Google Inc (NASDAQ:GOOG) might not have chosen a worse time to enter the wireless industry, which is already in the midst of an aggressive price war while struggling to keep pace with the growing demand for spectrum.
Google is known for disrupting every industry that it enters, and is expected to undercut the wireless carriers on price. But at a time when telecom operators are launching back-to-back promotions to lure subscribers, the online search engine giant’s entry might really heat things up. However, it seems that Verizon Communications Inc. (NYSE:VZ), which dominates the wireless market with a 37% market share, is not too concerned.
Verizon CFO Fran Shammo said at the company’s 4Q earnings call yesterday: “It's just another competitor as we look at it.” He added that Google’s main objective behind entering the wireless industry is to “increase speeds so that people can do more search”.
Google, which depends on online search advertising for the majority of its revenues, has a lot to gain if more users have access to cheap Internet bundles. This has been the main reason behind its foray into the fiber broadband business as well. Mr. Shammo noted that the goal behind Google Fiber was not to compete in the broadband market, but to spur investment and improve speeds of other industry players.
Talking to CNET, the CFO remarked that both AT&T Inc. (NYSE:T) and Comcast Corporation (NASDAQ:CMCSA) have in fact improved broadband speeds in markets targeted by Google Fiber. However, he added that the Internet giant has “never entered a FiOS” market, since Verizon already offers fiber- to-home services.
“We Have Seen Them Come And Go”
Google plans to enter the wireless market as an MVNO (mobile virtual network operator), utilizing Sprint Corp (NYSE:S) and T-Mobile US Inc’s (NYSE:TMUS) network to offer cheap wireless bundles to its own users.
MVNOs, which buy network capacity from other larger carriers, are not uncommon in the wireless industry and, according to estimates, there are around 34 million such subscribers. This means that one in every 10 wireless consumers is subscribed to an MVNO, GigaOm reports.
In his interview with CNET, Mr. Shammo noted that there are various other MVNOs in the industry, and many like Tracfone Wireless already offer prepaid services at a lower rate. However, he noted that Tracfone caters to a completely different market, and hence does not pose a threat to the larger incumbents.
Mr. Shammo said: “We've had resellers for 15 years,” and, “We've seen them come and we've seen them go.”
However, analysts who believe that Google’s entry will mainly steal market share from AT&T and Verizon are not so optimistic.
As Good As The Network It Relies On
Google will have to rely on Sprint and T-Mobile’s network to provide its service. Therefore, AT&T and Verizon, which boast superior networks, might still be able to maintain their competitive advantage. Even if Google’s wireless service were to take up in the US, Sprint and T-Mobile may have a hard time dealing with the additional data traffic. This may even deteriorate the service for existing consumers, which would be beneficial for Verizon and AT&T in the long run.
Furthermore, since T-Mobile and Sprint are already known for their cut-throat pricing, they might not allow Google to undercut them on price while utilizing their network. However, the search engine giant is rumored to rely on Wi-Fi to handle most of its data traffic, which would give it more autonomy to play around with pricing.
Talking about the competitive landscape in 2015, Mr. Shammo said that while it is difficult to predict the intensity of the competition, he remained optimistic about the carrier’s subscriber growth. He stated at the conference call: “We have faced highly competitive wireless environments before, and I have always been able to successfully and profitably grow the business, because our customers understand the value of our services.”
But this does not mean that Verizon is completely writing off Google as a potential threat. Mr. Shammo told Bloomberg: “Like everything else, you have to watch your friends more closely than your enemies, so we will be watching Google closely.”