Google’s entry into any market is cause for existing players to pay attention and potentially be alarmed, so it’s no surprise that the news that Google will become an MVNO and provide wireless services has many forecasting doom and gloom for the existing mobile operators. Before we can jump to those conclusions, I think it’s wise to consider the different scenarios that, given what Google has said, and what they’ve historically done in mobile/telecom, have some level of credibility.
Let’s start by reviewing, briefly, the challenges that MVNO’s have traditionally had to solve. I think they fall into four buckets: distribution, customer service, devices, and brand. I think Google is in a very different place than the vast majority of MVNOs when it comes to these four topics, given their objectives and their starting point.
For distribution, Google’s original Nexus web-based distribution experiment failed, I doubt they’ll try that again. They might try using their physical “stores” in Google Fiber cities, although this isn’t likely to get them enough customers to provide meaningful scale and impact. They might also strike a distribution deal with big box retailers, like Best Buy or WalMart.
However, given Sundar Pichai’s comments, I wonder if Google isn’t actually negotiating with the mobile operators to sell the service in their own stores or through their distribution channels. This would be unusual, but not unprecedented.
When it comes to customer service, mobile operators employ tens of thousands of service reps in both owned and outsourced call centers around the world. I doubt that Google has a desire to establish that kind of customer care infrastructure. Again, it’s possible that they may limit this experiment to Google Fiber markets, in which case, they may be able to leverage the care resources they’ve put in place to support Fiber, or, perhaps, they are going to leverage the mobile operator’s existing customer care infrastructure, as with distribution. Again, this isn’t typical for MVNO’s, but I imagine the operators would seriously consider the potential incremental revenue this would generate.
MVNOs have often struggled to get deals with OEMs for devices because they can’t commit to enough volume to make it work. In recent years, Sprint, for one, has tried to help MVNOs overcome this challenge with their BYOD program and their custom-brand, white label program, but if Google wants to innovate in software, hardware, and connectivity, this won’t be an option. Of course, for Google this also isn’t the same problem as it is for other MVNOs, since they will likely pair the service with a new Nexus device, which gives them a unique position with OEMs. This likely is easily solvable for Google.
Most MVNOs in the market are new brands that must invest significantly to establish a position with a narrowly targeted segment. Google doesn’t have this problem. If anything, Google’s issue will be ensuring that only the right customers for their experiment are the ones that choose their brand for wireless.
Second, I think we need to clarify Google’s objectives with this experiment. Google wouldn’t be investing in this experiment if they didn’t think it would create direct or indirect value for their business. That being said, I doubt that Google believes they can make money competing with Verizon, AT&T, and the others with traditional cellular service.
As with Google Fiber, they may believe that Mobile Operators are constraining use of the Internet and applications and that they can introduce “innovations” that the existing players need to respond to, changing the overall trajectory for the industry.
Net neutrality, or to use the Google Fiber terminology, providing openness and choice, managing the network in an open, non-discriminatory, transparent way and giving users a choice of multiple service providers, may be an objective. Clearly Verizon and AT&T are going to resist the FCC’s new rules and Google may want to have market pressures to combine with regulatory pressures to ensure that the operators adopt “open” policies.
Another target may be the strong trend away from unlimited plans. The FCC’s new rules actually are likely to accelerate the move away from unlimited since it takes away the option for Mobile Operators to throttle unlimited plans. Any customer that doesn’t have unlimited has to stop and think about whether or not to watch that YouTube clip while on the go, or before they do just about anything bandwidth intensive when not on WiFi. This constrains use of the Internet and therefore impacts Google’s core business.
Finally, let’s not ignore what Pitchai presented as Google’s objectives during the interview. Although improving WiFi to cellular interworking and making problems like dropped calls less painful are noble goals, I don’t think that pressuring Operators to implement those types of improvements would truly justify Google’s attention. I think, more likely, as Pichai hinted, maybe this isn’t about traditional cellular service at all. Maybe this really is about the Internet of Things – clearly a space that Google is investing in at the device and software level. Maybe Google wants to make sure that the beyond-WiFi connectivity is being developed in a way that serves Google’s objectives.
So, with that as a framework, let me propose three different potential scenarios for what Google might really do.
First, this really could be like Google Fiber – disguised as an “experiment” but really a new business, competitive entry into the mobile service space. The biggest challenge with this scenario is that Google will be dependent on the mobile operators for at least network capacity, and that’s never the position you want to be in when you’re trying to disrupt the operator’s business (just ask the CLECs of the late 1990s who tried to resell RBOC service under the Telecom Act of 1996). Next, if Google were to pursue this approach, at least all operators not providing Google’s underlying service, would drop or deprioritize Android devices in their portfolios, seriously hurting Google’s momentum and leadership in the smartphone OS space. I can’t imagine that Google would see enough potential upside from this approach to offset the serious downside it would have on their core business.
As a second scenario, let’s take Pichai’s comments at face value and assume that this truly is a smartphone- and/or tablet-centric experiment, working closely with the operators. In that case, it would look a lot like Nexus. I wouldn’t be surprised to see Google rely heavily on their operator partner(s) for distribution and customer care. I also would expect the scale to be limited, meaning it would have relatively limited retail impact on the operators. I also wouldn’t be surprised to see Google want to move it around, so maybe each new Nexus device launched is a new MVNO on a different operator or set of operators. Google would effectively be proving out new/unconventional approaches to connectivity offers (e.g. unlimited) in a way that proves out to the operators that there’s market demand (enough to be a threat) and that the economics can work (so that it’s attractive).
The third scenario is that this really isn’t about smartphones and tablets at all, but it’s really all about IoT. Google obviously is making big investments in hardware and software for IoT, so it would be natural for them to invest to get the “beyond-WiFi” connectivity to work for them as well. AT&T has had meaningful success with IoT, and I think Verizon still has serious hopes for the space, so they might not be the first to open the door to Google’s entry into being a connectivity service provider here, but I think other operators may be more than happy to have Google’s wholesale business and to help define the de facto standards that others likely need to adopt.
Of course, all of this is pure conjecture. I have not been privy to any discussions between Google and mobile operators. There’s more that we don’t know than we know, at this point. However, I think these three scenarios outline a solid framework for anyone to consider the impact on the industry as a whole, or their particular business.
This should be fun to watch!