Google is serious about taking on telecom. Here’s why it’ll win.


Larry Page, right, and Sergey Brin, Google’s co-founders at the official opening of Google’s new European headquarters in Dublin, Ireland, Wednesday, October 6, 2004. Photographer: John Cogill/Bloomberg News.

First it conquered search. Then it was online video and advertising. Now Google is turning its attention toward telecom — and it’s no experiment.

In recent months, Google has said it’s bringing ultra-fast Internet to at least 18 cities, including Atlanta and Nashville. It announced pilot tests of a low-cost, modular smartphone. The company’s joined an influential lobbying group for upstart telecom firms. And now Google is considering an entry into wireless service, as first reported by The Information, a technology news site founded by former Wall Street Journal reporter Jessica Lessin.

All this adds up to what appears to be a serious play in the communications space, with broad implications for what consumers will pay for service, how businesses will compete and even the regulations that affect how Americans experience their technology. Google did not respond to a request for comment for this article.

Google’s investments in telecom pit the company against some of the largest voice and Internet providers around. But Google has a key advantage: It doesn’t make its money from Internet service subscribers. That’s why it will be able to drive down prices for consumers, to adopt business practices that would be unsustainable for other carriers and to influence Washington policy debates in surprising ways.

“This is a multilayered strategy,” said Harold Feld, senior vice president for the consumer group Public Knowledge. “Even if Google only makes 10 percent profit margin on its fiber and wireless offerings, that’s enough for it to be successful and to achieve the desired result of driving more use of its applications.”

What made Google one of the world’s five biggest companies? Data. Specifically, the behavioral insights drawn from users of its free services, such as Gmail, YouTube and, yes, search. Information is the linchpin of Google’s business model, not paying individuals. The consequences of this strategy run deep and could reshape how we watch TV, shop online and connect to one another.

If Google forges into the wireless space, the search giant wouldn’t just be another alternative to Verizon and ATT. It would control a vertical slice of this universe in a way that no other company does.

Google would reportedly offer wireless service by piggybacking off of Sprint and T-Mobile’s networks — essentially paying those companies so that Google can resell their services under its own brand. In addition, it would blend the two networks and allow its customers to hop between them depending on which carrier’s signal is strongest. Phones on the Google service would also be able to make calls over WiFi hotspots, meaning that at all times, devices would be hunting for the best of three options.

Combine that with its forthcoming smartphone, the Android operating system and the Google-owned apps that ride on top of it all, and you’d get a formidable silo of hardware, software and services. Not even Apple, with its famously tight grip on the iPhone, can claim so much control over the user experience.

Playing Sprint off of T-Mobile — and vice versa — would be a clever move by Google, but it’s the WiFi calling that really promises to upend the industry. Google isn’t the only one with incentive to explore the technology; T-Mobile has offered the feature since 2007 as a backup to traditional cell service. And since 2012 an independent carrier known as Republic Wireless has offered service that tries to place calls over WiFi hotspots first before turning to the more expensive cellular network.

Because placing a call over WiFi costs practically nothing, some analysts believe it will eventually undercut legacy wireless carriers, driving down prices for consumers.

“Spend an hour with [Republic chief executive David Morken] and you’ll leave feeling pretty bearish about the long-term prospects for wireless pricing,” said Craig Moffett, a telecom analyst at MoffettNathanson. “I would assume Google will borrow heavily from David’s model and rely overwhelmingly on WiFi, just as Republic has done.”

The one drawback to calling over WiFi? It’s not everywhere. But Google has a ready solution: free public WiFi provided by Google Fiber.

Cable operators have a similar idea in mind. Cablevision last month announced that it’s rolling out a mobile phone service that will run on WiFi. And Comcast has floated the possibility of becoming a WiFi-based voice carrier. (This comes with its own set of mind-boggling implications. If regulators approve Comcast’s massive proposed merger with Time Warner Cable, and Comcast moves ahead with a plan to challenge the wireless industry, the country’s largest cable provider could grow even more powerful.)

The cable industry is welcoming the chance to go head-to-head with Google.

“Google’s expansion further demonstrates how America’s broadband marketplace continues to become more competitive and offers consumers a growing array of options for Internet access,” said Brian Dietz, a spokesman for the National Cable and Telecommunications Association.

Unlike the cable industry, however, Google’s core business doesn’t involve running a massive network. Nor does Google need the best nationwide network to win, Moffett said.

“Google’s strategy is to try to get just enough fiber deployed that they can achieve their strategic objectives,” he said.

The more people it connects to the Internet, the more people use Google services — users who in turn generate more data for Google’s ever-hungry algorithms.

Traditional telecoms stand in the way of those goals, analysts say. Many existing carriers have nudged consumers to adopt plans with monthly data caps, which are more lucrative for those companies. But Google benefits when consumers use more data, not less, said Walter Piecyk, a telecom analyst at BTIG.

“I’m sure Google would prefer that fixed and wireless operators don’t ever cap usage or meter data,” he said.

Encouraging more Americans to embrace broadband means going after the millions of poor, rural and minority households still disconnected from the Web. To that end, Google has offered to make Fiber available for free to schools and community centers, as well as to residents of public housing.

Its critics point out that Google builds only where it believes the regulatory burdens are low — and subscriber interest is high. By contrast, traditional telecoms are expected to build infrastructure covering whole cities.

Google isn’t subject to the same regulations as a Comcast or a Verizon. But its attitudes would probably evolve as its business interests — pertaining to telecom, at least — begin to overlap.

For instance, rules about phone records prevent telecom companies from sharing that data with third parties, unless the customer explicitly grants permission, or unless it’s the subject of a valid law enforcement request. If Google became a wireless carrier, chances are that — much like its industry bedfellows — it would want to use U.S. phone records to further its core business.

But Google may, by virtue of its stakes in other sectors, split from the rest of the telecom industry. We’ve seen this to some extent on net neutrality, a major policy battle pitting Web sites against broadband providers. Recent statements from the company have provided ammunition to proponents of strong rules meant to prohibit Internet providers from speeding up or slowing down certain Web sites over others.

For a company that ranks among the biggest lobbying spenders in Washington, Google’s arguments to policymakers carry a great deal of weight, which is also why the company’s entry into the telecom space would be significant. Even as big players in the industry move to consolidate, Google could stand to be the spoiler for these companies. It didn’t set out to be one of them.

Correction: An earlier version of this post incorrectly cited the Wall Street Journal as breaking the news that Google planned an entry into wireless service. This post has been updated.

Article source: http://www.washingtonpost.com/blogs/the-switch/wp/2015/02/06/google-is-serious-about-taking-on-telecom-heres-why-itll-win/

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