In a little under two decades, Google has ballooned from a research project by a few Stanford doctoral candidates into one of the most ubiquitous companies in the world. Its success is already legendary, and Google shows no signs of slowing down. In another example of its unbridled ambition, Google recently gave more details on a potential challenge to wireless giants AT&T (NYSE:T), Verizon Communications (NYSE:VZ), Sprint (NYSE:S), and T-Mobile (NASDAQ:TMUS).
Google goes wireless
In a presentation at this week's Mobile World Congress in Barcelona, Google executive Sundar Pichai reiterated the search giant's plans to enter the U.S. wireless market. This comes after Google in January announced it had reached a deal to leverage spectrum from Sprint and T-Mobile for its own branded wireless service.
Google insists its motivations are technical in nature, and that it harbors no grand intention to challenge AT&T, Verizon, Sprint, or T-Mobile. According to reports, Google's forthcoming wireless technology will seek to interact between available cellular signals from its partners (T-Mobile and Sprint presently) and Wi-Fi networks. The aim is to create a service that can seamlessly route a user's cellular activity through the most powerful available signal source at any given time.
It's unclear whether Google has any further technological advances up its sleeve. According to Pichai, Google plans to keep its wireless offering relatively small and largely aims to demonstrate these still-unseen technological advances as a blueprint for possible industry-wide improvements. That very well could be true, but telecom investors should probably take Google's announcement with a grain of salt for several reasons.
Google Fiber's guerrilla tactics
Although it has no shortage of other non-core "moon shot" initiatives, Google has demonstrated a decided interest in several aspects of the telecom industry over the past few years. That's enough to call into question its supposedly nonthreatening intentions.
In 2011, Google rolled out its ultra-fast Google Fiber Internet service in a small initiative in Palo Alto, Calif., and a larger-scale market launch in Kansas City, Mo. Since then, Google Fiber has laid the foundation for eventual entry into new U.S. broadband markets including Austin, Provo, Nashville, Charlotte, Raleigh, Durham, and Atlanta.
Beyond these cities, Google has expressed interest in bringing Fiber to large metropolitan areas in California, Arizona, Oregon, Texas, and Utah. Looking at this kind of growth strategy, I think the argument that Google intends to eventually be a major player in the IP delivery space essentially makes itself, regardless of what the company might say about its ambitions. Moreover, Google Executive Chairman Eric Schmidt previously stated that the company saw Fiber as a major business opportunity, not just an experimental stunt. Hopefully you see the parallel here.
Fool me once...
Google certainly might never intend to expand its wireless service to challenge AT&T, Verizon, and their peers. However, the slow and methodical expansion of Google Fiber should prove an important cautionary tale about underestimating Google's bigger-picture ambitions in the telecom space. Google Fiber is only now coming online in its second market, so it's important to note that the evolution of both Google Fiber and wireless offerings would assuredly take decades and not years -- but that doesn't necessarily alter the potential long-term ambition.
Challenging the wireless majors probably wouldn't prove as logistically simple as Fiber's expansion road map for one very important reason. The lifeblood of the modern telecom business is wireless spectrum, a critical commodity Google doesn't appear to own, at least in any significant amount. That's partly why Google had to strike a deal with T-Mobile and Sprint earlier this year. Google needs to effectively license spectrum from the carriers to power its system, and that could very well provide a critical barrier to its entry in this industry.
It is perfectly logical that Google would eventually be interested in acquiring some of its own wireless spectrum, although how it might go about that remains far from clear. Regardless, obtaining wireless spectrum could enable Google to leverage whatever technological advances its looming wireless project presents, assuming they prove truly disruptive.
Owning spectrum would also play into other aspects of Google's business, especially YouTube. Google has been reportedly nearing the launch of a subscription version of its incredibly popular video site. DISH Network has spent billions on spectrum in the past several years. Its recently launched IP-based Sling TV product could eventually leverage that spectrum to entice increasingly mobile consumers away from their traditional TV providers.
Without getting too far into the weeds, hopefully I've convinced you that there's both a historical precedent and a number of strategic complements that make Google's claims that it harbors no grand wireless ambitions seem somewhat questionable. The company might be more the wolf in sheep's clothing than an altruistic technological innovator here. Only time will tell, but if I were a shareholder in AT&T, Verizon, T-Mobile, or Sprint, I'd certainly be wary about Google's coming entry into this massive market.