Google Fiber: Could Google Inc Be Your Next Wireless Carrier?

Rumor has it Google wants to expand its phone business

Apr 5, 2014 at 5:50PM

If you're lucky enough to have access to Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Fiber, you may soon see a new offer from Google. The web search giant is reportedly in talks with Verizon (NYSE:VZ) to offer mobile phone services. The agreement would make Google an MVNO, or mobile virtual network operator, renting wireless network capacity from Verizon.

As if Google wasn't already enough pain in the side of AT&T (NYSE:T) or the cable companies, a wireless service from Google would give customers even more reasons to switch services.

If you can't beat 'em ...
The rumor claims Google is in talks with Verizon, but if Google really wants to pursue this project, it would likely approach AT&T as well. Both companies have suitable networks, and Google can easily fill in dead-spots with its own Fiber WiFi network as it only operates in a few markets. In this way, Google can play the two biggest carriers in the U.S. against each other.

A company the size of Google could attract a significant audience, meaning winning the bid for the project could mean a good amount of revenue for a wireless company. What's more, Google's penchant for offering best-cost options -- which is exactly what Fiber Internet and video services are -- could attract customers that typically go to smaller carriers.

Verizon ought to be Google's first choice, considering the strength of its network. AT&T isn't far behind Verizon, however, and in bigger cities the two are on par with one another.

The irony is Google will offer a service that competes directly against Verizon's FiOS and AT&T's U-Verse. All three would offer Internet, video, and wireless -- with the established carriers offering landline service as well. Adding wireless to the Fiber bundle could attract profitable bundle customers away from AT&T and Verizon, but if a company's going to offer up its network capacity to Google, it might as well be your company.

Why does Google want to be your carrier?
Google's potential entry into wireless service is an interesting move, to be sure, but it makes a lot of sense. Although MVNO's a typically hard to profit from, Google could use the service as a loss leader. There are several ways Google could profit by offering complementary services and products.

First, Google could offer the service as an add-on to Fiber subscribers. This could push more consumers toward Google's premium gigabit Internet and video services, which the company and analysts expect to be profitable. At the same time, it will allow Google to build out its fiber network, making its MVNO more efficient in using WiFi hotspots instead of the more expensive wireless network.

Another important aspect of the strategy is that Google will get to control the smartphones it offers, likely placing emphasis on its own Nexus line and other phones that support Google's Android strategy. While a lot of Android OEMs have tweaked Android to differentiate their products, Google is none too happy about that. Running its own network will give Google better control over how smartphones implement Android.

With the growing trend of mobile consumers using stand-alone apps over the mobile web, Google needs to find a way to get more of its apps onto smartphones and get people using them. The ubiquity of YouTube has made it quite successful on mobile, but with hundreds of email, navigation, and local search apps, Google has quite a bit of competition in the app market.

A (very) long-term opportunity
Google is being very patient with Fiber. While the company expects the project to become profitable in the long-term, it's not in a hurry to roll it out to the entire world. It's being very selective in establishing new markets, and the same is true of this rumored MVNO service.

Last year, AT&T and Verizon brought in revenue of $130 billion and $120 billion, respectively. Verizon's acquisition of Vodafone's 45% stake in Verizon Wireless earlier this year, means the opportunity is actually bigger for Google. Of course, Google is a long way from offering nationwide service and may be content to offer service where it's most profitable to build its network. Still, Google has the potential to gain billions of dollars in additional revenue.

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4 in 5 Americans Are Ignoring Buffett's Warning

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Jun 12, 2015 at 5:01PM

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