Google's Project Fi Could Put Pressure on Verizon, AT&T

By Jaikumar Vijayan  |  Posted 2015-04-23 Print this article Print
Project Fi

NEWS ANALYSIS: A lot of the success of Google's Project Fi wireless service will depend on how efficiently its shared network architecture works, say analysts.

Google's new Project Fi wireless service, which the company announced April 22, has the potential to disrupt Verizon's and AT&T's cellular businesses more so than the company has been willing to admit so far.

The service starts at $20 per month and provides subscribers with talk, text, WiFi tethering and coverage in more than 120 countries. Consumers who want more data can purchase it for $10 per gigabit per month. Users who do not use up all of their data in a particular month get credit for the full value of the unused amount.

Project Fi automatically connects users to more than 1 million free, open WiFi hotspots that the company has already verified as being fast and reliable, Google's Vice President of Communications Products Nick Fox said in a blog post. 

When users move out of range of a WiFi hotspot, Google simply moves them to cellular networks from Sprint and T-Mobile. The company has signed up both carriers under a Mobile Virtual Network Operator (MVNO) arrangement that gives it access to their cellular networks. According to Google, Project Fi is designed such that users will always automatically be moved to the partner network that is delivering the faster speed at a particular time and location.

One interesting feature of Project Fi is that the phone number is not attached to a specific device. Rather, it lives in the cloud, so customers can get access to all services from any phone, tablet or laptop, Fox said.

Initially at least, Project Fi is available on an invitation-only basis for users of the Nexus 6 smartphone. Google will make the service available on other devices and to a broader set of users later this year.

When Google first announced the service back in January, company executives did their best to underplay the technology. In comments during a keynote speech at Mobile World Congress in Barcelona, Spain, earlier this year, Google Senior Vice President Sundar Pichai had noted that the idea of launching the service was not to compete with the major carriers.

But that is exactly what may end up happening, said Dan Olds, an analyst with the Gabriel Consulting Group.

"Assuming that the deal works as advertised and that access is truly a universal and seamless experience for the consumer, Verizon and other dominant carriers will have to respond," Olds said.

"The Google offering could strip them of their most profitable customers—businesspeople and other folks who essentially live on their phones," he said. "These people are highly profitable to carriers, but will probably be the ones who will be most attracted to the new Google, T-Mobile and Sprint service."

Gartner analyst Bill Menezes said he expected Google would frame its service around a different plan structure model than what the incumbent carriers offer.

"Pay as you go priced at the same rate as tiered data allotments should strike many consumers as a more rational price structure than having to buy fixed or shared allotments," he said.

But a lot of Google's success will depend on how quickly other OEMs will start selling Project Fi-ready devices at the midrange and low-end price points. "I'd expect longtime Google collaborators such as Motorola and LG to do so, both at the high-end and midrange price points, potentially," he said. "That could attract cellular customers who are coming off of contracts or are looking to replace their handsets and see Project Fi as a low-risk option."

But the pricing and plan features seem to be aimed at low-volume data users, who likely also are the most cost-conscious and leery of running over their monthly data plans. For such users, Project Fi starts getting more expensive than pricing plans from the major vendors at around 3GB of monthly data usage. "Using my own T-Mobile plan as an example, I pay $50 per month for unlimited everything and used about 4GB last month," Menezes said. "Project Fi would have cost me $60 for the same usage."

If most of the demand for the service is from the lower-end consumer market, AT&T and Verizon will not feel pressured to cut prices for their postpaid plans. "What really could be the game changer long-term is the unique shared-network architecture that Google has engineered for Project Fi," Menezes said. If it works as advertised and creates cost efficiencies for Google, that could convince other U.S. operators to get over their longstanding reluctance to share network assets, he added.


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