Photographer: Jewel Samad/AFP/Getty Images

Google Wireless Threat to Big Carriers Muted by Limited Coverage

Google Inc.’s new mobile phone service has features, such as low price and credits for unused data, that will ratchet up pressure for market leaders Verizon Communications Inc. and AT&T Inc.

Yet it may take years before the Internet giant poses a real threat to the biggest telecom carriers.

Google’s Project Fi service starts at $20 for texting, calls and Internet, plus $10 for each additional gigabyte of cellular data service through carrier partners Sprint Corp. and T-Mobile US Inc. Among the drawbacks: users have to own -- or purchase -- a Nexus 6, and service may be less robust outside of major cities.

Google is entering the market after its partners, T-Mobile and Sprint, already forced AT&T and Verizon to offer cheaper service plans. The use of Wi-Fi networks also continues a trend of low-cost challengers such as Republic Wireless, Scratch Wireless and FreedomPop that offer service plans at a fraction of the big carriers’ prices. It also introduces a potentially disruptive element: The ability for smartphones to switch between Sprint’s and T-Mobile’s networks, depending on which one works best in a given area.

While the pricing may appeal to individual users, it isn’t attractive for family plans, which represent two-thirds of postpaid subscribers, according John C. Hodulik, a UBS analyst. Project Fi will cost $180 a month for four lines, including $100 for 10 gigabytes of data, compared with $80 at Sprint, $100 at T-Mobile and $160 at Verizon and AT&T, said in a research note.

“Expect little impact in the near-term, less clarity for the industry longer term,” Hodulik wrote.

Not Too Threatening

As a mobile virtual network operator, or MVNO, Mountain View, California-based Google will also be reselling T-Mobile and Sprint service on restrictive terms.

“Economically, it won’t be too threatening because Sprint has put caps on it,” said Roger Entner, an analyst at Recon Analytics LLC.

Finally, Google’s long-term commitment to the service remains a question. The company’s foray into providing mobile services is largely seen as experimental for now.

“The long-term threat is likely muted as well, given Google never diversified meaningfully beyond its core online advertising business,” Bloomberg Intelligence analysts John Butler and Matthew Kanterman said in a note today.

New Technology

Still, one innovation that could shake up the industry is the ability for users to shift between Sprint’s, T-Mobile’s and Wi-Fi networks, depending on which one offers the best coverage in a given area. Eventually, Google could also strike deals for its users to surf over cable companies’ Wi-Fi networks when they are available, Jonathan Schildkraut, an Evercore analyst, wrote in a note.

Rival MVNO FreedomPop would like to let its customers switch from carrier to carrier in the U.S. as well as overseas, and is working on deals with carriers that could make that happen, said Stephen Stokols, its chief executive officer.

“It’s definitely something we are going to do internationally and in the U.S eventually,” Stokols said in an interview.

If more devices begin to offer the freedom to switch between carriers’ networks, each user session could eventually begin to be auctioned off, with all the carriers in a given area competing for the user, Chetan Sharma, an independent wireless analyst, said in an interview.

“Whoever wins gets the business,” Sharma said. “That could be quite disruptive.”


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