Google isn't aiming to put Verizon (NYSE:VZ) or AT&T (NYSE:T) out of business. Rather, the company hopes to introduce new concepts that will help spur greater wireless innovation. Project Fi won't take the industry by storm overnight, but it does introduce a few key ideas that could help remake the wireless industry.
The most interesting aspect of Google's new wireless service may be its policy toward billing. In contrast to traditional carriers, which often encourage customers to sign up for excessively high data plans by charging exorbitant overage fees, Google will bill its Project Fi customers for their data on a flat basis and will refund customers for the data they don't use.
Basic cell service, which includes unlimited talk and text, is $20 per month. Each gigabyte of data is an additional $10. T-Mobile (NASDAQ:TMUS) and AT&T have recently introduced data rollover, which allows customers to bank some of their unused monthly data, but Project Fi takes it to the next level. If customers pay for a plan that includes 3 GB of data but they use only 1.5 GB that month, they'll get refunded 50% of their bill.
Google's service uses both Sprint (NYSE:S) and T-Mobile's networks, seamlessly switching between them depending on the relative quality of the signal. It also includes support for Wi-Fi calling, allowing customers to use a Wi-Fi hotspot for calls and texts when wireless service is limited.
Project Fi rethinks the concept of a cell phone number. Now, rather than be tied to a particular device, a phone number registered through Project Fi lives in the cloud. Using the Google Hangouts app (which is available on most computing platforms), users can make and receive both and calls and text messages without their handset.
These initiatives appear to suggest a concentrated effort at decreasing the cost of wireless service and remaking it to encompass a variety of different devices.
Making mobile data more affordable would benefit Google
Google could gain a lot from shaking up the U.S. wireless industry. Its business depends almost entirely on its users' ability to access the Internet, and helping to bring the cost of wireless data down should allow more people to spend more time with Google's products, including search, Maps, and YouTube. The recent wireless price war, sparked by T-Mobile's "Uncarrier" initiatives, has helped to bring costs down, but studies have shown that wireless service in the U.S. remains relatively expensive compared with many other countries in the world.
Although Google's Android dominates the smartphone market globally, its U.S. market share is modest on a relative basis. Apple's iPhone consistently captures about 40% of U.S. smartphone buyers, and the bulk of the most valuable customers.
Will Project Fi change that? Probably not. Those who want to use Project Fi will be required to purchase an Android phone: Google's own Nexus 6. But the Nexus 6 is an enormous, 6-inch phablet -- a handset that's probably far too large for most people. It's possible that Google could eventually open Project Fi up to more Android handsets, but it's unlikely to become an Android-only perk. Google's Sundar Pichai has stated that the company has no plans to make Project Fi a network for everyone.
Project Fi at Google I/O?
Google's service isn't likely to shake up the wireless industry overnight, but it could catalyze larger changes over the long haul, reshaping the economics of the U.S. wireless industry and making mobile data cheaper. It's not going to put any U.S. carrier out of business, but it may force them to improve their service.
That would be great for Google.
Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Verizon Communications. The Motley Fool owns shares of Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.