committee. “The bill is a solution looking for a problem that exists mostly in the mind of the Obama administration.”

…the licensee for the 2155-2180 MHz spectrum to provide–using up to 25 percent of its wireless network capacity–free, two-way broadband Internet service at engineered data rates of at least 768 kbps downstream. Additional obligations associated with the licensee’s free broadband service would include a requirement to provide a network-based filtering mechanism for the free Internet service in order to protect children and families.”

Quite a goal, “protecting children and families” from government-defined obscenity. A daunting one, though. As a wise man once said, “You can’t take something off the Internet…. That’s like trying to take pee out of a swimming pool.” And in Internet porn’s case, it’s like trying to take it out of a cesspool.

Really. You don’t say?

Anyway, Google’s lucky it got what it wanted from the auction without really spending anything. “If Google had won a license, there was only downside risk for them,” said Gregory L. Rosston, a former F.C.C. official and senior fellow at the Stanford Institute for Economic Policy Research. “Now they can just spend $1 million a year on a law firm to ensure Verizon lives up to the openness requirements.”

The hottest bidding action continues to be around the highly prized “C” block spectrum, which could be used to build a new national wireless broadband network. As of this writing, total potential winning bids for the C-block licenses stand at just over $2.15 billion. The FCC won’t say who placed those bids, though. It’s keeping bidder identities under wraps in order to “reduce the potential for anticompetitive bidding behavior.”

It’s a safe bet, however, that it was placed by a major player like AT&T, Verizon or Google, which analysts believe may be bidding not to win the spectrum, but to drive its selling price to $4.6 billion to ensure the FCC imposes open-network requirements on it.

Obama made the now obligatory pilgrimage yesterday to Google headquarters, where he unveiled a high-tech agenda that might just as easily have been written by Google’s director of public policy and government affairs as by Obama’s campaign office.

Promising to use technology to bring openness and transparency to American democracy after seven years of “one of the most secretive administrations in our history,” Obama laid out a detailed package of technology policies designed to provide more Web accessibility to government records, strengthen online privacy, free up wireless spectrum, put high-speed broadband within reach of all Americans, reform the patent system and maintain network neutrality. “I will take a backseat to no one in my commitment to network neutrality,” Obama said in prepared remarks. “Because once providers start to privilege some applications or Web sites over others, then the smaller voices get squeezed out, and we all lose. The Internet is perhaps the most open network in history. We have to keep it that way.”

Impressive, yeah? But does Obama have the sort of experience needed to implement that sort of broad-reaching Silicon Valley policy wish list? Asked just this question by a Google employee, Obama replied: “Sergey and Larry didn’t have a lot of experience starting this Fortune 100 company. I suppose when they came in and started talking to [Google General Counsel] Dave Drummond about starting a company, he could have said, ‘They don’t know what they’re doing.’”

It’s an intriguing idea. With nearly $14 billion in cash, Apple can certainly afford to bid in the auction. And if it were to win, it could create a network that would free it from dependence on wireless carriers like AT&T. A network that could be used to wirelessly deliver music and videos purchased on iTunes not just to iPhones, but to iPods and Apple TVs as well. An insanely great network optimized especially for Apple services.

Sadly, running such an insanely great network would be an insanely great pain in the ass. Which is likely why Apple is said to be leaning against bidding in the auction. “My first reaction to this is why would Apple do that to their margins,” Mike McGuire, vice president of research at Gartner, told News.com. “There is a lot more to this than buying spectrum licenses. 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?”

And would Google, whose CEO Eric Schmidt sits on Apple’s board and is also considering a bid, perhaps be willing to make up the difference?

In his July 20 letter to FCC Chairman Kevin Martin, Google CEO Eric Schmidt wrote, “should the Commission expressly adopt the four license conditions requested in our July 9 letter–with specific, enforceable and enduring rules–Google intends to commit a minimum of $4.6 billion to bidding in the upcoming auction.”

Are two out of four openness conditions enough for Google to make good on its pledge anyway? Because they’re good conditions: 1. Open applications, the right of consumers to download and utilize any software applications or content they desire; and 2. Open devices, the right of consumers to utilize their handheld communications device with whatever wireless network they prefer.

Certainly, it would have been nice to see the FCC adopt open services and open networks as well, but with incumbent telcos like Verizon and AT&T so vehemently opposed, it was probably never going to happen.

And Google likely knew this all along. So we return to the original question: Will Google bid in the spectrum auction? It just might, at least according to Chris Sacca, head of special initiatives at Google. Consider his comments during a recent interview with News.com:

Q: Google has recently said it would bid on the 700MHz spectrum only if the FCC guarantees certain open-access principles, including open access for companies wanting to buy wireless capacity wholesale. Does this mean that Google won’t bid on spectrum if the rules aren’t adopted?
Sacca: To be clear, what we said was not exactly that. What we said was that there had been some concerns that somehow imposing these openness principles on the spectrum might diminish its value at auction. And we wanted to reassure the FCC that embracing a path of full openness in the interest of users and the interest of consumers would not reduce the total revenue of the auction. And we wanted to put our money where our mouth is, and we are putting our money where our principles are. So we committed to spending a minimum of $4.6 billion in the auction, if they adopted all four principles.
Q: So it’s not out of the question that Google would participate in the auction, even if the FCC doesn’t adopt all four principles?
Sacca: We are deeply committed to changing this industry for the benefit of end users.”

There’s a little bit of the ol’ Google two-step there at the end, but Sacca does seem to suggest that it’s still possible that the company might bid in the auction.

Should the FCC agree to the open-access requirements proposed by Google and others, we may see all manner of innovations in technology, pricing and quality come 2009. We’ll also undoubtedly see Google become even more ubiquitous as it leverages open access to extend its presence to handheld devices, etc. Should it toss them, we’ll still see innovations, but they’ll more than likely be ones that strengthen the existing business models of the incumbent telecom carriers. Carriers like Verizon, which have been mobilizing their artillery, rhetorical and otherwise, to destroy what Mary Brown, Cisco’s director of technology and spectrum policy, has helpfully ID’d as a misguided attempt to base regulation on the “worries of a $158 billion behemoth.”

“Google is attempting to ensure the FCC that the federal government can get a minimum price without a competitive bidding process,” Tom Tauke, Verizon’s executive vice president of public affairs, policy and communications, said earlier this month. “Google, of course, would get the spectrum at a bargain-basement price. The bottom line is this: Without Google’s rules, the government will get literally billions more for this valuable spectrum, and the taxpayers will be the winners. The integrity of the auction is critical to ensuring that the taxpayers and consumers receive the maximum benefit from this important public asset. And the best way to foster integrity is to encourage a diverse and competitive universe of bidders–a goal undermined by the Google plan.”

Exactly–if, by “a diverse and competitive universe of bidders,” you mean a coterie of major incumbents. Because according to the New America Foundation’s examination of the FCC’s 2006 Advanced Wireless Services auction, the incumbents have a real penchant for messing up the bidding efforts of upstart network operators. “The auction rules in the FCC’s 2006 Advanced Wireless Services Auction were manipulated to exclude new entrants to the marketplace from obtaining spectrum in favor of incumbent cable companies, wireless operators and telephone companies, which feared the competition those new entrants represented,” the study concludes. “… The targeted new entrants were met with a tacitly collusive strategy of blocking bidding, with coalitions of multiple major incumbents making bids for the apparent purpose of denying licenses to the new entrant rather than acquiring the licenses for themselves.”

Given Google’s well-documented efforts to set up a free Wi-Fi network in San Francisco, we believe the upcoming spectrum auctions could represent a rare opportunity for the company to acquire something resembling an exclusive (licensed) nationwide WiMax footprint, and largely eliminate any access dependency on third parties. As such, we believe Google’s potential involvement bears watching, especially in light of the fact the company has shown little hesitation in delving into the other aspects of networking. Google’s selection of equipment vendors, such as Force10 and Infinera, indicate to us a willingness to embrace leading-edge technologies, and we believe WiMax fits that description.”

–Joe Chiasson, Susquehanna Financial Group, February 2006

This morning Google announced an alliance with Sprint Nextel that will see the two companies working together to bring Google’s search, digital mapping technologies and GTalk chat service to Sprint’s WiMax network, which, once it’s completed, will theoretically allow wireless Web access at speeds and prices similar to cable connections.

The deal follows the announcement of Sprint’s plans to collaborate with Clearwire to build out a nationwide WiMax network by the end of 2008. It also follows Google’s conditional pledge to drop at least $4.6 billion on the Federal Communications Commission’s auction of the 700-megahertz spectrum, which has long been said to be the future of WiMax (with fewer line-of-sight issues and wider coverage and better building penetration).

Coincidence? Or part of a master plan in which Google wins the 700-megahertz spectrum, uses it to help complete the Sprint/Clearwire nationwide WiMax network effort and then announces the long-rumored Google Phone–upending the telco-cable duopoly in the process?