Google's Cellular Bluff Isn't Going to Work

March 09, 2015
By: Doug Mohney

Does Google believe in big commitments beyond its own search engine? The company announced it would be a mobile virtual network operator (MVNO) at Mobile World Congress (News - Alert), but reports say the company is only supporting one phone.  Really? It's not like Google doesn't have the cash.

Apparently Google is going to "experiment" with being a MVNO to show what is possible, using the Nexus 6 to demonstrate how Wi-Fi and cellular calling can play together.  Reports say either Sprint and/or T-Mobile (News - Alert) will be the carrier in the background to support the effort and there are no plans to go big by competing with AT&T or Verizon.

Google observers say the company is doing this to nudge carriers to get them moving in the right direction, with Google Senior VP Sundar Pichai stating, "Our goal is to drive a set of innovations we think should arrive, but do it on a smaller scale, like Nexus devices, so people will see what we're doing." 

Analysts are pointing to Google Fiber as the example of the company "driving" innovation, improved service quality and price pressure.  The company's gigabit fiber plans have driven AT&T to deploy gigabit services in Austin, while AT&T and Frontier have turned up fiber deployment plans in Portland and Raleigh-Durham in apparent response to Google announcements.

I am not buying this particular bluff at this time.  I think wireless carriers are going to continue to do what they want without worrying about Google's limited MVNO sideshow unless some crazy number of people sign up for the service while dropping their existing carrier.  AT&T and Verizon are already in the pits fighting Sprint (News - Alert) and T-Mobile over more aggressive pricing and better plans, so there's very little in terms of either service or solutions that Google could offer over-and-above what consumers already get by buying an Android (News - Alert) phone.

Last year Google hauled in $66 billion. It is sitting on $64.4 billion in cash and pulled in free cash of about $2.81 billion in the fourth quarter of 2014. At the close of business on March 6, 2015, T-Mobile U.S. was worth $26.5 billion while Sprint closed out at $20.7 billion.  Google could buy either cellular carrier outright and not break a sweat, then cover any losses and network upgrades out of existing cash flow. 

The paradox here is that if Google did buy either number 3 or 4 in the U.S. wireless market, it would probably stir up lobbying and anti-trust arguments and all kinds of other smoke that would ultimately force large carriers to kick their Google search engine addiction/relationship, and I just can't see the company being that kind of disruptive.  

What would be more interesting is if Google bought a smaller overseas wireless carrier or two, enough to experiment and nudge with, but not enough to trigger a panic rush to Microsoft (News - Alert) Bing by the carriers of the world.  Google would effectively buy a full seat at the cellular world's table, rather than merely renting one by operating an MVNO.  And it's not an impossibility; Softbank has a portfolio including broadband and effective ownership of Sprint.

Certainly Google needs to move beyond an experimental dabbling here and there to nudge carriers forward.  At some point in time, Google will have to take an ownership stake in cellular if it truly wants to steer the industry toward its goals.

Edited by Dominick Sorrentino