Google to Blow-up Wireless Duopoly

Newport Beach, CA

Eric Schmidt told the World Economic Forum in Davos, Switzerland this week that “the Internet will disappear.” As he was speaking, The Information, The Verge and the Wall Street Journal reported that Google plans to run a new wireless service that resells the wireless services it already buys wholesale from the Sprint and T-Mobile networks. Google, Sprint and T-Mobile all declined to confirm or deny the reports.

It appears that Google’s partnership is meant to try to blow up the Verizon Communications Inc. and AT&T Inc. duopoly by selling mobile phone plans directly to customers.

Google has not yet registered as a wireless carrier in California, according to the Public Utilities Commission, but picking established wireless partners should ease its entry. Google’s bold entrance into the wireless business could force both Verizon and AT&T  to cut prices and increase network speeds to maintain market share.

The power of the Google brand should allow it to take significant market share as a mobile virtual network operator, or MVNO, by reselling wireless service without having to manage the network. MVNOs in the US and Europe have a mixed record in terms of their own success. However, they have often ushered in price wars in some markets by offering monthly pay-as-you-go deals rather than the traditional multi-year contracts that have substantial penalty clauses.

The Google move will allow the company to enhance its dominant position in video (with YouTube) and email search (with Gmail) as more of the traffic moves to mobile. The move also seems consistent with Google’s claim that there are still limitless opportunities to grow as people start wearing their technology.

Google already has a dominant position in wireless with its Android software, which is installed on more than half of the smartphones sold in America. The company is also pursuing several broadband and wireless projects in the U.S. and around the world to improve Internet access, such as Google Fiber and Project Loon. It’s also pushing for access to unused 3.5GHz spectrum that could be used for a low-cost small cell network in large cities, which could operate outside the more expensive bands licensed to major cellular networks.

According to the Wall Street Journal, Google executives approached Sprint over eighteen months ago about a MVNO virtual network. Normally, these arrangements are considered high-margin opportunities for carriers, because they only sell excess capacity on their networks and pick up customers without having to bear the costs of marketing phones at a discount to induce customers to switch from their existing carrier.

But Google’s reputation as being one of the most disruptive forces in technology scared executives at Sprint. They worried about teaching the business to a potential rival. Eventually, Sprint’s chief executive at the time, Dan Hesse, and the company’s chairman, SoftBank Corp. chief Masayoshi Son, decided the volume upside partnership was worth the risk of a divorce downstream. Yet Sprint is reported to have put a volume trigger into the contract that would allow the deal to be renegotiated if Google’s customer base swells.

According to zdnet, not much is known about how Google will package its MVNO product, other than the fact the project has been codenamed ‘Nova’ and is expected to launch this year under the leadership of Google executive Nick Fox.

The Google “leak” did send the rumor mill into over-drive regarding the potential for Google to transition this move into acquisition of Sprint, T-Mobile, or both.