By Michal Lev-Ram

The Federal Communications Commission said Wednesday that Verizon Wireless was the biggest winner in the recently-closed government auction of 700MHz wireless spectrum.

FCC records show that Verizon bid an estimated $9.5 billion for the airwaves, which will become available next year and are well-suited for broadband services.

The company won the majority of large licenses in the coveted C block of the spectrum, in addition to a significant number of smaller licenses in the A and B blocks. A total of five blocks of spectrum were up for bid and the FCC took in $19.6 billion in the auction.

In a statement issued Thursday, Verizon (VZ) said it was “very pleased” with the results of the auction and that the new spectrum would help “grow our business and data revenues.”

AT&T (T) won 227 small licenses and said that, combined with airwaves the company purchased earlier this year from a Providence, Rhode Island-based company called Aloha Partners, its 700MHz spectrum will now cover 200 top U.S. markets.

Google (GOOG), however, didn’t win any licenses. Last year the search giant said it would put up the minimum bid for the C block portion of spectrum to ensure the success of a FCC requirement that the new network be open to any mobile device and not just those sanctioned by the carrier.

But one newcomer did manage to make the cut — satellite television provider Dish Network (DISH) won enough licenses to provide a nearly nationwide network. According to Citigroup analyst Jason Bazinet, it’s likely the company will use the spectrum to roll out a mobile video service.

By Michal Lev-Ram

Intel’s Classmate PC was meant to be an affordable laptop for underprivileged kids in developing countries. Now the chip giant says it plans to bring the low-cost personal computers to the United States and Europe.

But the Classmate PC won’t be the first stripped-down laptop to be sold in the developed world. Others, including the 2-pound Eee PC by Taiwanese manufacturer Asus, have already hit saturated computer markets in countries like England. If the trend continues, analysts say it could force other manufacturers to cut prices to compete, especially in a weakening tight economy. Of course, the Classmate also would drive demand for Intel’s chips.

Intel says the cost of making the next-generation Classmate will be between $250 and $350 a pop. At this point it’s not clear how much they will retail for in the United States and Europe. But Intel says the price point will stay within the “netbooks” category — a growing segment of bare bones mini laptops that sell for under $500.

Intel (INTC) began selling its Classmate PC last year in Brazil, Mexico and other countries. The small rugged laptop has a waterproof keyboard, 7-inch screen and just 2GB of flash storage. But an Intel spokesperson said the model that will go on sale in the United States later this year will be a second-generation version that caters to the needs of students in more mature PC markets.

“It’s an initiative in the PC market that is in tune with the challenged economic climate,” says Matthew Wilkins, an analyst with research firm iSuppli. “Disposable income is being pushed, and a platform that is more affordable for the consumer is a good thing right now.”

Wilkins says it’s likely big manufacturers like Dell (DELL) and Hewlett-Packard (HPQ) will launch low-cost laptop models later this year.

By Yi-Wyn Yen

Alibaba Group, the Chinese Internet giant that is part-owned by Yahoo, is reportedly in advanced talks with investors to buy back the shares owned by Yahoo, according to a Wall Street Journal report.

Concerns of a Microsoft (MSFT) takeover have prompted Alibaba to look for possible buyers as the company prepares to maintain its independence. While Alibaba is not pushing for a Microsoft sale, the company believes it can invoke the “right of first offer” clause from its 2005 agreement with Yahoo (YHOO) to buy back Yahoo’s 39% stake. Although the Alibaba group is private, Yahoo’s stake in it should be worth upwards of $1 billion.

Alibaba’s move comes on the heels of Yahoo’s presentations with major shareholders this week. Yahoo executives are promoting some of its crown jewels, including its stake in Alibaba, to convince Wall Street that it’s worth more than Microsoft’s $31 a share bid. On Tuesday Yahoo released a rosy presentation that showed its plans to nearly double operating cash flow from $1.9 billion to $3.7 billion within three years. At $27.23, Yahoo’s stock fell by 1.5% in mid-day trading Wednesday.

UBS analyst Benjamin Schachter called Yahoo’s revenue projections for the next two years “very aggressive targets” and believes that an offer of $34 a share would be acceptable. In a note to clients he wrote, “We think the company hasn’t earned the benefit of the doubt given the operating history of the past few years.”

Meanwhile, Alibaba.com has lost nearly a fifth of its value since it listed in Hong Kong last November (that’s part of a broader market drop; the Hong Kong Hang Seng index is off some 30% from its November 2007 high). Though Alibaba.com, a business-to-business site that is part of Alibaba’s vast portfolio, reported profits that have more than quadrupled on Tuesday, the stock fell below its IPO offer price for the first time that day. Shares closed at HK $12.2o on Wednesday.

By Michal Lev-Ram

Long before it unveiled its Android operating platform, Google had its eye on the mobile market, an industry that reaches an estimated three billion people worldwide. The company’s main strategy? Pushing search, maps and e-mail onto cell phones in the hope of becoming the leading source of information — and ads — on the tiny screen.

Now Google (GOOG) says its efforts to make mobile services faster and easier to use are paying off. On Wednesday the company released new numbers showing mobile Internet activity on select devices recently surged, following its release of a software “shortcut” that reduces the time it takes to conduct a search on a cell phone.

“We’ve long known that fast is better than slow,” says Matt Waddell, project manager for Google’s mobile division. “But when it comes to mobile fast is much better than slow.”

Google says users of its recently released shortcut — a small piece of downloadable software that installs a search box directly on a cell phone’s home screen — conduct 20% more mobile Web searches than previous users. The shortcut allows people to type a keyword right on their phone’s home screen to initiate a query, rather than having to first find and open their mobile browser and type in the URL of their preferred search engine.

The shortcut was made available to BlackBerry (RIMM) and Symbian devices in recent months, but Google says it will also work on Windows Mobile phones like Motorola’s (MOT) Q and the Touch by HTC starting Wednesday. The company also credits “time-saving fixes” for a recent uptake in Gmail use on the Apple (AAPL) iPhone.

According to research firm M:Metrics, the iPhone, which offers several of Google’s mobile services, is the most popular device for accessing news and information on the go. Nearly 50% of iPhone users accessed a social networking site in January, about twelve times the market average. And about 31% watched online TV on their device.

“This data indicates that the iPhone’s widgets [small applications accessible from the phone's home screen] are an effective means to drive mobile content consumption,” Mark Donovan, senior analyst at M:Metrics said in a statement. “Beyond a doubt, this device is compelling consumers to interact with the mobile Web, delivering off-the-charts usage from everything to text messaging to mobile video.”

But M:Metrics also found that iPhone users are more likely to earn more than $100,000 than the average mobile subscriber. That means that, despite Google and Apple’s efforts to make the mobile Web simpler and faster to use, it will likely take a long time for it to reach mass appeal with average consumers — those who earn far less than $100,000 a year. According to a recent Jupiter Research report, 25% of U.S. cell phone owners currently browse the Internet from their devices, while just 16% say they do so frequently.

By Paul Sloan

Michael Nash, a longtime digital music executive, takes over Warner Music’s (WMG) digital division in June, reporting directly to CEO Edgar Bronfman Jr. Since Bronfman and a group of private equity investors bought Warner Music from Time Warner (TWX) in 2004 for $2.6 billion, the company has made headway adapting to the digital marketplace. Digital sales accounted for 14% of the company’s total revenues of $989 million in the most recent quarter. But like the other labels, Warner has been hit hard by the sharp falloff of CD sales. For the past year Warner’s stock has been on a near-steady decline, currently hovering around a $5 a share. I sat down with Nash last week to ask him how a big record label survives and thrives in the Facebook era.

Let’s start with Amazon. Warner signed on to sell music through Amazon’s online store at the beginning of the year. It was a big step because Amazon is selling music without digital rights management - meaning, songs can be played on any device and copied endless number of times. Does Amazon become a serious competitor to Apple iTunes, and if so, when?

We hope that Amazon becomes a formidable competitor. They’re getting traction in the market place. The competition is great from the standpoint of what the consumer gets. And it’s obviously really good for the content companies to have multiple partners operating at scale and successfully selling your content. But Apple has done a sensational job, and you’re going to see Apple control the majority of the digital download marketplace, certainly for the rest of this year.

How come when I hear a new song on the radio, then go to buy it online, it’s not always there?

You’re right. It’s crazy to allow this situation to perpetuate where you can hear a song, and if you’re a digital music consumer, you go to your computer and the only place you can find that music is on [file-swapping service] LimeWire. We need to work on release timing so as soon as we start marketing a new project we’ve got the single available. When you’re really building interest in that artist, it’s important that you can pre-order the album, get the single along with a premium package that you can sell on the release date.

The conventional wisdom is that the music industry - and certainly the traditional model of the big labels controlling and selling all the content via CDs - is dying. You’ve been at this a long time and clearly are passionate about the industry’s prospects. Why are you so optimistic?

Music culture has never been more vibrant and fans have never been more passionate about artists they care about. All of those are very hopeful signs, but clearly the industry needs to change and we believe completely in our ability to transform the company to make those necessary changes. In a way, we agree [that the traditional music business is dying]. We’re not trying to do business the way we’ve done business.

That old model is increasingly less relevant to digital consumer. So we have to figure it out. That might mean creating a 360-relationship with our artists, creating a broader array of content, and looking for ways to create new content with our artists so we can program social networks and online communities that lets fans connect with artists in new ways. We have to go where our consumers are.

Right. And your consumers are certainly on Facebook and MySpace. So how do you tap into that community and make money there?

It is a key priority for us to unlock the value of music in the context of social media and online community. The experience in online community has to be more than somebody clicks on a stream of music and pays per play. We need to really think about and create new business models to capitalize on the fact that music has incredible emotional equity and drives a ton of value in the context of social media and online community. And we need to create new types of business models, new forms of collaboration to be able to take advantage of that.

Isn’t your deal with iMeem an example of that? iMeem is a social network for music fans, and it has tons of music available to hear for free, and Warner shares in the ad revenue and gets paid when a user clicks through to iTunes and makes a purchase.

We have a very close partnership with iMeem, and it’s a business model that let’s us monetize on all the experience that’s happening in that environment. We meet with them frequently and think about how we create special programming. That’s an example of the way we need to change our thinking. The online community, the social media audience, they want something new on very frequent basis. They’re consuming in different ways.

Can an ad-based model be good enough to replace the money you make, or used to make, from sales?

The online advertising market here is still a new marketplace. More intelligent execution needs to be applied to integration of advertising with online community. One example is that you’re going to see very significant focus on creation of special programming. As this matures, there will be a lot of money available to the content companies. But advertising itself is not going to replace the revenue from consumers. We do believe, however, that if you promote music discovery through an ad-sponsored platform, there’s a great opportunity to make a conversion to a sale. You have to have a really good integration, so a consumer can act on that impulse.

The mobile market was supposed to be a huge boon for the labels, yet it’s hasn’t yet turned out that way. What’s going on?

We’ve been very frustrated at what’s happened in the mobile space. We feel like it’s clear that consumers want products that are made for the platform, that there is consumer demand for innovation. Verizon Wireless (VZ) has done a good job in various ways in the U.S. market and there’s been a lot of innovation in the Japanese and Korean market, but by and large the carriers here have not done a great job in driving the mobile business, and they’ve allowed the ringtone to become a pretty stale format. A master tone [a snippet of the actual recording] has been in the marketplace for seven or eight years. It’s no surprise that sales are kind of flat. There’s been absolutely no innovation. I feel like there’s a great opportunity and consumers are crying out for innovation but it hasn’t really been delivered there yet.

That said, I think the fundamentals in mobile are going to make it happen. You’re going to have billions of microcomputers that are connected at broadband speeds that are a media entertainment portal and that are significant part of an individual’s cultural life. That’s going to be the best platform the music industry has ever had to sell into. Over time, the fundamentals will be so attractive that people will figure out how to monetize that opportunity. The carriers just cannot afford to fail to deliver on that.

By Michal Lev-Ram

After nearly eight weeks and 261 rounds of bidding, the government’s spectrum auction finally ended Tuesday.

In January,  the Federal Communications Commission began auctioning off the coveted 700MHz spectrum, which is particularly suited for broadband services and is the last major chunk of nationwide spectrum.  The FCC had hoped to raise at least $10 billion from the auction, but as the last bid came in late Tuesday the total reached $19.6 billion. The auction attracted companies such as Verizon (VZ), Google (GOOG), AT&T (T) and Qualcomm (QCOM).  The spectrum is currently used for television, which will give up the airwaves in 2009 when TV broadcasting goes digital.

As this was a “blind” auction, the bidders’ identities were kept secret.  But the winners won’t be revealed until all five blocks of spectrum up for auction are accounted for — the so-called D block, which was set aside for a nationwide public safety network, failed to raise the minimum price set by the FCC. Analysts say it’s likely the government will separate the D block from the rest of the auction and put it up for sale again  so they can collect the money for the other blocks.

By Michal Lev-Ram

The race to be the most “open” wireless carrier is heating up. On Wednesday, Verizon (VZ) will release a set of technical specifications that will enable non-Verizon branded cell phones to work on its network for the first time. Not to be outdone, early Tuesday AT&T (T) unveiled a new website which includes resources for consumers who want to use phones they’ve purchased outside of the carrier’s stores on its network.

Unlike Internet service providers — which are required to allow any laptop, browser or website to run on their networks — most U.S. carriers have historically blocked devices or applications that aren’t directly distributed by them. But more recently, U.S. mobile operators have adopted an “if you can’t beat them, join them” attitude.

Google (GOOG) takes at least some of the credit for the shift.

After it began lobbying for more open networks last year and launched its Android open mobile platform for developers, “AT&T and Verizon started to fight over which one seemed more open,” said Rich Miner, Google’s VP of mobile, at a recent conference.

But Verizon’s decision to open up was also a preemptive response to a government push for giving consumers more control over how they use their cell phones. The carrier’s announcement was strategically timed ahead of the Federal Communications Commission’s high-profile spectrum auction, which set aside a valuable portion of airwaves to be used for a new, open network. Verizon is believed to be the most likely winner of that block of spectrum, though we won’t know for sure until the auction closes — probably sometime in the next few days.

“Verizon Wireless’ Open Development initiative is driven by the company’s desire to encourage innovation, give customers new wireless choices, and quickly address opportunities to expand the wireless market,” the company said in a recent statement. Its open network will be available by end of 2008.

AT&T, of course, maintains that it will win the race.

“The driving force of our business is our commitment to be open to innovation and to offer our customers more choices than any other wireless company,” Ralph de la Vega, president and CEO of the company’s wireless unit, said in a statement.

But critics are skeptical that either carrier will become truly open, making it both simple and affordable for consumers to use outside devices and easy for developers to meet the specifications for getting their applications up and running on the networks.

By Josh Quittner

I was playing Scrabble at Scrabulous the other day and noticed that my opponent laid down a four-letter word that happens to be a racial slur.

My friend is a very PC kind of guy; I didn’t think he was trying to insult me. I figured that, since we both routinely cheat online, the “Scrabble helper” program my buddy used must not have known that the word was offensive and simply picked it for another, legitimate meaning. Curious, I clicked on the site’s in-line dictionary to see what it meant, and found that there was no legitimate meaning. So I started looking up other racial and sexual slurs. Every one I could think of was in there and allowed.

Clearly, I had too much time on my hands. So I started typing in four-letter swear words, just for the sake of science. Every one was allowed, including the seven banned by the FCC.

I should say here that I am no prude and am a free speech absolutist. Even my children talk like truck drivers. I was mainly curious because, if these words were allowed in Scrabble, I probably know more of them than most of my opponents. All these years I was ignoring them on the false assumption that they’d never stand up to a challenge. I felt like such a fool.

Being thorough-ish, I went to Hasbro’s online Scrabble dictionary, and looked up the words. Sure enough, not a one was allowed! Had Scrabulous had been hacked by a foul-mouthed, racist, sexist prankster?

Nope. Apparently, until four years ago, those words were indeed allowed. But after an uproar at a national tournament, the National Scrabble Association expunged 170 words that were deemed offensive.

I guess the Scrabulous dudes never got the memo. The Agarwallas, two brothers living in India, had put up the unauthorized site two years ago and now have more than 700,000 users. They’ve been making over $25,000 a month and are still trying to work out some kind of deal with Hasbro and Mattel, who are asserting that their companies own the licensing rights to the game. The Agarwallas, meanwhile, are reportedly holding out for more money. Maybe if they get it, they’ll be able to afford the new dictionary.

Verizon (VZ) CEO Ivan Seidenberg got a 25% raise last year for total pay of $26.5 million.

The raise came largely in the form of stocks. The New York-based phone shop gave Seidenberg $19.2 million worth of stock awards last year. Seidenberg’s $2.1 million salary, however, remained the same as it was in 2006.

Verizon shares rose 48% last year.

Joe Nacchio won his appeal and a new trial as his six-year insider-trading sentence was thrown out on appeal.

The former Qwest CEO who oversaw $2 billion in bogus revenue bookings off capacity “swaps” and sold $52 million worth of stock ahead of a looming industry collapse, was granted another day in a court Monday. The 10^th Circuit Court of Appeals threw out a conviction reached in April of 19 counts of insider trading, saying Nacchio was not given a fair trail because a defense expert was not allowed to testify.

Nacchio, who has been out of jail on a $2 million bond awaiting appeal, was sentenced last year to six years in prison and told to pay $71 million in fines and forfeited gains.

Nacchio was fired in 2002, leaving the local phone giant teetering on the brink of insolvency. The new management team had to sell money-making assets like the directory business and layoff thousands of employees to stay afloat.