Telco Toast? Google’s Wireless Service Could Be Pretty Darn Disruptive

Google is reported to be launching a wireless service in the US based on both the Sprint and T-Mobile networks.  This could be another failed Google half-effort.  But it could also be “the” disruptive event in wireless.  On par with AT&T’s One-Rate plan (which basically killed regional roaming charges way back when).  My guesses and speculations below.

  • Starbucks’ 7,000 store Wi-Fi network is run by Google…  A small cell in every Starbucks?  Starbucks dumped AT&T for Google as its WiFi operator in 2013.    That gives Google WiFi coverage in a lot of heavily trafficked locations.  More interesting would be if Google can install a small cell (femtocell or picocell or whatever they are calling them these days) in most/some of those locations.   that would vastly expand call-handling capacity and extend coverage.  Maybe they already have.  An army of “sleeper” femtocells waiting to be activated – diabolical! (insert evil cackle and wringing of hands here)
  • A small cell in every home?  Google probably has the creativity and sense to tackle in-home coverage intelligently.  WiFi, femtocells, or both.  That could offload a huge amount of data volumes AND improve customer satisfaction.
  • Team up with DISH?  As I’ve been writing, Charlie Ergen’s DISH networks has amassed a huge pile of spectrum that it is legally obligated to build out soon.   I have speculated DISH could build out a wholesale-only network (see that post here).  Google could be an anchor tenant (and source of funding) for that network model.  The more networks Google can get access to, the better.
  • Better service quality than T-Mobile or Sprint standalone.  Google is going to mix-and-match signals for both networks plus WiFi.  If they get the technology right, this will mean better coverage than either Sprint or T-Mobile stand-alone.  This begs 2 questions.  1.  Why would anyone sign up for Sprint or T-Mobile alone (assuming similar cost?  2.  How long until Google (or someone else) takes the same aggregationist approach worldwide?  Also worth contemplating the irony that Google has achieved a Sprint/T-Mobile “merger” in technical terms after the business combination was blocked by the DoJ.  I’ll take a minor victory lap for guessing this sum-of-the-parts technology before that was confirmed in the press.  If only I’d gotten this darn post out on Sunday.
  • Could Google extend the offer to “seamlessly” cover Europe and Japan (and potentially sell the same service in all 3 regions)?    This takes the sum-of-parts network model to its logical conclusion.  T-Mobile (owned by Deutsche Telekom)  already offers “unlimited” 3G data and text in 120 countries (actual calls are a decent 20c a minute) as part of its base offer.  Google can piggyback off that or build their own set or agreements.  Sprint is owned by Softbank of Japan.  Google could buy capacity off their network there too.  This global offer would be incredibly appealing for a small but lucrative sub-set of business travelers (like AT&T One Rate was).  For your average yuppie, it would still be nice reassurance about vacations (or fantasies of one).  For Google, it would enable scale economies and establish a more borderless service on par with Google’s core business.  It could eventually be (mostly) global – turning the carriers into de facto wholesalers.
  • A “basic” data package included with Android tablets?  Google could offer some sort of free or cheap limited-service data package for Android-powered tablets.  Heck, if they just offered seamless WiFi sign-on at Starbucks that’d be pretty helpful.

Emulate a proven disruptor – France’s Iliad.  France?  Yes, those darn socialists actually have a much more competitive telecom market than the US.  Iliad’s “Free” brand has taken @15% of the French wireless market since launching in 2012.  Like their home Internet service, it is based on a single low fixed price paid in advance.  The model is based on low subscriber churn, super low marketing/billing costs (no special offers), and no bad debt/collections expense.  They only have two service offers.  Website is http://mobile.free.fr/  (Google translate does a good job with conversion to English).

  1. “Unlimited” (no-contract, buy your own phone) mobile for €19.99 ($22-$23) a month – calls to 100 countries, texts, multimedia messages and 20 Gigabytes of internet (US carries typicall offer about 2 Gb).  Price is only €15.99 for subscribers to Free’s highly successful home internet service.
  2. A super-basic €2.00 monthly giving two hours of calls (5 euro cents a minute after that), unlimited SMS, and 50 MB of data.  That offer is totally free to “Free” home internet subscribers.

Google’s price might not be $22 here, but they can replicate this proven, disruptive business model.

  • The pay-in-advance model claws back probably 2-3 percentage points of margin on avoided Bad Debt alone, much less collections costs.  The US carriers would prefer to bill after service in the hopes of charging for data or minutes overages.  But the cost of maintaining that billing system probably outweighs the benefits.
  • No promotions.  Every customer is paying the same price on the same terms.  This vastly simplifies billing.  That vastly reduces back-office costs.  You can run the entire billing operation with 15-20 people and a modest database.  By contrast, the telcos billing operations burn cash by the trainload on thousands of middle managers , millions of lines of (legacy) spaghetti billing code, and million-dollar technology infrastructure.  The cost of billing alone is about $5-$10 a month per customer for a big US wireless carrier.  That cost goes to sub-pennies with a universal-price model.  
  • Cream skim the higher-quality customers.  This is inherent in the auto-pay in advance model (people with credit cards or bank accounts).  Note that a good-quality, seamless “international” offer would skim off some very thick, heavy cream for GOOG.
  • Heavy reliance on WiFi offload.  Iliad leverages it large installed base of (self designed) home WiFi base stations to offload traffic.  Google can do the same at Starbucks and at customer homes.  Maybe they even crack the code of the femto-cell “in-home cell tower” model (much discussed, but little deployed so far).  A Google-provided home router/cell box could also be an interesting platform and presence for other Google offers (YouTube and ChromeCast?)
  • Cheap phones.  I bought a$179 Moto G for travel last year.  It was a revalation.  Fast (clean Android), great battery life, and pocketable.  I’d use it here if Verizn would sell it to me.  The US carriers (and Apple/Samsung) have done a great job of convincing us a phone “should” cost $600.    That could change in a hurry.  There are good-to-great phones out there for $150-$250 and they’re getting cheaper every day.

Regardless of Google’s exact plans, it is hard to see how things don’t get worse for VZ and AT&T.

  • A load of new spectrum coming on-stream (see DISH above)
  • It is a matter of when, not if, AT&T and Verizon haircut at least $5-$10 off of their average monthly bill.  Probably more like -$20 over time.   There are basically no new subscribers to add.  Carriers are just churning the same deal-switchers among themselves (remember the long distance wars of the 90’s)?  The market is seeing increased competition and a shift to a fixed price “unlimited-in-practice” wireless model.  All this will reduce revenues and the incumbents are unable or unwilling to re-engineer deeply enough toe meaningfully ct costs (by shutting down billing, for example).  So the revenue drops will mostly just subtract directly from profit.
  • Increased pressure for rural builds and Internet speed upgrades.  See my recent post here.  Seen from Western Michigan, AT&T’s network is pathetic.  My parents are moving into a 6 story, 300+ unit complex only 2,500 feet from the AT&T central office in a good-sized city.  AT&T’s best offer is pathetic – 6 megabit DSL.  One cheap DSLAM equipment upgrade and AT&T is (and should be) selling 18-60 megabit.  Meanwhile, a lot of people along the Michigan lakeshore (million-dollar beachfront homes) are stuck with satellite.  Rural inland areas are almost totally un-served.  This is not a sustainable state of affairs.

I am personally rooting for a decent offer from Google because I am out of contract with Verizon and looking to jump ship.  Cost is just too high and their (proprietary) phone selection is crap.  Might just be willing to take a flyer on this when it launches.

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2 Responses to Telco Toast? Google’s Wireless Service Could Be Pretty Darn Disruptive

  1. We an be certain that Google won’t be installing small-cells in Starbucks, nor femtocells in homes. They use licenced spectrum, and Google doesn’t have the licence – Sprint & T-Mobile do. Conceivably Google *might* install femto on those carriers’ behalfs into their WiFi infrastuctures, but that’s pointless unless there are capacity constraints in those specific locations – which are of course where there is already WiFi.

    One possibility is Google selling multi-IMSI SIM cards which could make it simultaneously an MVNO on the 2 carrier’s separate networks, increasing the chances of coverage & being able to do roaming arbitrage.

    • wskamman says:

      Doh! Very good point about GOOG not having the license for Femto. That makes things a lot more complicated (and unlikely). Thanks you for pointing that out! On the 2nd point (multi-carrier MVNO), I think GOOG plans to do exactly that – combine both network’s signals. In theory, that could be extended to other arrangements with other carriers or in other countries. Interesting thought exercise if you thought about a multi-carrier MVNO with contracts for ALL the US carriers. You could sell that as a premium service… Not suggesting that as a business idea (not enough demand and huge practical problems) but it is a good way to highlight the weaknesses of the single-carrier model.

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