Incumbent carriers have a lot to lose if rules set by the Federal Communications Commission (FCC) for the 700 MHz auction stand.

The auction -- set for next January -- stipulates the winners allow their customers to connect using any device they choose. This, of course, upsets the apple cart for incumbents, who now enjoy tight rein over their network. Under current conditions, service providers underwrite the phones and thereby gain the right to control features and succeed to a great degree in keeping other phones off the network.

Incumbents certainly don't want to see this approach end. Last week, Verizon filed a lawsuit with the U.S. Court of Appeals for the District of Columbia to nix the FCC's conditions. The phone company claimed that the rules are unconstitutional and overstep the FCC's authority.

The conditions under which the auction are held will, quite naturally, have a big impact on which companies bid. And we are not talking pocket change: Ars Technica reports that the reserve price -- the amount of money that must be bid for the auction to become valid -- will be $4.6 billion for the most attractive C-block licenses and $10 billion for the entire auction.

The two companies that perhaps most vividly represent the new age of communications have not said whether they are in or out -- but the fact that they might be in is a big deal. InformationWeek reports that chairman Eric Schmidt says Google's participation is likely. The story says that without directly mentioning the company, the FCC met two of its four requirements. One of these is the right of customers to use any device they want on networks.

Last week, two sources reportedly told BusinessWeek that Apple is thinking of getting into the auction. This story says the company clearly can afford the spectrum and that becoming a networking company -- and cutting out carriers, a group it generally doesn't like -- is attractive. However, the tone of the piece is that Apple may ultimately opt not to participate due to the operational and cultural challenges of becoming a networking company. Innovative companies may just be better off concentrating on innovation, not completing calls and working out complex interconnection agreements.

This is a good informational piece at the Digital Infrastructure Zone on the auction. The writer discusses why the auction is important and what Google is asking for. He says there is a "massive" amount of spectrum at stake, and that the best of this spectrum is capable of providing quality wireless broadband Internet service. Google, in addition to open device connectivity, asked for no limits on applications that can be downloaded, that resellers be allowed to acquire spectrum under reasonable and nondiscriminatory wholesale terms, and that open connections to third parties' application providers be mandated.

Whether Verizon succeeds in changing the ground rules of the auction or not, what is clear is that drastic change to the landscape is inevitable. There is far too much innovative content and too many innovative devices to justify propping up an archaic system that binds customers to a small number of phones that don't even work as their designers intended. The 700 MHz auction seems as good a place as any -- indeed, better, due to the quality of the spectrum -- to bring the regulatory environment into the modern age.