Google Fi is customer-focused. Image source: Google.
With Google's (GOOG +9.97%) (GOOGL +9.96%) official announcement of its wireless service, Google Fi, we now have a better picture of how the MVNO -- which has been rumored since January -- will operate. It will use both Sprint's (S +0.00%) and T-Mobile's (TMUS 1.35%) networks, as well as over 1 million Wi-Fi hot spots. Additionally, it will only work on the Google-designed Nexus 6.
Following the announcement from Google, T-Mobile CEO John Legere wrote a blog post welcoming its new wireless partner to the industry, saying, "Anything that shakes up the industry status quo is a good thing -- for both U.S. wireless customers and T-Mobile."
Let's take a look at why Legere thinks Google's new service will benefit T-Mobile.
Choosing a network
Google Fi is unique in that it operates on multiple networks and seamlessly integrates voice calling over Wi-Fi. The dynamic pits Sprint's and T-Mobile's network speeds against each other to determine which network to connect to. Consumers could benefit from that situation as Sprint and T-Mobile work to improve network speeds to win a larger share of Google's business.
At this point, Legere believes T-Mobile has the fastest network in the industry. Indeed, a recent survey by OpenSignal verifies that T-Mobile averages better speeds than the other three major wireless carriers in the United States. While Sprint's network may be faster in some areas, on average, T-Mobile should see more Fi customers connecting to its network based on speed.
But there's another important aspect to Google's wireless service that could cause T-Mobile to win a larger share of Fi's network usage. Google will seamlessly transition calls from Wi-Fi to a cellular network as the customer moves. In order to do this, the network must support Wi-Fi handoff. At this point, only T-Mobile supports that feature.
The key to supporting the feature is treating the voice call like any other data connection and using voice-over LTE. Sprint doesn't have any immediate plans to roll out VoLTE, which leaves T-Mobile's network as the only choice when Google needs to hand off a call to a cellular network.
How big is this opportunity?
Macquarie Securities analyst Kevin Smithen believes Google will pay about $2 per gigabyte of data to T-Mobile and Sprint.The average American used about 1.8 gigabytes of data per month last year. Since Google Fi's plan is mostly appealing to consumers who likely average lower data consumption, the benefits to T-Mobile and Sprint might be limited.
Using 1.8 GB per month at $2 per gigabyte means Sprint and T-Mobile would split $43.20 per year per Fi subscriber. So, Google will have to have a massive hit on its hands to impact Sprint's or T-Mobile's financials. That could happen if Google expands Fi to more devices, and the combination of both Sprint's and T-Mobile's networks could help attract customers from the larger networks worried about coverage.
For the time being, however, the limits in place by Google will prevent it from having a huge financial impact on T-Mobile or Sprint.
But it could have an indirect benefit
Google is offering some very innovative features with Google Fi. Those features include automatically connecting to Wi-Fi hot spots and making the phone number cloud-based so you can easily move it across multiple devices, including tablets and laptops. These features, along with Fi's unique pricing of only paying for what you use, may put pressure on the main wireless carriers to offer similar services. (And that seems to be Google's real goal with Fi.)
T-Mobile is in a position to pick up the ball and run with it with its push for Wi-Fi calling and seamless hand-off -- something the other carriers have failed to support. As Google creates more awareness for what's possible in wireless, T-Mobile stands to benefit as it embraces similar technology. Considering T-Mobile offers pricing that's competitive with Fi's (particularly for more data-hungry consumers), and Fi is currently limited to the Nexus 6, Google's marketing could indirectly benefit T-Mobile.
