What Google's Wireless Plans Mean for Verizon, AT&T and You

  

Google Inc.’s plan to become a wireless service provider means stiffer competition for Verizon Communications Inc. and AT&T Inc. at a time when price pressure is already shrinking margins in the U.S. mobile-phone industry.

 

Google wants to offer service directly to consumers and will use Sprint Corp.’s wireless network, according to a person with knowledge of the matter. Google also plans to use T- Mobile’s network, according to technology blog The Information and the Wall Street Journal.

 

Through the arrangements, Google would become what’s known as mobile virtual network operator, or MVNO. Google would pay for capacity on a carrier’s network and then sell the service to its own customers. The service could be up and running this year, according to another person. When it does start, here are the ripple effects for customers and the entire U.S. mobile- phone industry:

 

SPRINT, T-MOBILE

For Sprint and T-Mobile, the arrangement provides extra revenue that can be used to upgrade networks and improve the quality of calls and data. That’s a boon not only for Google’s future customers, but also Sprint’s and T-Mobile’s existing user base.

The deal could add up to as much as $1 billion in earnings before interest, taxes, depreciation and amortization for Sprint and T-Mobile to split in 2018, according to Kevin Smithen, an analyst with Macquarie Securities USA Inc. Sprint may get the lion’s share of that revenue because it has more excess capacity, Smithen wrote in a Jan. 21 research note.

 

Sprint is especially keen to partner with Google. Masayoshi Son, the president of SoftBank Corp., which bought Sprint in 2013, was integral in facilitating the talks between Sprint and Google, according to a person with knowledge of the matter.

 

VERIZON, AT&T

Anything that helps call quality at Sprint and T-Mobile gives those companies extra ammunition for wooing customers from AT&T and Verizon, their larger competitors. Added profit would also give the companies more leeway to undercut AT&T and Verizon on price.

“Like everything else, you have to watch your friends more closely than your enemies, so we will be watching Google closely,” Verizon Chief Financial Officer Fran Shammo said of Google’s reported plans.

 

Just today, Verizon reported profit that fell short of analysts’ estimates. The culprit? The company has been selling phones and tablets at deep discounts to lure new users and keep existing ones from jumping ship.

 

Asked whether Google might also partner with Verizon, Shammo said only that the companies have many discussions. He declined to confirm whether the pair had discussed Google reselling Verizon’s wireless service.

 

GOOGLE

The company has been mum on its plans. Even so, Google could end up being the biggest winner. It could use MVNO arrangements to market and refine an array of tools, including search, maps and e-mail, delivered via Android, the most popular smartphone operating system globally.

Google, the leader in online search advertising, could also come up with creative ways to tailor mobile marketing messages to its wireless user base.

 

With a cash hoard of more than $60 billion, Google could also compete aggressively on price.

 

CONSUMERS

While Google wouldn’t have direct control over the network and the quality of data and calls sent over it, the company would have a lot of say on they types of phones available and the software and apps users could chose from.

Google is known for clean designs on its search page and Play store. Some of those influences could show up in areas like simpler billing and payment layouts, as well as improvements in customer service.

 

While Android phones already sync users with various Google apps like books, music, maps, and YouTube, it’s possible the company could offer free streaming TV shows and movies to lure customers. And since Google has a deep understanding of advertising, an ad-subsidized service could also be a possibility.

 

While Google may want to offer a significant discount, Sprint and T-Mobile may not allow an MVNO to drastically undercut their own prices, according to Macquarie’s Smithen.

 

Google may aim to rely overwhelming on Wi-Fi signals in order to minimize the traffic over Sprint’s or T-Mobile’s network, according to Craig Moffett, an analyst at MoffettNathanson LLC. Republic Wireless, another MVNO that buys capacity from Sprint, is pushing more than 90 percent of its traffic to Wi-Fi, according to Moffett.

 

--With assistance from Brian Womack in San Francisco and Olga Kharif in Portland.
To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net To contact the editors responsible for this story: Sarah Rabil at srabil@bloomberg.net Tom Giles