Google (NASDAQ:GOOG)(NASDAQ:GOOGL) is making a move to expand its fiber network. In an article on The Verge, it was reported that the company may also be discussing plans to run its own wireless network. It would begin in areas where the fiber optic network is already in place, and would evolve into a mobile virtual network operator, or MVNO, (buying access to a larger network at wholesale rates and reselling it to customers).
The big deal
Google originally approached Sprint with the idea in early 2013, prior to the company being acquired by Softbank, and also spoke with Verizon (NYSE:VZ) earlier this year. There is speculation of whether Verizon would be the best fit, as AT&T (NYSE:T) could be a better partner rather than an outright competitor.
Currently, Google's fiber network is pretty small and only covers Kansas City, Missouri and Provo, Utah. However, the company plans to expand the network to include Austin, Texas, Atlanta, Portland, Ore., San Jose, Calif. and six other metro areas in the future. Google's expansion into fiber networks puts competitive pressure on Verizon Fios and AT&T U-Verse, and the addition of wireless will make Google a direct competitor to wireless carriers no matter which company it chooses to partner with as an MVNO.
As its fiber project expands, Google could consider becoming the next big bundling operation -- meaning competitive prices for bundled fiber optic (television and Internet) and wireless services. Whether it goes through with the wireless deal and eventually becomes its own carrier, or simply remains a reseller of another company, Google is planning to significantly increase its revenue over time.
What does this all mean?
Expansion and control are two things that Google can greatly benefit from if it launches its own wireless service. We've become quite accustomed the Android market being closely intertwined with Google via YouTube, Google Play, and other apps. With this wireless expansion, the company can really sink its proverbial teeth into maintaining control of how significant it is to the app market during a time when more independent app developers are taking the shine away from Google apps.
Expansion of the company not only leads to the logical increase in revenue, but also a competitive edge. Google is already a huge company that NASDAQ analysts suggest wouldn't be too hurt by an $11 billion fiber expansion over just 20% of the U.S. Considering the size of the company, wireless and bundling services can be offered at significantly lower costs than competitors, making it easy to grow a customer base.
Customers that like good service are more likely to use add-ons, like Google apps provided by the Google Play Store to go with Android phones. Google has the opportunity to create a meaningful tech and telecomm brand that can put it into the exclusivity ranks of Apple. Like all things Apple, we'll have all things Google -- and then some.
Where to go from here
Last year, Google raked in approximately $60 million in revenue and shares are up 40.6% YTD. The company has seen steady share price growth over the past five years with an increase of 192% -- and recent out-performance of the S&P 500. This potential wireless expansion, along with efforts to further connect the world, will set the company up to increase profits over the long-term, bringing more earnings to distribute to its investors. This is definitely a development to keep your eye on.