Is the primary reason Google reportedly has entered into deals to resell excess wireless capacity from T-Mobile and Sprint to shore up its core business model?
Google may have started off as an Internet search company, but it has been increasingly branching off in a multitude of completely different directions in recent times. Its latest move is one that will reportedly take it into the wireless services market.
Google has apparently entered into partnership agreements under which it will buy wireless services in bulk from T-Mobile and Sprint and resell them directly to U.S. consumers under its own brand. The Wall Street Journal
reported the company's plans Jan. 21, quoting sources that it said were close to Google's plans.
Google itself has not announced anything publicly yet. In an email, a Google spokesman said the company does not comment on rumors and speculation.
The so-called mobile virtual network operator (MVNO) agreement that Google has entered into with Sprint and T-Mobile will allow the company to enter the wireless market without having to spend billions of dollars on building and maintaining its own infrastructure.
The Journal described MVNO agreements as a high-margin way for telecommunications companies such as Sprint and T-Mobile to sell excess wireless capacity on their networks and to acquire new customers without having to do any of the marketing legwork. Examples of other companies delivering wireless services under similar MVNO agreements are Tracfone Wireless, Virgin Mobile, Boost Mobile and Straight Talk.
Google has been in talks with Sprint executives for at least the past 18 months, the Journal added. It cited sources as saying that the latest partnerships are part of a Google effort to enable broader Internet coverage so consumers can get cheaper and better access to its other services such as search, Gmail and YouTube.
Gartner analyst Bill Menezes said that Google's reported move, if true, will help drive growth in its core businesses like digital advertising, search and Google Apps. "Anything that makes it easier and less expensive for people to access those services makes sense for them," he said, pointing to Google investments in SpaceX
and broadband Internet via Google Fiber
There are several innovative things that Google can do with the services it purchases from Sprint and T-Mobile, Menezes said. Google, for instance, could offer a pay-as-you-go wireless service different from the prepaid services offered by other MVNOs, he said. Instead of having consumers pay in bulk for a prepaid service, Google could introduce a wireless service that bills them for actual use. "They could package it any way they want and say, 'By the way, if you use it to access Apps or YouTube we won't charge you,'" Menezes said.
Or Google might decide to use the capacity it buys to sell hotspots that connect to Sprint and T-Mobile networks.
For the two wireless carriers, the reported deal could give them a way to offload excess capacity at a high margin for themselves. The only ones likely to feel any competitive pressure from the deal are AT&T and Verizon, both of whom have a lot more to lose than either Sprint or T-Mobile, he added.
"Sprint and T-Mobile are the sort of ugly ducklings of the wireless industry," said Charles King, an analyst at Pund-IT. "Neither of them has the subscriber base that AT&T and Verizon have. Google will give them a very high-profile partner."
King believes that Google's new foray will give it another channel for its core advertising services business. It will also give the company an opportunity to disrupt a top-heavy wireless industry dominated by AT&T and Verizon. "When the vast majority of market share in an industry is held by one or two organizations, that makes it ripe for disruption," King said.
Google's deals with Sprint and T-Mobile could give it an opportunity to deliver new media channels or new kinds of services that nobody is even thinking about. "There are a lot of opportunities for Google to be a disruptive force here," he said.
Dan Maycock, director of strategy and analytics at Transform, thinks Google's primary motivation behind such ventures is to put itself in a position to gather more consumer information for targeted adverting purposes. "The more complete picture they get on consumers from all walks of life, the more it contributes to their bottom line," Maycock said.
While Google potentially could make money delivering wireless services, the company will probably be just as content breaking even if it can get better information on the consumers using its various services, he said.
Maycock said he doesn't see Google's reported entry into the wireless market and other projects like Google Fiber and its self-driving car initiative as anything other than efforts to shore up its core business model.
"Nobody is worried about Google pushing Ford and GM out of business," Maycock said. "When they go into these industries, they tend not to go all in." Google's goal usually is to put itself into a position to gather customer information that helps it better meld information on consumers from the online and physical worlds, he said.