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Google’s Foray Into Wireless Service: Why Fi?

NEW YORK — Google launched Fi-brand wireless service to nudge carriers into offering less-expensive cellular plans and improve cellular service, which would boost data usage and in turn boost Google’s revenues from mobile advertising on Android phones, analysts contended.

The nation’s newest MVNO (mobile virtual network operator), however, has a long way to go before it achieves that goal, analysts pointed out. For one thing, only one phone, the Motorola-made Nexus 6 phablet, incorporates the software to make the network-hopping service work, and phones of that size remain a niche in the U.S. Handset vendors could be reluctant to antagonize carrier by offering many more-mainstream Fi-capable handsets.

In addition, Google has stepped tentatively into the MVNO market by offering a beta service on an inviteonly basis, perhaps indicating that it is simply testing the waters to see if consumers are interested in the offering, analysts said.

Another challenge is Google Fi’s capacity to draw consumers away from the major carriers’ postpaid family plans, whose costs for a family of four with select shared-data buckets are lower than four individual Fi plans, one analyst pointed out.

Two winners, however, could be Sprint and T-Mobile, both of which could use the additional traffic generated by Fi service to bolster their bottom lines to compete with their far-larger rivals.

Nudge: “Google Fi’s primary goal is to nudge wireless carriers to improve the mobile connectivity experience for users,” said Strategy Analytics analyst Neil Mawston. “A better mobile experience will deliver more data usage and potentially more eyeballs for Google services and adverts.”

For his part, Forrester analyst Dan Bieler said he believes “Google’s real intention is to force the traditional telcos to offer more competitive data and voice plans.” To succeed, he explained, “Google needs mobile users to use mobile broadband.” Average revenue per user (ARPU) in the U.S. is “still relatively high compared with other countries, which undermines Google’s overall business case.” By becoming an MVNO, he continued, “Google is positioning itself as an irritant to the traditional telcos, forcing them to rethink their pricing plans without turning them into enemies. After all, Google needs these telcos as partners going forward.”

It’s far from certain that Fi will offer quality service, Bieler added. “Given Fi’s great reliance on Wi-Fi, it seems that Google aims to compete primarily on price rather than offering a better user experience as it does with its Google Fiber offering.” The reason, he said, is that “Wi-Fi calling can be very frustrating, with poor voice quality and dropped calls. With Fi, Google can’t expect to provide a better user experience that will win over traditional 3G or 4G voice customers.”

Brand advantage: IDC analysts Brian Haven and Carrie MacGillivray, nonetheless, believe Google could shake up the established order. “MVNOs typically focus on a certain demographic or geographic area and rarely, if ever, present a serious competitive threat to top tier carriers. In most cases, the carrier wholesaling the bandwidth benefits through some uplift in net subscriber adds and some revenue lift,” they said in an analysis.

However, “Google brings a degree of brand equity and reach that we don’t usually see from MVNOs, and because of that presence, could meaningfully shake up the market,” the IDC analysts said. “If Google can achieve some meaningful scale, it could significantly disrupt the market, and this business model could emerge as an alternative to the way that consumers traditionally subscribe to wireless service. The question is whether or not Google will try to achieve this scale as scale is limited by the one device offered, Google Nexus 6.”

More devices due? “Gaining broad adoption, they continued, “would require expansion to other Android devices – but there are likely challenges with its OEM partners as well as creating distribution channels,” given that carrier stores aren’t likely to offer phones that hop to a competitors’ network, they said.

That reluctance could push Google toward opening up distribution to other online retailers and to consumer electronics stores and other retail outlets, analysts said.

Family-plan competition: Fi’s service pricing, though low at $20 for unlimited voice and text and $10 per gigabyte, appeals only to individual users and not to two thirds of postpaid subscribers on family plans, USB analyst John Hodulik noted. For four lines and 10GB of data, Google Fi costs $180 a month compared with Sprint’s $80, T-Mobile’s $100, and $160 at both AT&T and Verizon.

Added Strategy’s Mawston, “Google Fi will struggle to wrestle consumers away from their competitive postpaid family-plans at T-Mobile and others, so much of its pricing attention will be focused on the prepaid segment.”

For consumers who purchase a singleuser plan, Google Fi blows away the big four carriers. Unlimited voice with 1GB of data, for example, costs $30 at Google but $50 at AT&T and T-Mobile and $45 at Sprint and Verizon, excluding the cost of a phone. Google likewise beats the other carriers with its 2GB, 3GB, 4GB, and 6GB plans, and it matches T-Mobile’s 5GB plan. At 8GB, Google matches Verizon and exceeds Sprint’s price. Not all carriers offer plans with each amount of data.

T-Mobile, Sprint gain: If Fi takes off among singleuser purchasers, Sprint and T-Mobile could come out ahead, said the IDC analysts. Sprint and T-Mobile still lag significantly behind AT&T and Verizon in terms of subscribers and revenue. This Google MVNO partnership can provide them with a shot in the arm,” they explained. “From T-Mobile’s perspective, its un-carrier momentum will likely allow T-Mobile to bypass Sprint in overall subscribers, but it is going to need more than a few marketing promotions to get to the next closest carrier – AT&T. This venture can provide them with wholesale subscribers and revenue to continue with that momentum to begin closing the gap with Verizon and AT&T.” For Sprint, the additional traffic “will likely help stem subscriber losses and possibly assist with some revenue stabilization until it can solve their identity crisis.”