Google to Resell Wireless Service & What Else?Google to Resell Wireless Service & What Else?
Google is reportedly poised to resell Sprint and T-Mobile wireless services, continuing its foray into communications.
January 21, 2015
Google is reportedly poised to resell Sprint and T-Mobile wireless services, continuing its foray into communications.
Quoting a story that appeared in The Information yesterday, the Wall Street Journal is reporting that Google has struck deals to resell Sprint and T-Mobile USA wireless services, in essence becoming a mobile virtual network operator (MVNO).
In the wake of the news, some industry watchers are speculating that Google might use the cellular networks in conjunction with lower-cost Wi-Fi hotspots to provide a dual-mode wireless capability. This is just one in a series of moves by Google to get more involved in delivering rather than just creating information.
According to the wireless providers' third-quarter 2014 reports, non-branded (i.e., MVNO and machine-to-machine) lines represented 18% of Sprint's 53.9 million lines, 21% of T-Mobile's 52.9 million lines, and 27% of AT&T's 118.7 million lines. The MVNO lines were particularly important to Sprint, with the 827,000 affiliate lines it gained offsetting the 272,000 postpaid lines it lost during the quarter.
'Dumb Pipe' Operators
Google's entry into the wireless market is just one more factor roiling the waters.
Sprint had been in talks to acquire T-Mobile last year until the deal fell apart in the face of likely regulatory opposition (read Sprint T-Mobile Deal Falls Through - Now What?). Fueled with the billions T-Mobile picked up when its acquisition by AT&T fell apart in late 2011, CEO John Legere set off a price war under the "Un-Carrier" banner. The price war couldn't have come at a worse time for the other carriers, heavily investing as they were in LTE upgrades while ponying up for new spectrum in the Advanced Wireless Services-3 auction in which bids have exceeded $44 billion. All in all, what seems to be unfolding is the carriers' worst-case scenario, a capital-intensive commodity business where the profits go to the over-the-top service providers (like Google) and the mobile operators provide the low-margin "dumb pipe."
Google's motives call for some investigation. Is the company really interested in selling network services or is it just at a loss to find ways to spend the ungodly amount of money it makes at pay for clicks? Is its strategy, as it appears to be, really to remove any friction from the process of driving its relentless money machine to the last potential customer on earth?
Possibilities Balloon
First came the capital-intensive Google Fiber routes the company is installing or has installed in Kansas City, Austin, and Provo, with potential rollout in nine other cities including Atlanta, Phoenix, and San Jose. Then there's Project Loon, a plan to provide wireless Internet service to remote locations using ultra-high-altitude balloons or possibly unmanned aerial vehicles. In support of that initiative, Google is now petitioning the FCC to open up use of radio frequencies over 24 GHz, a frequency band previously used for less demanding point-to-point microwave transmissions but now potentially usable for mobile communications due to advances in radio technology.
The idea of using high-altitude balloons as a wireless platform has been kicked around in the wireless industry since the 1990s, but Google is the first entrant that seems serious about spending real money to see if it can work. Of course, Iridium Communications (formerly Iridium Satellite) discovered the inherent problem with selling communications services to remote areas long ago. A low earth orbit satellite provider, Iridium spent billions in the late 1990s on a satellite network to service those remote areas only to discover it could find no customers out there!
Customers Win
However the Google sorties into the wireless business work out, it has to be good news for the customer. More players and more technologies mean more competition, which in turn leads to greater capacity at lower prices.
Given the inevitable reality of diminishing returns in building out networks into less and less populated areas, it's good to see that some creative ideas like balloon platforms are finally getting a real trial. The bigger question is whether Google will find sufficient upside for its profitable businesses to continue funding these initiatives or constrain itself to its decidedly high margin advertising business.
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